The new government must take an immediate view on revoking bans on futures trading in a number of commodities. We have had bans imposed on eight commodities at different points in time on grounds of them being responsible for higher inflation. A committee was set up which did show that no such conclusion could be drawn, and a lot of independent studies have shown that futures trading and inflation are not related. Yet, the threat of a ban lingers even as the FMC has taken progressive steps to bring back four products last year, and also wheat just recently. Every time prices move up, there is a loud call for a ban on futures trading. Curiously, if the product is not traded on the futures exchanges, like vegetables, moong, urad and tur today, an increase in price does not provoke any response.
Now, futures prices have actually performed a very useful role to provide early warning signals to the market and the government, provided one is willing to open one’s mind and be free from preconceived notions. In 2005, the wheat futures prices showed that there would be a problem, but were dismissed as being an indicator of speculation. The harvest was sub-optimal and we ended up importing large quantities of wheat at an exorbitant cost. In February 2007, wheat futures actually indicated a fall in prices. Yet, a ban was imposed.
In 2006, the tur and urad futures contracts showed that there were problems with production and stocks. These trends were ignored again on the grounds of being a sign of only speculation. Both were banned in January 2007 but that did not help improve supplies, and prices continued to surge.
Now, the irony here is that when futures prices moved upwards based on fundamentals, the products were banned from the futures trading ambit. However, the government on its own has taken steps to increase the prices of these banned products. Between 2006-07 and 2008-09, the government has actually increased the MSP of wheat by 44% from Rs 750 to Rs 1080/quintal, tur and urad by 60% from Rs 1,520 to Rs 2,420/quintal. Jowar and bajra prices were increased by 40%. When the MSP is increased, the floor is set and the market price settles at a higher level. Therefore, it is odd that when prices are consciously raised by the government, the decision is okay. But, when market prices move up based on fundamentals, futures trading have been blamed consistently.
At present, the debate is on sugar. The government’s own estimates have shown that sugarcane production has declined by 20% this year. Overall sugar production is set to fall by over 50%. Sugar prices have hence increased to match consumption requirements as the existing stocks from higher production in the last two years can provide only limited support. Once again, there is a school of thought which believes that futures trading is the sole reason for higher prices. Coincidentally, the same indications were given by the futures prices in late 2008 and early 2009, which could have been accepted and used for appropriate policy responses. As was the case with wheat in 2006, it was a case of too little too late.
There is serious need for all those who hold a distorted view of futures trading to understand that this market captures both the domestic and global mood relating to the product in one shot when price views are taken. Today global factors influence domestic prices, which we cannot avoid even though we may not like it. A swine flu in Mexico will affect the maize prices in the country while crop failure of urad in Myanmar will affect urad imports and prices in India. Further, the FMC and the commodity exchanges have strong surveillance systems in place to ensure that prices are not out of sync with the fundamentals and trading is orderly. More importantly, as highlighted earlier, futures prices give critical signals, which need to be considered with an open mind. But, certainly, as in a hospital, we do not destroy the diagnostic equipment that tells you there is a problem; the same must not be done to futures trading.
Saturday, May 23, 2009
Tuesday, May 12, 2009
Unbalanced Payments: Financial Express: 12th May 2009
As a rule, all of us are obsessed with growth and seek solace in numbers to feel better. GDP forecasts have ranged from a pessimistic 4.5% to an optimistic 6.5%, and everyone has an opinion, even though the year has just begun and there is no model which can predict agricultural harvest, which has a strong bearing on the state of industry and services. However, an important concern this year which may have escaped attention thus far is the external sector. The picture for the year appears to be quite grim judging by the state of the world economy as well as the balance of payments within.
There are three major components in our balance of payments: trade, invisible transactions and capital inflows. Our exports have grown by just 3.4% last year, as they were affected by the global slump. Given that the IMF has projected a decline in world trade by 2.8% in 2009, the picture is not too good for us. And we are quite dependent on the shrinking economies of the OECD nations for our exports. Add to this the fact that imports would continue to increase as they supplement domestic investment and production requirements, and the trade deficit would certainly exceed the $119 billion mark touched last year. In the invisibles account, the most buoyant component of software receipts would be affected by the global downturn as growth of this sector would be contingent on the prospects of the world economy, especially the US, but also Europe and Japan.
Trends in capital flows are largely negative and form a reason for concern. Fresh FDI from the western nations would be affected as they would have less to invest in the emerging economies in times of recession. The IMF has already projected a decrease of around 7.5% in such flows, where past commitments rather than fresh investments would dominate. Further, FII investment had actually declined last year by $9.8 billion as funds were in a withdrawal mode. There is little reason to believe that this mood will change in 2009. At the earliest, a recovery would be in the second half of 2010.
RBI data further shows that in the first three quarters of the year, ECB inflows were down by $10.3 billion compared to last year. The IMF has again warned that it will be progressively difficult for the developing nations to borrow in the overseas markets as the credit crisis has peaked. The Libor spreads have widened to between 400 and 500 bps for the developing nations that seek loans. Therefore, this route will remain difficult to penetrate in the coming year.
Another daunting task in this area in the coming year is the large burden of forex outflow on account of external debt repayments. The ministry of finance had earlier this year indicated that for this calendar year, there would be an outflow of around $90 billion, which is a concern. The major part, of course, is the short-term debt component of $47 billion. Normally this would not have been an issue, as the new inflows would make up for this outflow. However, these loans, which are essentially trade credits, have dried up globally, and the risk of default has also risen sharply. This being the case, the issue of repayment becomes onerous.
The NRI deposits outflow of $32 billion is less of a worry for us as there would be a tendency for renewal or rollover of these deposits. In fact, they have been rather stable in the last three years, which is a comfort. But, the ECB repayment commitments of around $8 billion will put pressure on the balance of payments ultimately.
In fact, last year, our foreign exchange reserves had declined by around 18% from $310 billion to $253 billion on account of a combination of all these factors. Simultaneously, the exchange rate had also declined by around 22% from Rs 41.92/$ to Rs 50.95/$. This was, in fact, more than the appreciation in the dollar vis-à-vis the Euro by 15.3%. It would be extremely fortuitous in case the extent of depreciation is better than what was witnessed last year.
There are three major components in our balance of payments: trade, invisible transactions and capital inflows. Our exports have grown by just 3.4% last year, as they were affected by the global slump. Given that the IMF has projected a decline in world trade by 2.8% in 2009, the picture is not too good for us. And we are quite dependent on the shrinking economies of the OECD nations for our exports. Add to this the fact that imports would continue to increase as they supplement domestic investment and production requirements, and the trade deficit would certainly exceed the $119 billion mark touched last year. In the invisibles account, the most buoyant component of software receipts would be affected by the global downturn as growth of this sector would be contingent on the prospects of the world economy, especially the US, but also Europe and Japan.
Trends in capital flows are largely negative and form a reason for concern. Fresh FDI from the western nations would be affected as they would have less to invest in the emerging economies in times of recession. The IMF has already projected a decrease of around 7.5% in such flows, where past commitments rather than fresh investments would dominate. Further, FII investment had actually declined last year by $9.8 billion as funds were in a withdrawal mode. There is little reason to believe that this mood will change in 2009. At the earliest, a recovery would be in the second half of 2010.
RBI data further shows that in the first three quarters of the year, ECB inflows were down by $10.3 billion compared to last year. The IMF has again warned that it will be progressively difficult for the developing nations to borrow in the overseas markets as the credit crisis has peaked. The Libor spreads have widened to between 400 and 500 bps for the developing nations that seek loans. Therefore, this route will remain difficult to penetrate in the coming year.
Another daunting task in this area in the coming year is the large burden of forex outflow on account of external debt repayments. The ministry of finance had earlier this year indicated that for this calendar year, there would be an outflow of around $90 billion, which is a concern. The major part, of course, is the short-term debt component of $47 billion. Normally this would not have been an issue, as the new inflows would make up for this outflow. However, these loans, which are essentially trade credits, have dried up globally, and the risk of default has also risen sharply. This being the case, the issue of repayment becomes onerous.
The NRI deposits outflow of $32 billion is less of a worry for us as there would be a tendency for renewal or rollover of these deposits. In fact, they have been rather stable in the last three years, which is a comfort. But, the ECB repayment commitments of around $8 billion will put pressure on the balance of payments ultimately.
In fact, last year, our foreign exchange reserves had declined by around 18% from $310 billion to $253 billion on account of a combination of all these factors. Simultaneously, the exchange rate had also declined by around 22% from Rs 41.92/$ to Rs 50.95/$. This was, in fact, more than the appreciation in the dollar vis-à-vis the Euro by 15.3%. It would be extremely fortuitous in case the extent of depreciation is better than what was witnessed last year.
Sunday, May 10, 2009
Can there be an ideal prime lending rate: Economic Times: 6th May 2009
One of the grievances of industry is that banks are not lowering their lending rates even when the reverse repo and repo rates have been reduced.
The Reserve Bank of India (RBI) too has voiced its concern over the banks’ intransigence. Is this view justified? Is it possible to calculate an ideal prime lending rate (PLR)? To do this, we can pose the question as to what is the cost that a bank has to bear for providing a loan of Rs 100. There are five components that have to be taken into account. These are: the cost of deposits, return on assets (which is the profit that has to be earned ultimately), possibility of a non-performing assets (NPA) and operating expenses. To this we need to subtract the return on investments, which would be earned on the deposits over and above the Rs 100 that have to be garnered to be able to lend Rs 100 as 30% of the deposits have to be set aside for cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on which the latter earns this return. Based on the performance of scheduled commercial banks in FY08, certain thumb rules can be ascertained. The first is that to lend Rs 100, a bank will have to pick up deposits of Rs 140, wherein after setting aside SLR and CRR of 30% the balance 100 can be used for credit. The second is that total assets of banks are 1.3 times the size of deposits, which means that the balance sheet size has to be Rs 180. The third is that 1% return on assets to be paid to shareholders. Fourthly, the operating expenses for the system, as a whole, are 1.8% of total assets. Fifthly, in 2007-08, the ratio of incremental gross non-performing assets to incremental bank credit was around 1.2%. Sixthly, term deposits constitute around 65% savings 22% demand and 13% of total deposits. Here, it may be assumed that term deposits cost 8%, while savings deposits cost 3.5%. Lastly, the return on investments of banks would vary between 6-7%, which compensates for the cost of deposits on the SLR component. The table above gives the calculation of the PLR, in terms of the basic cost to be covered on a loan for Rs 100. The important takeaway here is that the PLR would, under the current circumstances work out to 12.5%, which is on the upper end of the present range. Let us now look at the various components of the PLR to see if they can be negotiated. The cost of deposits is actually very low because there is a component which comes free of cost to banks or at a very low rate. The effective cost of the demand and savings deposits component is just 1%. Further, the return of 8% on term deposit is reasonable as the household confronts not the WPI but the CPI which is 9.6-10.8%. Moreover, banks are answerable to the shareholders and have to deliver profits and, hence the 1% ratio to total assets is intractable. The NPA provision is a direct result of the behaviour of borrowers, and their debt-servicing record must improve to lower this number. Recently, Crisil warned that the level of NPAs in banks could increase. If this is so, it is even more essential to make these provisions. Operating expenses of banks at 1.8% of total assets are much lower than that of the manufacturing sector, where the ratio is around 14% and cannot be brought down. Hence, there is really limited scope for reduction in the PLR and even a 100 bps cut in term deposit rates will lower the cost by 65 bps bringing the PLR down to 11.6%, which is at the lower end of the present range. We have heard of banks which are charging single-digit lending rates. Quite clearly, there is need for introspection and further enquiry, for the cost of the last three components of 6.25% is not tractable; and there could just be a drift away from prudence under all-round pressure to reduce rates.
The Reserve Bank of India (RBI) too has voiced its concern over the banks’ intransigence. Is this view justified? Is it possible to calculate an ideal prime lending rate (PLR)? To do this, we can pose the question as to what is the cost that a bank has to bear for providing a loan of Rs 100. There are five components that have to be taken into account. These are: the cost of deposits, return on assets (which is the profit that has to be earned ultimately), possibility of a non-performing assets (NPA) and operating expenses. To this we need to subtract the return on investments, which would be earned on the deposits over and above the Rs 100 that have to be garnered to be able to lend Rs 100 as 30% of the deposits have to be set aside for cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on which the latter earns this return. Based on the performance of scheduled commercial banks in FY08, certain thumb rules can be ascertained. The first is that to lend Rs 100, a bank will have to pick up deposits of Rs 140, wherein after setting aside SLR and CRR of 30% the balance 100 can be used for credit. The second is that total assets of banks are 1.3 times the size of deposits, which means that the balance sheet size has to be Rs 180. The third is that 1% return on assets to be paid to shareholders. Fourthly, the operating expenses for the system, as a whole, are 1.8% of total assets. Fifthly, in 2007-08, the ratio of incremental gross non-performing assets to incremental bank credit was around 1.2%. Sixthly, term deposits constitute around 65% savings 22% demand and 13% of total deposits. Here, it may be assumed that term deposits cost 8%, while savings deposits cost 3.5%. Lastly, the return on investments of banks would vary between 6-7%, which compensates for the cost of deposits on the SLR component. The table above gives the calculation of the PLR, in terms of the basic cost to be covered on a loan for Rs 100. The important takeaway here is that the PLR would, under the current circumstances work out to 12.5%, which is on the upper end of the present range. Let us now look at the various components of the PLR to see if they can be negotiated. The cost of deposits is actually very low because there is a component which comes free of cost to banks or at a very low rate. The effective cost of the demand and savings deposits component is just 1%. Further, the return of 8% on term deposit is reasonable as the household confronts not the WPI but the CPI which is 9.6-10.8%. Moreover, banks are answerable to the shareholders and have to deliver profits and, hence the 1% ratio to total assets is intractable. The NPA provision is a direct result of the behaviour of borrowers, and their debt-servicing record must improve to lower this number. Recently, Crisil warned that the level of NPAs in banks could increase. If this is so, it is even more essential to make these provisions. Operating expenses of banks at 1.8% of total assets are much lower than that of the manufacturing sector, where the ratio is around 14% and cannot be brought down. Hence, there is really limited scope for reduction in the PLR and even a 100 bps cut in term deposit rates will lower the cost by 65 bps bringing the PLR down to 11.6%, which is at the lower end of the present range. We have heard of banks which are charging single-digit lending rates. Quite clearly, there is need for introspection and further enquiry, for the cost of the last three components of 6.25% is not tractable; and there could just be a drift away from prudence under all-round pressure to reduce rates.
Wednesday, April 22, 2009
Showing the way forward: Financial Express: 22nd April 2009
RBI has done what it could to assuage the markets. RBI, as we all know, can only provide direction to interest rate movements but cannot force banks to follow suit. Nor can it force banks to lend more money to any sector. The lowering of the repo and reverse repo rate is a clear signal to banks to reduce rates for industry in particular. The fact that inflation is benign has helped the central bank to take this decision. The focus is evidently on growth, now that the global economy is expected to recover only in 2010; and attaining a growth rate of 6% for India under these circumstances is going to be a challenge.
The credit policy has been geared to provide direction to future monetary activity, and hence deserves to be analysed within the parameters laid down. To begin with RBI has assumed that non-food credit would grow by 20% in this year. Last year, the outstanding credit stood at around Rs 28 lakh crore, which means that incremental credit will be Rs 5.6 lakh crore. Deposits are expected to grow by 18%, which again on a base of around Rs 38 lakh crore means an increase of Rs 6.8 lakh crore in incremental deposits. Of this 5% would be kept aside for CRR, which in turn would make around Rs 6.5 lakh crore available to banks.
The difference between the two would be Rs 0.9 lakh crore, which under normal circumstances would not be an issue for the economy. However, net government borrowing for the year is expected to be Rs 3.1 lakh crore. This leaves behind a gap of Rs 2.2 lakh crore for the year, if things work out this way. Where will this money come from?
RBI has mentioned pushing in around Rs 1.2 lakh crore (which is equivalent to around 3% points cut in the CRR) through unwinding of MSS bonds and OMO purchases, but that will still leave behind a gap of Rs 1 lakh crore. As banks have an investment deposit ratio of over 30%, the sale of bonds to the extent of Rs 70,000 crore should not really matter as it would still mean the maintenance of the SLR of 24%, with the balance being financed through the MSS route. This means that RBI will have to lower the CRR further during the year to provide liquidity, or else be prepared for a higher interest rate regime.
It may be recollected that lower interest rates last year did create a liquidity problem for banks which had to raise their deposit rates in order to garner funds. Growth in deposits this year has been taken to be lower at 18% compared with almost 20% last year. Under these circumstances, it would be difficult to actually think of lowering interest rates during the year.
RBI is, in fact, talking of fairly modest economic growth and has hence posited a credit growth rate of 20% this year. To eschew a liquidity crunch, it has to hope that this number does not materialise or that deposits increase faster. But, intuitively one can see that a lower economic growth rate is associated with a lower savings rate as households, which is the dominant savings group actually diverts its income to consumption, or rather maintenance consumption. This will make it hard to enhance the deposits growth rate.
Another imponderable is the government deficit. One is not quite sure if this number will be maintained and a clear picture will emerge once the new government is in power. This is critical because with the government being against monetisation of the deficit, any further borrowing will only strain the system.
The major concern for industry is the delivery of credit, especially with there being surplus funds of around Rs 1.2 lakh crore in the system today. Prudence will dictate that RBI should try and take use these surplus funds through an accelerated borrowing programme so that the funds do not lie idle with the banks. As this is the slack season when typically there is less pressure on funds, the period post august could be the time when industry could be involved in the credit process.
Therefore, the overall liquidity situation and interest rate movements will require constant monitoring this year as all the three variables: deposits, credit and government borrowing have been projected based on certain assumptions, which could change.
The credit policy has been geared to provide direction to future monetary activity, and hence deserves to be analysed within the parameters laid down. To begin with RBI has assumed that non-food credit would grow by 20% in this year. Last year, the outstanding credit stood at around Rs 28 lakh crore, which means that incremental credit will be Rs 5.6 lakh crore. Deposits are expected to grow by 18%, which again on a base of around Rs 38 lakh crore means an increase of Rs 6.8 lakh crore in incremental deposits. Of this 5% would be kept aside for CRR, which in turn would make around Rs 6.5 lakh crore available to banks.
The difference between the two would be Rs 0.9 lakh crore, which under normal circumstances would not be an issue for the economy. However, net government borrowing for the year is expected to be Rs 3.1 lakh crore. This leaves behind a gap of Rs 2.2 lakh crore for the year, if things work out this way. Where will this money come from?
RBI has mentioned pushing in around Rs 1.2 lakh crore (which is equivalent to around 3% points cut in the CRR) through unwinding of MSS bonds and OMO purchases, but that will still leave behind a gap of Rs 1 lakh crore. As banks have an investment deposit ratio of over 30%, the sale of bonds to the extent of Rs 70,000 crore should not really matter as it would still mean the maintenance of the SLR of 24%, with the balance being financed through the MSS route. This means that RBI will have to lower the CRR further during the year to provide liquidity, or else be prepared for a higher interest rate regime.
It may be recollected that lower interest rates last year did create a liquidity problem for banks which had to raise their deposit rates in order to garner funds. Growth in deposits this year has been taken to be lower at 18% compared with almost 20% last year. Under these circumstances, it would be difficult to actually think of lowering interest rates during the year.
RBI is, in fact, talking of fairly modest economic growth and has hence posited a credit growth rate of 20% this year. To eschew a liquidity crunch, it has to hope that this number does not materialise or that deposits increase faster. But, intuitively one can see that a lower economic growth rate is associated with a lower savings rate as households, which is the dominant savings group actually diverts its income to consumption, or rather maintenance consumption. This will make it hard to enhance the deposits growth rate.
Another imponderable is the government deficit. One is not quite sure if this number will be maintained and a clear picture will emerge once the new government is in power. This is critical because with the government being against monetisation of the deficit, any further borrowing will only strain the system.
The major concern for industry is the delivery of credit, especially with there being surplus funds of around Rs 1.2 lakh crore in the system today. Prudence will dictate that RBI should try and take use these surplus funds through an accelerated borrowing programme so that the funds do not lie idle with the banks. As this is the slack season when typically there is less pressure on funds, the period post august could be the time when industry could be involved in the credit process.
Therefore, the overall liquidity situation and interest rate movements will require constant monitoring this year as all the three variables: deposits, credit and government borrowing have been projected based on certain assumptions, which could change.
It is not Economics: Financial Express: 18th April 2009
There are essentially three sets of parties or groups that are in contention for power in these elections. The Congress-led alliance, BJP-led alliance and what is nebulously called the Third Front. On economic issues, is there a choice for the voter? And how much do we agree with the economic manifestos?
Consider the economic performance of the last two governments. The BJP-led NDA had actually coined the phrase, ‘India shining’, as every possible sector in its perception, was looking up in 2004. Yet, it was voted out of power for a different set of reasons. The Congress-led UPA government has had four successive years of good economic numbers, something which has been repeatedly emphasised on different forums to drive home the view that there has been excellence in this area. Yet, the last year, ie. 2008-09, has been a disappointing one with low growth, high inflation, highest fiscal deficit, high current account deficit, depreciating rupee, low export growth, declining forex reserves and rising external debt.
The rational way to look at this is simply that the government of the day can take only limited credit or blame for economic performance. In general, all governments in the recent past have followed similar economic policies, depending on the circumstances. All of them try and ensure that tax income increases and spending is judicious. All of them try and make credit cheap while trying to protect the common man. Inflation is a concern and always evokes similar responses. Similarly, monsoon failures are not the creation of governments.
Further, issues like loan waivers, higher pay packages for government employees, higher subsidies, etc are standard populist principles followed by most governments across the world. But, being in the opposition, the parties will oppose such measures, but would change their position when in power. The approach to divestment, foreign investment including banking and insurance is actually the same across the board (except the Left parties). The reality is that all governments have to perforce be pursing the goal of liberalisation under the force of globalisation, and only the pace will vary.
Now, election promises also appear to be similar. The BJP, always considered a party of the middle class, has promised tax benefits for interest on bank deposits and has gone back to the famous NTR ‘rice programmes’. The Congress is also on the same plank and talks of similar programmes (each party is trying to.underprice rice). The Congress and BJP are both talking of economic inclusion, which is not really new. But neither has actually focused on measures that make agriculture resilient to weather. Every government makes huge allocations and always shows how the number of kisan credit cards increased, and how much has been spent on irrigation and road development.
This leaves really the Third Front parties. While there is a formal set of parties that constitute this front, there are others like the SP and RJD which could be anywhere. This is a set of parties that have differing economic ideologies. At one end, there is the TDP which is called the party for CII and the IT sector, and, at the other, we have the SP which is out to get rid of English and computers. In between there are the socialist parties which have worked with the capitalist right and also opposed reforms whenever inconvenient. Therefore, the Third Front would pose a conundrum in case it forms the government, though chances of retrogression are minimal.
Hence, it can be said that all parties are, at different levels, actually on the same economic plank. It is not surprising that while each one is trying to score over the other through the interpretation of numbers, they are still falling back on the conventional election tools: religion, caste and hate, which, in retrospect, may prove to be the real determinants of the final outcome.
Consider the economic performance of the last two governments. The BJP-led NDA had actually coined the phrase, ‘India shining’, as every possible sector in its perception, was looking up in 2004. Yet, it was voted out of power for a different set of reasons. The Congress-led UPA government has had four successive years of good economic numbers, something which has been repeatedly emphasised on different forums to drive home the view that there has been excellence in this area. Yet, the last year, ie. 2008-09, has been a disappointing one with low growth, high inflation, highest fiscal deficit, high current account deficit, depreciating rupee, low export growth, declining forex reserves and rising external debt.
The rational way to look at this is simply that the government of the day can take only limited credit or blame for economic performance. In general, all governments in the recent past have followed similar economic policies, depending on the circumstances. All of them try and ensure that tax income increases and spending is judicious. All of them try and make credit cheap while trying to protect the common man. Inflation is a concern and always evokes similar responses. Similarly, monsoon failures are not the creation of governments.
Further, issues like loan waivers, higher pay packages for government employees, higher subsidies, etc are standard populist principles followed by most governments across the world. But, being in the opposition, the parties will oppose such measures, but would change their position when in power. The approach to divestment, foreign investment including banking and insurance is actually the same across the board (except the Left parties). The reality is that all governments have to perforce be pursing the goal of liberalisation under the force of globalisation, and only the pace will vary.
Now, election promises also appear to be similar. The BJP, always considered a party of the middle class, has promised tax benefits for interest on bank deposits and has gone back to the famous NTR ‘rice programmes’. The Congress is also on the same plank and talks of similar programmes (each party is trying to.underprice rice). The Congress and BJP are both talking of economic inclusion, which is not really new. But neither has actually focused on measures that make agriculture resilient to weather. Every government makes huge allocations and always shows how the number of kisan credit cards increased, and how much has been spent on irrigation and road development.
This leaves really the Third Front parties. While there is a formal set of parties that constitute this front, there are others like the SP and RJD which could be anywhere. This is a set of parties that have differing economic ideologies. At one end, there is the TDP which is called the party for CII and the IT sector, and, at the other, we have the SP which is out to get rid of English and computers. In between there are the socialist parties which have worked with the capitalist right and also opposed reforms whenever inconvenient. Therefore, the Third Front would pose a conundrum in case it forms the government, though chances of retrogression are minimal.
Hence, it can be said that all parties are, at different levels, actually on the same economic plank. It is not surprising that while each one is trying to score over the other through the interpretation of numbers, they are still falling back on the conventional election tools: religion, caste and hate, which, in retrospect, may prove to be the real determinants of the final outcome.
Sunday, April 19, 2009
Seven deadly cliches of elections: DNA: 16th April 2009
A close inspection has revealed that there are seven cards that are invariably played every time we move towards the polling booths.
First, the incumbent government extols the economic performance during its term. The UPA has used the Union budget as a propaganda document quite cogently. It is a different matter that coincidentally, the last year of the UPA rule registered the lowest growth with highest inflation (don't be fooled by the near zero WPI number, the CPI is still in double digits), highest fiscal and current account deficit, highest rate of depreciation of the rupee and so on. Ironically the NDA had the best numbers in 2003-04 and yet lost the elections despite the"India Shining" slogan.
The smart politician has told you that India's performance is better than other nations. Besides, the global financial crisis was responsible for these numbers. But the same global upswing did not lead to those good numbers in the first four years. It was the government's policies or rather despite the now infamous wheat mess, telecom muddle, sugar confusion and so on that these achievements were possible. The good numbers are due to them while the bad ones have the foreign hand guiding them.
The second bromide concernsGandhi. Everyone brings back the Mahatma even though his simplicity is in contrast to thewealth of most of our leaders. Today policies have to be capitalist and wealth is their driving force. Yet, we bring back this unknown ideal which is accepted by one and all even though the doctrine is practically defunct today.
Third, the name of Nehru comes in which is synonymous with so-called secularism. Everyone has to be a secularist and all parties talk of secularism and the need to fight communal tendencies even as everyone has his own definition of what the concept is. The BJP on the other hand talks of pseudo-secularism which they say is the brand followed by the other parties which hold different standards for Islam and Hinduism. The BJP's moderates are those who are still apologetic of Ayodhya.
While communalism could invite the wrath of the courts, the same does not apply to casteism, the fourth card played by all parties. We have a right to appeal to your caste, especially if it is a lower one. At this time, everyone is with the Dalit.
Ironically, Mayawati will project Brahmin heavyweights as if to say that she has no prejudices. In rural India, it is always candidates with the same caste that are pitted against each other.
The fifth card relates to the series of alignments that take place. One never knows which parties are aligned with the BJP or the Congress. Lalu Yadav, Mulayam Singh Yadav, Naveen Patnaik, Jayalalithaa, Karunanadhi, Omar Abdullah, Ajit Singh, Deve Gowda, Chandrababu Naidu were at some time with the BJP and then with Congress and then with someone else. At times they do not want a foreign PM, and on other occasions she is Mother India.
The sixth card is for the ubiquitous third front -- a group of opportunistic parties which can ensure that no one gets a majority. Individually they stand for anti-industrialisation (communist), pro-industry (TDP) and statue-building (Mayawati). They will then join the government on 'issue- based' grounds. Alternatively, they will stay out and threaten to pull the rug. The CPI and CPM have high nuisance value and should not be aligning with either the BJP or the Congress because their ideals are different. But for the sake of stability they help form a government and then dangle the proverbial sword of Damocles.
Lastly, all parties try and lure voters. While cash and saris is disallowed, promises to reduce taxes are allowed. Soall parties appeal to the middle class with these sops as they are above religion and caste. The shuffle of these cards will tell us which way the tide will go but to see the full hand you have to wait till May 16.
First, the incumbent government extols the economic performance during its term. The UPA has used the Union budget as a propaganda document quite cogently. It is a different matter that coincidentally, the last year of the UPA rule registered the lowest growth with highest inflation (don't be fooled by the near zero WPI number, the CPI is still in double digits), highest fiscal and current account deficit, highest rate of depreciation of the rupee and so on. Ironically the NDA had the best numbers in 2003-04 and yet lost the elections despite the"India Shining" slogan.
The smart politician has told you that India's performance is better than other nations. Besides, the global financial crisis was responsible for these numbers. But the same global upswing did not lead to those good numbers in the first four years. It was the government's policies or rather despite the now infamous wheat mess, telecom muddle, sugar confusion and so on that these achievements were possible. The good numbers are due to them while the bad ones have the foreign hand guiding them.
The second bromide concernsGandhi. Everyone brings back the Mahatma even though his simplicity is in contrast to thewealth of most of our leaders. Today policies have to be capitalist and wealth is their driving force. Yet, we bring back this unknown ideal which is accepted by one and all even though the doctrine is practically defunct today.
Third, the name of Nehru comes in which is synonymous with so-called secularism. Everyone has to be a secularist and all parties talk of secularism and the need to fight communal tendencies even as everyone has his own definition of what the concept is. The BJP on the other hand talks of pseudo-secularism which they say is the brand followed by the other parties which hold different standards for Islam and Hinduism. The BJP's moderates are those who are still apologetic of Ayodhya.
While communalism could invite the wrath of the courts, the same does not apply to casteism, the fourth card played by all parties. We have a right to appeal to your caste, especially if it is a lower one. At this time, everyone is with the Dalit.
Ironically, Mayawati will project Brahmin heavyweights as if to say that she has no prejudices. In rural India, it is always candidates with the same caste that are pitted against each other.
The fifth card relates to the series of alignments that take place. One never knows which parties are aligned with the BJP or the Congress. Lalu Yadav, Mulayam Singh Yadav, Naveen Patnaik, Jayalalithaa, Karunanadhi, Omar Abdullah, Ajit Singh, Deve Gowda, Chandrababu Naidu were at some time with the BJP and then with Congress and then with someone else. At times they do not want a foreign PM, and on other occasions she is Mother India.
The sixth card is for the ubiquitous third front -- a group of opportunistic parties which can ensure that no one gets a majority. Individually they stand for anti-industrialisation (communist), pro-industry (TDP) and statue-building (Mayawati). They will then join the government on 'issue- based' grounds. Alternatively, they will stay out and threaten to pull the rug. The CPI and CPM have high nuisance value and should not be aligning with either the BJP or the Congress because their ideals are different. But for the sake of stability they help form a government and then dangle the proverbial sword of Damocles.
Lastly, all parties try and lure voters. While cash and saris is disallowed, promises to reduce taxes are allowed. Soall parties appeal to the middle class with these sops as they are above religion and caste. The shuffle of these cards will tell us which way the tide will go but to see the full hand you have to wait till May 16.
Monday, April 13, 2009
Surpluses run the risk of quality deterioration: Economic Times: Faceoff, 8th April, 2009
To address this question, three issues need to be kept in the background. The first is that agricultural production follows a cyclical pattern, with amplitude of just a year. The second is that while we normally refer to food, the allusion is to rice and wheat; we forget an important component of our food basket, i.e., pulses, where there is a perennial shortage. The third is that food policy has to be viewed, whether we like it or not, as working within certain objectives like ensuring fair price and income to farmers (procurement and MSP), protecting consumer through assured supplies and bearable prices (PDS), holding on to strategic buffer stocks and the maintenance of a cropping pattern with respect to wheat and rice. Hence, procurement cannot be closed ended nor can MSP be lowered.
Surpluses should be welcome anytime as anything in large quantities cannot be bad. But, surplus food entails a cost, cannot be supported by existing storage facilities and runs the risk of deterioration in quality especially if we have successive years of surpluses.
Now, given that surpluses do arise, the solution is in developing a framework to optimise the handling of these stocks. Firstly, we need to strengthen the warehousing facilities; and the private sector can be involved here. Secondly, the surpluses should be stored in deficit states to avoid the pitfalls of transportation in times of shortage. Thirdly, surpluses should be a part of the government’s foreign trade policy where the surplus grains are exported. Fourthly, surpluses should be aggressively distributed through the food for work programmes. Fifthly, futures trading should be encouraged where the storing authority manages to hedge the price risk. The ban on futures trading needs to be reviewed. Sixthly, stocks beyond the maximum tolerable limits should be given as aid to the poorer nations. Lastly, the private sector can complement the FCI’s efforts in handling procurement and buffer stocks which can reduce the burden on the exchequer.
Simultaneously, the MSP system needs to be revisited wherein farmers should be encouraged to migrate partly to growing pulses which will balance the cropping pattern at the macro level.
Surpluses should be welcome anytime as anything in large quantities cannot be bad. But, surplus food entails a cost, cannot be supported by existing storage facilities and runs the risk of deterioration in quality especially if we have successive years of surpluses.
Now, given that surpluses do arise, the solution is in developing a framework to optimise the handling of these stocks. Firstly, we need to strengthen the warehousing facilities; and the private sector can be involved here. Secondly, the surpluses should be stored in deficit states to avoid the pitfalls of transportation in times of shortage. Thirdly, surpluses should be a part of the government’s foreign trade policy where the surplus grains are exported. Fourthly, surpluses should be aggressively distributed through the food for work programmes. Fifthly, futures trading should be encouraged where the storing authority manages to hedge the price risk. The ban on futures trading needs to be reviewed. Sixthly, stocks beyond the maximum tolerable limits should be given as aid to the poorer nations. Lastly, the private sector can complement the FCI’s efforts in handling procurement and buffer stocks which can reduce the burden on the exchequer.
Simultaneously, the MSP system needs to be revisited wherein farmers should be encouraged to migrate partly to growing pulses which will balance the cropping pattern at the macro level.
Subscribe to:
Posts (Atom)
