as on 02.08.2013
by AKS
Where are we
heading to – A critical analysis
Basic Information’s required for analysis:
Utilization of food manufactured in
India.
30% - 50% of food manufactured in India is being wasted.
India’s Gross Domestic Product.
GDP is 5% now; it was 9% (3rd place).
GDP (Economy, Income of our country).
Total value of goods & services produced within a country accounts
for it.
Cash Reserve Ratio.
India’s Cash Reserve Ratio – CRR is 4%.
3 matters essential to invest in a
country:
Ø Fiscal status
Ø Current A/C status
Ø GDP growth status
India world’s No: 1 in Current A/C
deficit.|
India’s Exports & Imports
|
43% of GDP
|
|
India’s Fiscal deficit
|
5% of GDP
|
|
India’s GDP growth
|
5%
|
India’s Savings rate – 30%, whereas
America’s Savings rate is in minus.
Indian government borrows money from its
own citizens, whereas American government borrows money from China.
Three sectors and their contributions to
Indian Economy are:|
|
Sectors
|
Contribution
to Indian Economy
|
|
IT, Banking
|
Service
|
56.4%
|
|
Cement, Steal
|
Manufacturing
|
15%
|
|
|
Agricultural
|
15%
|
Japan is the only country which has
highest debt to GDP ratio – 280%, whereas for USA it is 100% and for India it
is 60%.
India’s investment amounts to 2 trillion
this year; it was 3.8 trillion before two years
India towards Bankruptcy
Twin deficit problem that India is facing: (India is world’s
No: 1 to have this problem)
Ø Current A/C deficit
Ø Physical deficit
China’s economy is based on Investment led growth (it
is the best growth), whereas India’s economy is based on Consumption led
growth.
There is no cash push inflation or demand pull
inflation in India, but we have a new pull called political pull (that has led
us to an ironically apparent situation when compared to earlier decades).
India’s growth
Our Finance Minister சிவகங்கை சீமான் Mr. P. Chidambaram in Budget speech (12th 5
years plan) said that only two countries are growing faster than India: China
(always) and Indonesia.
Petrol price and Diesel price
Two things about India have impressed the world – the
durability of its democratic institutions and its declared determination to be
secular socialistic welfare state. It is committed to ensure welfare state
which avowed concept plays a dominant role than anything.
India is endowed with rich natural resources, but not
in a commanding position in respect of energy output with its limited hydro carbon
reserves in relation to the size of the population and growth needs of a
vibrant economy. While India has built up substantial refining capacity to meet
the country’s requirement of petroleum products much of the crude has to be
imported, posing a huge burden on the balance of payments in recent years due
to oil price explosion in the international market.
The country being committed its principle to be a
welfare state as enshrined in the preamble of the constitution drew a policy to
provide to the most poor and the downtrodden citizens almost all essential
things at a subsidized rate and meet a short fall arising therefrom from the
national exchequer. This policy was followed in making available the essential
fuel like petrol, gas and diesel at subsidized rate.
There is a huge change in the demography of the
country with exploding population and the upward fluctuation in the price of
the crew. The major requirement of which was imported, necessitated to think
about reaching break-even atleast in the cast between the crew imported and the
refined fuel made available to the general public.
Considering such constrained circumstances, the
government at one point of time to decontrol the price fluctuation policy and
leave it to the oil supplying companies to decide and fix reasonable increase
or decrease of the prices of petrol and diesel taking into account the imported
cost and the overhead charges.
Accordingly two different methods are followed. In
respect of fixing the price of petrol oil supply companies were given a liberty
of fixing the sale price of the petrol at the rate of its option and on
reasonable basis periodically.
In respect of diesel which constitutes the major
consumption impacting the price of goods and directly affecting the consumer,
the government advised the oil supplying companies to follow fixed rate of
increase per litter (i-e) 50 paise per litter every month.
Instead of such a procedure, any attempt to increase
the prices in lumpsum will have an adversely impact on the common man. It is
therefore considered not admissible to have higher fixation of price,
eventhough such fixation cannot be said to be unreasonable.
Had it not been so the intolerable and higher
inflation that would be caused with the price almost all the commodities will
go up and it will affect adversely the economy of the general public.
Only in India petrol price is higher than diesel
price.
Why government increases petrol and diesel price every
month?
Every month government increase petrol and diesel
price by 50 paisa for the betterment of the financial position.
Why cannot it be raised 5 Rs or 8 Rs a month?
If it is done so, the inflation will go up.
What if inflation goes up?
If inflation is high, then it means tight money policy
– money not available easily, interest rate high, etc.
If government wants growth the best policy is easy
money policy – money available easily, interest rate low, CRR low, etc.
Population around 60% are employed in agriculture,
still 15% is their contribution to Indian Income
This is because yield per hectare is very low – lands are fragmented.
Farmers cannot sell their produce to whomsoever they want. They can sell
their produce only to commission agents in market (மண்டி) which will be situated in every village.
The produce is taken for a rock bottom price from the farmers and they
fix a very higher rate to sell it to consumers.
APMC Act – Agricultural Produce
Marketing Commission Act.
Deficit financing – Government’s
expenditure more that income
RBI borrows money from public through banks by selling
government securities.
India’s Black Money as per survey amounts to 10% of
its GDP
Indian rupee
value falling against US Dollar
1$ = 58 Rs. – is the average rate fixed
by RBI.
Ø Before a month it was @ 60 Rs.
Ø Last week it rose to 63 Rs.
Ø Before few days it was @ 61.24 Rs.
Ø Before 3 days it became 59 Rs.
Ø Now it is around 61 Rs.
RBI has announced higher bank interest rate to reduce
the mobility of money in the market. It is one of the way by which we can
control the decreased money value of Indian rupee against US Dollar. (But
increasing bank interest rate is not good for our economy growth).
Because of this act done by RBI money value of Indian
rupee against US Dollar has increased a bit over past few days.
Corporate Entities, Industries have opposed the act of
RBI as they suffer a lot by paying more interest for their loans which have
been borrowed by them.
Our Finance Minister சிவகங்கை சீமான் Mr. P. Chidambaram is very angry on RBI. He suggested
RBI to reduce the interest rate, but RBI has not responded to his suggestion as
he was not correct in his suggestion.
SBI chairman is the only person who can speak against
RBI. That is why in recently issued Hindu newspaper it has been mentioned that
SBI chairman attacks RBI.
He answered RBI for the opposition raised by entities
and industries to reduce the bank interest rate. This act of RBI has favored
our money value with an evidence that the rupee against dollar value increased
from 63rs a $ to 59rs a $.
Again yesterday it got decreased. This may be because
of RBI’s act of reciprocating the value of the said bank interest rate to the
earlier rate.
We pay in $ for oil purchases, so there will be huge
deficit in future if the value of rupee against dollar keeps on decreasing.
After years India will run out of oil products and
hence the situation of using bulla-cart, cycling, etc. would arise again.
And if the rupee value is low then Indian companies
will be down & unemployment will increase.
RBI governor voiced that, nothing can be done for the
current situation prevailing in India; someone has to bear the pain.
On the other hand, if interest rate is higher, the GDP
growth gets lower, industries & companies get affected, unemployment
increases, income of the country will get down.
Why interest rate cannot be reduced below 10% (like
china which has 3% interest rate)?
Interest is to control the inflation.
In India the Consumer Price Index inflation rate is
9.8%, so obviously bank interest rate cannot be less than that of the inflation
rate, though India is the only country to follow Wholesale Price Index
inflation.
We can control inflation rate by abolishing the APMC
Act – Agricultural Produce Marketing Commission Act.
A product in Ramanadhapuram costs 40 Rs whereas the
same product costs 160 Rs here.
Mr. Manmohan Singh speaks about our problems, but he
takes no step to recover from this issue.
Indian economy growth is coming down periodically
The main reason for down in economy growth is because
investments have come down considerably. The secondary reason which RBI quotes
is that the global economy itself is down.
Industries are ready to invest in foreign rather in
India because of poor infrastructure, policy hurdle, policy delays,
environmental concerns, etc.
Outbound Foreign Direct Investment – FDI is more than
Inbound FDI.
Savings rate in our economy has come down gradually
Because prices are going up, people
spend more on consumption and ultimately they have less money for investment.
People are investing more in gold as it
gives them very good return.
In the view of government gold is not a
savings; instead it is an unproductive asset as it is uncountable for savings
of our economy.
Conclusions:
1. Politicians and their politics are the only reason
which has led us to this situation when compared to earlier years.
2. After many decades India has to surrender itself to
other countries if the current situation prevails over many years.
3. India will be forced to borrow money from IMF (IMF
charges more interest).
4. Indian government will force RBI to issue sovereign
bonds to other countries so that India get money from it.
