There is stubborn inflation, high interest rates and low growth keeping India’s SDI/HDI low. Then why are we avoiding the obvious and simple solution?
We are going through a prolonged period of high inflation that seems to have no real solution, forcing interest rates to be kept high and affecting GDP growth.
Some economists are recommending interest cuts to spur growth, but the Reserve Bank of India seems firm on keeping interest rates at the current high levels until fiscal deficit is brought under control — seen as the reason for high inflation.
While several positive measures are being taken to rein in the fiscal deficit, at the cost of impacting the aam aadmi , by way of a reduced gas cylinder subsidy, decontrol of diesel prices and a possible increase in fertilizer prices, or by trying to save through improvements in the Public Distribution System and direct cash transfers, we may not get to where we should in terms of reining in the fiscal deficit.
The prices of natural resources and energy have risen steeply; the prices of manufactured goods too have risen steeply on the back of very high input costs.
Our export competitiveness in most manufactured items seems to be suffering consequent to high input costs and despite a much weakened rupee. High interest rates are just one of the reasons.
The rich are left out
Therefore, we need to look beyond conventional ways of reducing fiscal deficit to rein in the huge deficit without making compromises on accelerated infrastructure improvements, and through it signal interest rate reduction and growth to improve our inclusiveness in growth.
All along, we have been focusing on reducing the subsidy outflow to the weaker sections, without looking at reducing the subsidies enjoyed by the very rich. Often we believe that giving subsidies to the very rich by way of near free resources will result in cheaper manufactured products or offered services. This is completely untrue. In fact, those who get these resources are the ones who are selling their manufactured products much higher than international prices by getting themselves several policies put in place to protect their pricing power
While iron ore sells at Rs.6,000 plus per ton in the international market, those with captive mines are able to extract it at less than Rs.1,000 per ton. Similarly, coal costs less than 25 per cent of domestic prices to those who have captive mines and at a much lower percentage when compared to international prices. The same is the case with other resources like bauxite, limestone, river sand and granite. Resources are being made available at less than 15 per cent of international costs by the States and the Centre.
The people of India, to whom these resources belong, are forced to give them away near free at these cut rates by elected rulers, and they do not get the benefits of the difference between the market price of the manufactured product and the giveaway price of the resource. These virtual freebies to the rich are far in excess of Central and State deficits put together.
The time has come for those who are elected to represent and protect peoples’ interests to start market pricing resources that are now being away almost free to the very rich. This would solve all our fiscal side issues at one go and get us to double digit growth rate in quick time. This would go a long way in improving the quality of life of our people substantially. It would also help us get to interest rates on a par with the developed world.
(Manikam Ramaswami is the CMD of Loyal Textiles.)
