Wednesday, May 9, 2012

INDIAN ECONOMY- On The THRESHOLD Of BREAKTHROUGH Or BREAKDOWN

Indian GDP growth has certainly slowed down to sub 7% from the highs of 8.5 plus achieved during the last couple of years. The country is bogged down by high inflation, high current account deficit, high fiscal deficit, policy paralysis, rampant corruption, and gross mismanagement / bad governance. The result is that the country is on the cross roads and the question " Is Indian economy on the threshold of  break through or breakdown ?" is paramount on the minds of all those who are well wishers of the country.
Indian government appears to be in a bind over all reforms whether economic, financial, judicial or administrative either because of political compulsions of coalition rule ( The ruling polity will like the country to believe that ) or lack of will, sincerity and motivation. The fiscal health of the country has been left totally to the Reserve Bank of India ( RBI ) and the matters related to correct administration to the judiciary.The ruling polity in the states and centre is unabashedly involved in bleeding the country to slow death through actions either to score brownie points over each other or raising catchy slogans to fool the public at large for garnering votes and creating vote banks for themselves. None of the actions of these rulers is going to have any significant effect on the economic growth or towards ending the miseries and sufferings of common man of India.
Granted for a moment that administrative reforms and economic reforms are being sacrificed on the altar of coalition politics. The ruling polity has to get out of the rut of thinking that  RBI actions are the sole answer to controlling inflation, for the only action available with the RBI i.e. controlling various banking rates is contradictory to achieving higher growth.The government has to strive hard to take small out of the box measures to improve the fiscal health of the country by reducing current account deficit and fiscal account deficit which will be value additive to RBI efforts. Nation's priority should hinge on :
  • Measures to increase the production and availability of all food articles.
  • Highest priority to road infrastructure in terms of new additions and timely high quality maintenance  and repair which can make a multi faceted contribution to fiscal health of the country in a very big way.Smooth passage of traffic in all towns, cities and metros and national and state highways can be a real game changer for the fiscal health of the country.
    1. Reduction of about 30%  in oil consumption thus saving Rs1.5 lakh crores annually out of a total oil import bill of about Rs5.0 lakh crores.
    2. Reduction of  Rs30000 crores in the annual oil subsidy bill of about 1.0 lakh crore.
    3. Savings on repair and maintenance roads and government vehicles about 90 % of the budgetary allocations.
  • Austerity measures on the government spending
  • Power Generation and management : Out of a total installed capacity of 2,00,000 MW about 80000 MW are being produced currently and 57000 MW are available to the consumers. Electricity distribution network in India is inefficient compared to other networks in the world. India's network losses exceeded 32% in 2010, compared to world average of less than 15%. Loss reduction technologies, if adopted in India, can add about 30000 MW of electrical power, while simultaneously reducing electricity cost and carbon footprint pollution. The total equivalent revenue  loss for 40000 MW ( 20000 MW of distribution network inefficiency + 20000 MW of Generation inefficiency ) is of the order of Rs 1,44000 lakh crore @ Rs 4/kwh assuming 24 hrs availability of this additional power component. Imagine what it can do to the fiscal health of the country,its contribution to production and improving general life not withstanding.
In the light of this an all out attack on what has been highlighted above is not asking for moon from the ruling polity of India particularly when their weak spots like corruption, subsidies, doles, freebies etc have been left untouched in this route to ensure that Indian economy is on the threshold of breakthrough rather than breakdown. Hopefully Indian government will
  • Ensure that no power generation facility lies idle for want of coal or transmission grid.
  • Ensure to realise compounded potential of power generation efficiency and power transmission and distribution efficiency in making India prosperous which is tremendous and cannot be allowed to fizzle out because of the insincerity, mismanagement, inefficiency and technical incompetence of polity, executive and engineering community of the country.