After 1991 financial crisis, the then government headed by PV Narshimha Rao under the guidance of the great economist Mr. Manmohan Singh decided to introduce reformatory policies in line with directives of WTO and in tune with dictates from developed countries. The then government took a U - turn from socialistic policies of previous government with the hope that India will come out of the then fiscal problems and India will develop in leaps and bounds. They promised to uplift the standard of living of common men.
Unfortunately after lapse of two decades, all their dreams appear to have shattered and government is now facing the same financial crisis which is more severe in nature than what it was in 1991. There is a fear of downgrading of India's rating by International rating agencies and government understands the consequences of bad rating likely to further add fuel to fire. It is true that Indian rating agencies under the pressure of Government , will assign better rating to India's Financial health as usually happens in India.
Problems are many , Symptoms of sickness in economy are now clearly visible .Quantum of bad assets in banks is growing every quarter. Price rise is beyond control. Corruption is out of control. Inflation is posing threat. Pain of common men has crossed the tolerance limit. And perhaps this is why the great economist and previous RBI Governor Mr. C Rangarajan says in an interview that people could face much bigger problems if the fiscal and current account deficits are not checked. He further adds that people need to be adequately informed about the difficult decisions the country needs to deal with crisis looming large on the nation.
It is painful and surprising that the great economist Mr. C Rangarajan who heads the Prime Minister’s economic advisory council though prescribe the necessity of bitter medicine but he does not like to explain the causes of the sickness He avoids explaining the reason which contributed in escalation of fiscal crisis and avoids answering questions related to fiscal problems such as which are the factors responsible for current fiscal and current account deficit, why gap between rich and poor is widening, why price are unbridled, why inflation in beyond control, Why corruption at all level has gone beyond control , why there is mass revolt against FDI and rise in fuel cost, why a few rich have become billionaire in two decades and more than hundred crores of Indians have become poorer in the same period, etc
It is ironical that the government is once again constrained to put in action so called hard reformatory policies to diagnose the current fiscal problems caused by their own reformatory policies of last two decades. It is just like an allopathic doctor who prescribes medicine to cure one disease of the patient but the medicine when taken creates more problems than curing the one which existed before the consultation of the doctor. Similarly Doctor Manmohan Singh prescribed certain course of action to cure the 1991 type crisis which created the bigger crisis and hence he now feels to keep the country under ventilator of FDI and disinvestment. He is selling the assets which his forefather earned and accumulated during pre-reformation era.
People of India are crying in pain of price rise and that of rampant corruption, government seems helpless and constrained to initiate all possible anti -people policies even at the cost of unity and integrity of the country. States are divided now in the way various monarchies used to be divided during British rule. Now states have started talking of infiltration of people from other states as a burden, sharing of tax with central government as anti-people and so on. On the other hand central government is using money collected through various taxes and collected through various states to enhance the prospects in election. They do not hesitate in announcing populist measure like e waiver of loan, or nine subsidized cylinders to people of Congress ruled states and so on.
Lastly it will be the chance of voters after suffering in pain continuously for five years, when they will decide the better course of action suited for the country like India.
All economic decisions need political backing: C Rangarajan
India could face much bigger problems later if the fiscal and current account deficits are not checked, warns C Rangarajan, former central banker and the person government turns to for advice on policy issues. Rangarajan, who heads the prime minister's economic advisory council, says people need to be adequately informed about the difficult decisions the country needs to make in an interview to ET's Deepshikha Sikarwar & Vinay Pandey. Edited excerpts:
Will the recent reforms make a difference or are they more of sentiment changer?
Decisions regarding adjustments in petroleum prices will have an impact on the fiscal situation. They will help in reducing fiscal deficit. But as far as reform measures announced in respect to FDI ( foreign direct investment), they may take time to fructify. Nevertheless, they send out signal, which is also important. Sentiments play a role in reviving investments, so from that angle announcements regarding FDI would be helpful. But investment decisions do take time and inflows under these liberalised heads will take time to happen.
What would be the price that country would have pay if some of these actions are rolled back?
The problem is that at present we have a high level of fiscal deficit and current account deficit (CAD). If we did not act now, there would be a much bigger problem ahead of us. If CAD is not contained, we would have problem of financing the CAD and we may also face international censure in terms of downgrades by rating agencies. I believe India's fundamentals are strong and rating agencies must not look at one dimension but whole gamut of factors relating to the economy. Nevertheless, external rating agencies pay much attention to fiscal deficit and current account deficit. Therefore, we need to act and some of these actions are not appealing, not popular but allowing situation to drift would make it far more difficult later. Therefore, action was required and action was taken.
These are the most eye catching reforms that were pending for a while, but there are lots of execution issues. Should we not focus on them?
I think reforms have to continue and at the same time we need to get the maximum out of the reforms that we have already undertaken. That is why in my view paying attention to execution of many of the programme we have launched is important in the current context. Achieving production and capacity targets in some sectors are important for the growth of the economy. Many of the infrastructure sectors coal, power, road and railways lie in the public domain and therefore the government should ensure fulfillment of targets.
Has politics hijacked economics?
Politics and reforms go hand in hand. Ultimately, all economic decision are political decisions, they have to be backed up by the parliament. Therefore, if on occasions we have to take certain economic decisions which are not considered to be popular, we have to convince the people of the necessity for taking such action. I think a certain amount of economic literacy that is also required. Even those who oppose certain decisions, if they come to power will also realise that these decisions are unavoidable.
Therefore we really need to convince the community at large why certain decisions, though difficult, though unpopular are needed in the larger interest.
Dependence On FDI Is A Necessity By Compulsion or By Choice
Congress Party has ruled India for decades, at least for period far more than their opponents like BJP or NDA. During last 65 years of rule , Indian politicians in general and that of Congress Party in particular have left no stone upturned to loot the resources available in the country for their self interest. As a result, the financial health of the country is now in complete mess.
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