Sunday, April 22, 2018
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Economic Highlights
Rising Inflation
Public sector adds to woes
By Shivaji Sarkar
Rising inflation, not so good performance of the industry and not passing on the benefit of falling fuel prices to consumers are causes of concern. But it is just not the weather, rupee fluctuation, or rising wages that are causing inflation. Much of it is unfortunately being led by the public sector - a legacy they inherited from the past. The public sector has yet to contribute to the efforts of Prime Minister Narendra Modi's vision of making the country most business friendly.

The government has to tighten up its expenses as inflation hits a new high of 3.85 per cent in March, and is projected to rise further. Of course, there is no surprise in it. The country adopted an inflation target of 4 per cent in 2016 for a five-year period with a 2 percentage point tolerance on either side.

Consumer prices rose by an annual 3.85 per cent, fastest since October 2016 compared with 3.65 per cent in February. The inflation was not caused by food items though prices of milk and eggs rose by 4.65 per cent and 3.21 per cent respectively. Vegetable prices fell by -7.24 per cent though fruit prices continued to rise to 9.35 per cent from a month's back 8.33 per cent. The major cause is stated to be the fuel inflation acceleration to 5.56 per cent.

The economic sector is worried about uncertain monsoon, as the weatherman has predicted it to be erratic. If this happens, as RBI also indicates, the food prices may again go up. A US government weather forecaster projects possibility of El Nino factor upsetting rainfall.

The capital goods output which reflects the real investment declined by 3.4 per cent. Decline in IIP is led by manufacturing constituting 75 per cent of the index. It recorded meager growth of 0.6 per cent. As many as 15 of the 22 sub-sectors recorded year-on-year decline. Even some of the big names that came up during the last three years recorded contractions.

The cumulative growth of the country's factory output for the April 2016-February 2017 period works out to 0.4 per cent much lower than the cumulative growth of 2015-16. Overall consumer goods production contracted by 5.6 per cent and non-durable consumer goods production fell by 8.6 per cent.

In a way it is double trouble for economy. On the one hand, it indicates difficult days as consumer prices rise on the other slowing down of activities indicate falling purchasing power despite increasing salaries in the government and some other organized sectors.

It cannot be just attributed to the recent phenomenon. It has happened during the past several years, even before 2014. Correcting it is an uphill task and may have to wait the new vision that the Modi government is planning to unveil at NITI Ayog.

The strengthening of the rupee from over Rs 68 tot Rs 64.43 has a benevolent impact on oil prices and other imports though domestic oil companies are unhappy as their phenomenal profits are lowered. So is inflation being caused by public sector behemoth, which technically has the least political control?

Inflation is not being caused by rising salaries. Wages are adjusted to match inflation. If despite such raise it is unable to generate demand, it means wage hike is far less than the inflation. What causes inflation? Many of these are listed in IIP. But many more are not. It includes the school fees and bank charges which are eroding the pockets of low-salaried Indians.

And unfortunately many of the inflationary causes are happening at the public sector. The dynamic rise in rail freight and fare is bad economics. It has a cascading effect on all consumer goods and travel costs of trade and corporate sector. It is bad accounting as well for which the railways have earned a reputation.

India has the world's highest road toll. It defies all logic. It adds to surreal profits of the operators, including National Highway Authority of India (NHAI), delays traffic at every toll gate and adds to the cost of transportation. The tolls are impractical because the government also collects 2 per cent cess for central road fund.

The Government has collected Rs 69,809 crore through cess imposed on petrol and diesel in 2015-16, Minister of State for finance Santosh Kumar Gangwar told Rajya Sabha on August 2, 2016. It collected Rs 17,217 crore through cess on petrol and Rs 52,592 crore via cess on diesel. The cumulative cess collection since 2006 amounts to over Rs 5 lakh crore.

As such India should not have highway toll as every 0.5 cc moped owner is also paying for a facility he never uses. Toll collections are around Rs 35,000 crore a year across India. The cumulative is about Rs 3 lakh crore during the past 10 years. The recent court decision to free Delhi-Noida toll bridge shows that highway toll is an exploitative system and benefits only few companies, including the public sector behemoth NHAI.

If tolls are removed India saves Rs 60,000 crore a year lost because of delays at approximately 374 toll gates, according to a 2013 report of Transport Corporation of India and IIM, Kolkata. Transporters suggested Rs 14,000 crore payment upfront to stop the toll system. Each truck pays Rs 4 to 5 lakh a year as toll. But vested interests are reportedly against doing away with it. The NHAI has also stated that almost 30 per cent toll collected is never paid to it. Where does it go?

So if the toll is done away, India saves Rs 1 lakh crore a year. It would reduce business costs, prices, and boost demand. If railways also rationalise freight and fare, it would add to the economic growth. There are more reasons to do away with such irrational charges. The central government collected Rs 64509 crore from petrol as excise duty in 2016-17 and excise duty from diesel jumped by 36 per cent to Rs 3 lakh crore.

This apart municipal corporations are collecting huge parking charges from each vehicle at the time of sale and are enriching themselves by levying sky-high parking fees and that includes the national capital, Delhi.

Public sector banks are adding to the woes. They are collecting billions on illegal and irrational charges from all individuals as well as businesses. The system is being forced to be made exploitative and India is becoming less business-friendly, if not anti-business. This has to end if India wants to compete in the world and be the most inexpensive production destination.


News Updated at : Sunday, April 16, 2017
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