Scorched earth: How Cong is screwing the economy further
With every passing day, it is becoming clear that the Congress party does not expect to, or even want to, win the 2014 elections. It's electoral goals are about three things: ensuring that the winner scores a low win rather than a big one (which means a BJP with less than 180 seats); making sure it get enough seats to be a robust opposition party (which means a Congress with 130-plus seats; and, most important, ruining the economy so badly that whoever comes to power will be seen as an economic incompetent - and presumably create conditions that are ripe for the Congress to return to power in 2016 or 2017.
This is the logic of enacting so many major economic laws in its lameduck year - the Food Security Bill and the Land Acquisition Bill, for example. All political parties find it difficult to oppose these bad laws in an election year. These bills won't deliver any electoral returns for the Congress in 2014, but they will spike the guns of whoever wins. And that seems to be their main purpose.
But we already know that. What is not so well known is that the Congress is steadily destroying what's left of a slowing economy by executive actions - actions that will lob time-bombs in the next government's lap even before it has a chance to settle down.
Four stories in the pink press today (25 November) tell us how this is a continuing effort.
A story in The Economic Times informs us that the rural development ministry under Jairam Ramesh is planning to hike NREGA wages even more than what was previously planned. The ministry has “scrapped a panel headed by National Statistical Commission Chairman Pronab Sen and set up a new one to prepare a fresh index that would lead to more generous wage revisions under the Mahatma Gandhi National Rural Employment Guarantee Act…”.
This is the logic of enacting so many major economic laws in its lameduck year - the Food Security Bill and the Land Acquisition Bill, for example. All political parties find it difficult to oppose these bad laws in an election year. These bills won't deliver any electoral returns for the Congress in 2014, but they will spike the guns of whoever wins. And that seems to be their main purpose.
But we already know that. What is not so well known is that the Congress is steadily destroying what's left of a slowing economy by executive actions - actions that will lob time-bombs in the next government's lap even before it has a chance to settle down.
Four stories in the pink press today (25 November) tell us how this is a continuing effort.
A story in The Economic Times informs us that the rural development ministry under Jairam Ramesh is planning to hike NREGA wages even more than what was previously planned. The ministry has “scrapped a panel headed by National Statistical Commission Chairman Pronab Sen and set up a new one to prepare a fresh index that would lead to more generous wage revisions under the Mahatma Gandhi National Rural Employment Guarantee Act…”.
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UPA is planning to hike NREGA wages even more than what was previously planned.
Now, mind you, NREGA wages are already indexed to inflation. What the ministry is now trying to do is buy rural votes by making wage increases even higher. And this at a time when consumer inflation is above 10 percent. Anybody who wants to make inflation worse could not have thought of a better way to achieve this objective.
UPA is planning to hike NREGA wages even more than what was previously planned.A PTI report in Mint newspaper shows that Ramesh is planning more damage. He has apparently sought increases in pensions paid under social welfare schemes, especially under the National Social Assistance Programme (NSAP).
Once again, it seems election time is appropriate for the use of depleted taxpayer funds to bribe voters with more money.
A story in Business Standard tells us that your income-tax refunds are going to be delayed further because tax revenues are not growing at the rate at which P Chidambaram indicated they would in his budget. The smaller refunds - amounts of a few hundred or a few thousand - are not being held up, but the big refunds are being put off.
Now why would a government do this? Refunds have to be refunded, today or tomorrow. Unless you don't plan to be around tomorrow, it makes no sense. When you delay big refunds to high net worth taxpayers and corporations, the accounts for 2013-14 will reflect a lower fiscal deficit. But the refunds would still have to be made - and that could happen in the next year, when, surprise, surprise, a new government will face huge bills.
This is nothing but a scorched earth policy.
Now, consider oil subsidies. Everyone knows that subsidies are not being paid in time. Despite nearly a year of price hikes in diesel, the subsidy remains at Rs 9.69 a litre as of mid-November. Total subsidies payable in the first half were Rs 60,907 crore, and another like amount will take the total subsidy to Rs 1,20,000 crore - unless international oil prices suddenly crash.
The government even at the start of the fiscal year had just about Rs 20,000 crore in its kitty for oil subsidies. And even if oil and gas production companies (ONGC , GAIL, etc) pay up another Rs 40,000 crore, Rs 60,000 crore of oil subsidies will spill over to the next year - to be paid by the next government.
The fourth exhibit of scorched earth is the government's commitment to retain the fiscal deficit at 4.8 percent in 2013-14. This “red line” on the fiscal deficit makes Chidambaram look like the paragon of rectitude, and he will surely manage to somehow tweak the numbers to achieve this number.
But the point is: at whose cost? A sharp cut in plan and capital expenditure just to achieve the fiscal deficit will worsen the growth slowdown next year - when Chidambaram won't be the finance minister. In short, Chidambaram is lobbing not only a lot of his bills to the next government, but also making the slowdown worse. A slowing economy will not generate enough revenues for the exchequer, and this means the next government will face an immediate ratings downgrade and a multitude of economic crises. It could be worse than 1991.
Everything the Congress is doing is to somehow manage the short-term and window-dress the national accounts so that the next government is sure to trip and fail.
In terms of fiscal management, UPA-2, headed by a so-called economist and a so-called reformer, has been the most irresponsible government India has ever seen.
An article in Business Standard by Rajiv Shastri, Director at Pramerica Asset Managers, tells us how irresponsible they have been.
Comparing formal budget subsidy numbers and the more detailed accounts provided by the ministry of statistics and programme implementation (Mospi) tells us the margin by which Congress has been more imprudent than the NDA.
According to Shastri, the real subsidy numbers are much higher than what the budget documents show. During the NDA's six years, the budget numbers showed major subsidies at an average of 1.49 percent of GDP. During the last five years (2008-09 to 2012-13), the budgeted subsidy average worsened to 2.43 percent.
That's bad enough. But the Mospi estimates of subsidies look even worse. As against the NDA average of 2.79 percent, under UPA the average for the last five years has been a massive 4.71 percent of GDP.
If we assume that all governments are cavalier about freebies and subsidies, it is also clear that under UPA, and especially UPA-2, economic irresponsibility has hit a new low.
One wonders if Manmohan Singh should call himself an economist anymore or P Chidambaram a reformer. It is easy to blame Pranab Mukherjee for the damage, but the political responsibility for the economic damage done rests with the PM and Sonia Gandhi.
Despite some fast footwork after August 2012, Chidambaram has not done much to redeem himself either.
The UPA under Sonia Gandhi will hand over a poisoned fruit to the next government. Possibly enough to call the UPA's economic actions anti-national.
http://www.firstpost.com/economy/scorched-earth-how-cong-is-screwing-the-economy-further-1248073.html