Ad Here  
September
October
November
December
January
February
 
 
An unhealthy adversarial relationship Mr. PM, bite the bullet... ‘High speed’ diplomacy... BHEL – R&D and image building require more attention Light at the end of the tunnel – Cauvery Management Board to be set up Trail-blazing Tamil Nadu Scientists, please raise your voice for GM crops TN budget - little leeway for capex Fast - track railways to prosperity... Imperative to take states along… A WATERSHED YEAR BJP, shift to south Fear of bankruptcy, liquidation Rahul coronated Rajini can’t or can? The Chinese model for rail development Call for INNOVATION, for R&D Kanoon, Kovind and Kumble Reserve and perish Take the next leap forward... BJP - the unifying force (of opposition parties) ! DMK does it again Physician, cure thyself Narendra Modi turns “THREE” State Elections: Mid-summer marathon A 5-6 per cent growth is given… AAP - change from street fighting to administration Jaya Ho Between the bang and the whimper… 10-point programme More lustre to leather: 70 years of CLRI Welcome continuation of the reforms thrust Cleansing a corrupt system… LOT CAN BE DONE THROUGH THE PPP MODE... Gujarat model for port development Drive ahead, the road is well-laid... Welcome euphoria over the east A challenge and an opportunity for OPS IE completes 47 years... Need for more Has PC missed out on BIG BANG REFORMS? Open letter to citizens Physician, cure thyself… Corruption institutionalised; technique perfected Flying High? Entering the 50th year… Where’s the big idea? Go for a One Power India BJP’s one man army... Of judiciary and GM Repeat 1991– work on a growth budget... Little for development Welcome aboard President Kovind The four DISRUPTIONS of the month
 
Repeat 1991– work on a growth budget...

The Modi-Jaitley duo has been incredibly lucky. The 60 per cent fall in crude prices is the single most important factor for effecting corrections in fiscal administration. They could not have come at a better time for them.

The huge increase in crude prices threw the economy out of gear: massive outflow of foreign exchange for import of petroleum products accounted for the lion’s share of imports. These touched $ 150 billion last year. The inability to adjust product prices to costs; the resultant bulging subsidies on diesel, LPG and kerosene; the difficulty in compensating oil companies fully for the increasing costs of crude leading to their bleeding; increased transportation costs; raging inflation of recent years were all the result of the high price of oil.

The government has utilised this God-given boon in effecting much needed corrections. Firstly, to do away with price control on diesel. Second, to put limits on subsidy on PDS kerosene and LPG. Thirdly, to utilise the Aadhar card for direct transfer of subsidy to the beneficiaries; this is also expected to reduce a lot of bogus claims. The government has also permitted oil-marketing companies to recoup a portion of the losses suffered by these in recent years by not passing on the benefit of lower crude prices proportionally to the consumer. On the same logic, the government had also increased the excise duty on refined products to take care of the revenue losses suffered by the fall in product prices.   Poor Dr. Singh, he didn’t enjoy this windfall!

Once these corrections take effect and there is the prospect of crude prices remaining stable around $ 40 per barrel, the government can focus on fiscal correction over a wider base. Reserve Bank Governor Raghuram Rajan has effected an interest rate reduction of 25 basis points (0.25 per cent) for the first time since May 2013. This may be too small to make a great impact, but it has good value for improving market sentiment. There are expectations of such reductions announced in quick succession.

But the major issue to be tackled relates to the runaway rise in prices of a wide range of goods like cement and steel, especially the former, not quite related to costs of production. Such rises have serious impact on housing and infrastructure development. Cement prices have risen over the last couple of years by 50 per cent and are presently ruling around Rs 380 per bag.

The steep increases in the procurement prices of rice, wheat and other agricultural commodities and the unrealistic prices for sugarcane have resulted in a high rate of food inflation. Several state governments, unable to control market prices are bleeding through hefty subsidies on food. The solution lies in massive increases in productivity that will ensure farmers higher revenues through increased production and not by subsidies and increased state- advised prices.

There is criticism over the spate of ordinances promulgated by the Modi government. Sadly, the government doesn’t seem to have much of a choice. Opposition parties have stalled any effective legislative action in the Rajya Sabha where the NDA lacks majority. Essential reforms cannot obviously wait indefinitely. In fact, this paralysis was the cause for UPA II government’s disastrous management of the economy. Opposition parties should help the government to arrive at consensus on major economic issues.  That the NDA did to the UPA what the UPA is now seeking to do to the NDA is another issue.  

The Modi government won praise from the Secretary General of the United Nations, President of the World Bank, Secretary of State for the US and numerous other leaders at the recent Vibrant Gujarat Meet. Its leadership should endeavour to build consensus and take along the opposition parties at the Centre and the different regional political parties.

With several favourable factors on its side, the government should not miss the opportunity to present a growth-oriented budget that would help the economy gain momentum.

 

Author :
Reported On :
Sector :
Shoulder :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com