Growth needs honesty.

A high growth rate seems to have become a fairy tale like a pot of gold at the end of a rainbow. Everyone, including economists, keeps guessing whether we can attain 8.13% growth or we should be aiming at a dizzy 8.33%. With a big " if " added on. If the government can reduce spending, if subsidies are reduced, if the fiscal deficit can be controlled, if the price of oil comes down, if tax collections increase, if the world economy starts growing again which may increase exports bringing down the Current Account Deficit then we could achieve 8.17% growth and our credit rating will not be cut to junk status. No one has the honesty or the courage to say that all of it is linked. Government spending cannot be reduced because you cannot take back 80% rise in salaries of useless civil servants or stop the various social schemes, including NREGA. Indeed the food security bill will add another Rs 1 trillion to the deficit and already there is talk of forgiving all loans to farmers which will add to Non Performing Assets of banks which are already high. If NPAs increase banks will refuse to reduce deposit rates to attract savings and so will not be able to pass on the cut in interest rates. Government spending will remain high resulting in high deficit and inflation which will reduce buying power of consumers leading to reduction in tax collections. Even though growth in the US is around 2%, shale oil and gas production is increasing daily and there is recession in Europe, with even the powerful German economy contracting, Nymex crude is still at $96 a barrel. If growth picks up in the west all commodity prices, including oil, will jump putting greater stress on our CAD. Tax collection cannot be increased by increasing taxes as this hurts consumer spending, especially if this is based on lies. Price of petrol was increased this morning by Rs 1.50 which will take a liter of petrol to around Rs 78 at the pump. Yet today petrol is selling at $3.70 per gallon, which is 3.8 liters in the US, where petrol is prices are free of government control, which means 1 liter is less than $1 or Rs 54. For growth to increase we have to be honest about the reasons for growth 3-4 years ago. It was because of very low interest rates in the west resulting in large amounts of foreign currencies flooding into our market looking for better returns. This pushed up the Sensex and made our foreign currency reserves look healthy. This is hot money and may flee any time. The second was the rise in property prices by 1000% creating a huge construction boom boosting profits in related companies such as cement and iron. The construction company DLF had a debt of Rs 242.59 billion as on 30 June 2012 which was 2.4 times its total income. Interest outgo was Rs 30.13 billion while cash flow was Rs 24.92 billion. Is there no one in India with the courage to be honest?