Man made poverty.

The HSBC Purchasing Managers Index is down to 51 in April from 52 in March which reflects a slowing growth in the economy. Livemint, 3 May. This is also reflected in the non-food credit growth which came in at a decadal low of 14% in the last financial year compared to RBI's projection rate of 16%. Credit to industry fell from 20% in the previous year to 15.7%. Agriculture sector grew at 8% compared to 13.3% the previous year. To increase industrial growth you need increase in demand but this cannot increase when the Consumer Price Index is growing at above 10%. The focus should be on controlling inflation to stimulate demand but the clamor has instead been on reducing interest rate which has been reduced by 125 basis points this year. This means that money saved in banks keeps losing value so people look for alternative source of savings which would protect against inflation. One avenue is property but property prices are so high that they are beyond the reach of anyone except the very rich. Also you cannot invest small amounts of money in property because you cannot buy one or two square yards of land. So people resorted to buying gold. In 2011 India imported 969 tonnes of gold while in 2012 it was 860 tonnes. The fall in gold imports was because of increase in the price of gold and the increase in the tax rate from 2% to 6%. The fall in savings led to decreased liquidity in banks which were unable to reduce deposit rates because they would lose more customers. And if they could not reduce deposit rates they could not reduce their lending rates either.So, when the RBI reduced rates by 100 basis points the banks reduced lending rates by a measly 25-30 basis points. Industrial production is totally dependent on electricity. With 286 billions tonnes of coal reserves we have the fifth largest coal reserves in the world but of the 195 coal blocks awarded for mining between 1993 and 2008 only 30 are producing coal. This year we will consume just 770 million tonnes of coal but of that we will have to import at least 165 million tonnes at higher prices. Naturally electricity charges have been increased many times adding to inflation. Coal production is controlled by the highly inefficient government company, Coal India which has been supplying rocks instead of coal. So bad is its quality that electricity company, NTPC, which is also a government concern, has full time employees to separate rocks from coal. Aggrieved, NTPC refused to pay the full amount for the coal it is supplied to which Coal India threatened to cut supplies. Coal India's excuse is that it supplies high quality coal but it cannot be held responsible for adulteration during transport. With summer heat increasing the demand for electricity there will be a 9% shortage of electricity which will reduce GDP by 1.2%. We could be a very rich country but we are being kept poor by the crooks. Nothing we can do.