Saturday, June 14, 2014

The piggy bank is empty.

At last confirmation of what we have been writing for sometime now. In a deliberate scorched earth policy the previous Congress government has left behind a bankrupt country, hoping that any party coming to power will take so long to sort out the extreme mess that they will be able to come back to power by blaming others. What cynicism. We will destroy the country if we cannot hang on to power at any cost. Now the Prime Minister, Modi has warned of " tough decisions " over the next couple of years to rescue the economy. " I have taken over reins of the country in circumstances when there is nothing left behind by the previous government. They left everything empty. The country's financial health has hit rock bottom," he said. There is the occasional dribble of good news amid the torrent of bad. Industrial production grew by 3.4% in April but the base was low as IIP contracted by 0.7% in the last fiscal. Consumer Price Inflation fell from 8.59% in March to 8.28% in April but the met office is predicting that this year's monsoon will be 93% of normal because of an expected El Nino effect. Exports grew to $28 billion in May and vehicle sales rose by 2.76%. Oil prices are set to rise because of the unrest in Iraq and Libya. The government is caught in a situation where efforts to improve one part of the economy may damage some other part. If pump prices are allowed to rise inflation will jump and if prices are controlled the subsidy bill will balloon. Rising oil prices will increase the Current Account Deficit. This could be reduced if the rupee is allowed to appreciate against the dollar but that will immediately reduce our exports by making them more expensive and so add to the CAD. Taxes have to be reduced to stimulate consumption but without revenue there can be no infrastructure spending. Interest rates need to come down so that companies can borrow for new investments and people are encouraged to lake loans to buy new cars or houses but inflation will rise even higher. Without roads and cheap energy manufacturing cannot succeed but they require vast sums of money. Electricity generated from imported gas is very expensive so we need cheap coal, which we have in abundance. However, coal is highly polluting and mining may destroy forests. If the government borrows the vast sums required the fiscal deficit will soar and banks will have little to lend to the private sector. The Congress has no shame for creating this disaster. It is claiming that the position of Leader of The Opposition is its right because it is the largest party. No it is not. The people refused to give you the 55 seats required for the post so keep quiet and keep your heads down. No sharam, no izzat.

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