Food Insecurity Bill

despite seething failure of Right to Education and Right to Work due to the same reasons feared for Right to Food, if Government could still dare to experiment with NFSB, salute to its vigour.

Salute to Sonia Gandhi!! It is thanks to her that UPA-acclaimed panacea for India’s chronic malnutrition has been finally taken up; now that President has signed on Food Security ordinance. Overwhelming it is to witness the restlessness of UPA-2 that it, for the sake of millions of poor, did not even let democratic principles become hurdle in the promulgation of National Food Security Bill and pushed it through ordinance route despite opposition’s lambaste that Monsoon Session of Parliament is just few weeks ahead. Who cares the bill has been hanging in balance for the past four years! Current haste of UPA in the election year will at least refurbish its image among good chunk of gullible voters. Who cares that Indian economy is in tatters and can’t bear the brunt of subsidies! At least ours is a benign, people-centric Government whose prime motto is to remain politically correct not economically. While rupee-slide, inflation-rise and growth-fatigue might attract criticism of economist-elite but doesn’t matter! At least political benevolence when election is looming will influence the election-time-elite i.e. destitute populace enjoying political freebies.

Far-sighted UPA is praiseworthy that through NFSB it sanely transforms its social-obligation to provide food security to its population into their legal right to ask for it. For the first time any food subsidy scheme legally entitles whopping 67% of Indian population to avail 5kg rice, wheat and coarse grains from Govt. at respectively 3,2,1 rs. per month. Though it will raise the food subsidy bill to 1.2 lakh crore from 90,000 crore but at least 67% of the population will remain indebted and grateful to UPA’s munificence. It is commendable that Govt. is willing to feed (fund) the king of populist schemes though its Exchequer cannot afford to feed even a feeble-soldier-like populist scheme. UPA’s confidence and optimism must also be praised as it could rely on creaky Public Distribution System. Who cares that it has often been blamed for massive pilferage, at least people can now move to courts if they get denied of subsidized hoards, thanks to Centre and state level Grievance Redressal Mechanisms. Heart goes out to this right of people. PDS will not be fixed. Identification of beneficiaries will not be improved. But complaint can be lodged if Right to Food is not availed. As if complaint or for that matter punishment will bring food security to people! A person whose condition binds him to depend on Govt. bounties in the first place can ever be in a position to fight against govt. authorities/bureaucracy?  Well if UPA assumes so, one can’t help but believe so!

62.3 mt of food grains will be needed per year to meet out to scheme beneficiaries. Needless to say Govt. will become the biggest buyer of food from farmers distorting the already dilapidated agriculture market in the country. Who cares that Indian food market will be practically nationalized, at least Govt. will have enough food freebies to woo number of poor voters. Indian Government is bound to not conform to global trend of setting in competitive participation of private players in food market. After all, it will unnecessarily improvise food purchase-sale system in India, paving way for sufficient incentives to farmers and quality of food on cheaper price to consumers. Also, it would curtail Govt.’s monopoly over food market, something which should not happen as it is the interests of people in power not that of consumers, farmers or poor which ought to matter under the revered regimen of UPA.

 A section of people might argue that there is no dearth of food subsidy schemes in India. It is only poor identification of needy and poor implementation of schemes which causes subsidies not reaching to who it is meant for. They might further contend that fixing the loopholes of PDS and getting authentic poverty estimation through Social Economic and Caste Census (SECC) data or any other means is the pre-requisite for any food subsidy scheme to fructify the desired results, but they are missing out on most important logic. While such steps might actually bring in food and nutrition security for undernourished but would not guarantee votes. Why to bother, why to invest time in such social-welfare which does not accompany political-welfare.

Given the fracas over ordinance route and a widely held belief that UPA alone is likely to reap the benefits of implementing a populist scheme, rival state governments will remain hell-bent to tone down the positive impact of NFSB, if any, in order to not let UPA point-score. Who cares that Center state animosity will be the biggest cause why NFSB will prove to be an expensively disastrous scheme; at least it serves the political purpose of different political parties. Thus, despite seething failure of Right to Education and Right to Work due to the same reasons feared for Right to Food, if Government could still dare to experiment with NFSB, salute to its vigour. Long live Sonia Gandhi! Long live UPA!

Double Trouble

To maintain forex stability at the time of QE withdrawal and maturation of external debt is going to be a tough call for Government.

Reserve Bank of India recently reported that India’s external debt i.e. loans borrowed from foreign lenders has reached to as much as 21.2% of the GDP ($390bn) as of March end. The news has come in the backdrop of depreciating rupee which has already crossed the psychological 60 due to dearth of dollars in the country and might even go up given the series of internal and external structural challenges. Though the recent Current Account Deficit data standing at 3.6% of GDP for Jan-Mar quarter as compared to 6.7% of the previous quarter has rekindled the hope of strengthening rupee but rising external debt and their soon-to-come maturation period certainly spills water on this hope as repayment of these debts has to be made in dollars, thus causing upward pressure on rupee.

External debt mainly consists of External Commercial Borrowings (ECBs), NRI deposits and short-term credit. Worryingly, the share of short-term debt stands at 44.2% of the total debt which has to be repaid in the next one year. By the same time American Federal Reserve will also be tapering off quantitative easing (QE) as announced by Fed Chief Ben Bernanke few days ago. During American recession, under its QE policy, Fed was pumping $85 bn dollars in the economy on monthly basis which is going to be rolled back as American economy is back on the recovery path. India being the biggest beneficiary of American QE will now turn out to be the biggest loser as its major source of capital inflows i.e. Foreign Institutional Investment (FII) is likely to be ended by mid 2014. In fact, impact of this announcement is already palpable given the free fall of rupee for the past few weeks as many foreign investors have been selling out their bonds and stocks from Indian market. To maintain forex stability at the time of QE withdrawal and maturation of external debt is going to be a tough call for Government.

While Govt. has no say in decreasing or increasing FIIs inflow but it must try to control external borrowings. Cheaper foreign money prompts India Inc to borrow funds from other countries while lending rates in India are skyrocketing with no sign of coming down due to high inflation. Although external borrowings has a positive side too as it stimulates dollar inflow in the economy but relying on ECBs, short-term credit or NRI deposits etc. for forex stability is dangerous due to its being highly volatile. Now that the value of rupee against dollar has been sharply falling, it might lead Indian companies to pay their foreign debts sooner than later as their repayment amount in dollar terms is piling up due to exchange rate vulnerability towards rupee. Their dollar-demand for repayment will further cause rupee to weaken against dollar. Considering this, RBI along with Finance Ministry would better adopt measures to maintain internal stability rather than becoming victim to external sector vulnerability. Yet RBI recently eased ECB norms in order to attract dollar-inflows. It can be temporarily acceptable for short-term boost to rupee but certainly not a viable option given the risk factor associated with it.

India’s heavy dependence on imports is the root cause of its weak currency which is also the bedrock of rising inflation i.e. the prime cause of economic slowdown. India stands at fifth position among countries having largest coal reserves yet it is one of the biggest importer of coal due to poor coal-mining in the country. Also more than 80% of India’s oil demand is met via imports. It is also the biggest importer of gold which had raised India’s CAD to unprecedented level. However, gold import could be curbed by bumping up import duty on the same but it is difficult to divert people’s attention from this yellow metal for its being a sure hedge against inflation. Stringent measures have to be taken by Finance Ministry and RBI to mitigate India’s heavy reliance on imports as direct and indirect impact of rising commodity prices and services chargers not only surge inflation but also raise production cost thus making export products costlier leading India to lose in competitive export market from other countries offering cheaper products.

India is stuck in a gruesome vicious cycle. Solution of one problem works as the catalyst for another. In this backdrop, finding a balanced solution and thus shifting to virtuous cycle is a herculean task for Government. Tough times for Indian economy and the lesson must be learnt that heavy dependence on precarious global economy while being in throes of weak domestic economy is not prudent. A robust, domestically sustained economy can only bear the brunt of sudden emergence of internal and external turbulence.

Glittery Gold Jittery Government

Instead of cynically hiking import duty, Govt. would do well if it paves way for either virtual trading of gold or it should launch gold-indexed bonds instead of inflation indexed bonds.

Unmindful of its earlier failed efforts of controlling gold-import and discouraging its demand, Govt. once again resorted to the same trick by ratcheting up gold import duty to 8% from 6% (fourth hike within two years) disregarding the speculative undertone it might generate. Reserve Bank of India (RBI), in the vein of Govt., levied more stringent restrictions on banks to import gold and provide loans to public. Given the ballooning Current Account Deficit and badly depreciating rupee against dollar, curbing gold purchase seems the only viable step to Govt. to tame the imbalance of payment but it is highly unlikely if it would discourage the people to invest in gold as its being the safe and lucrative haven is a widely popular notion in the country challenging which is a tough nut to crack.

The unprecedented fall in gold prices in the month of April somewhat provided sense of relief to Government but unfortunately the impact of price-fall substantially got counterbalanced by surge in demand due to wedding and festival season in the country with gold imports touching 162 tonnes in May. Rising gold imports also pushed the trade deficit to $17.7 billion in April. Further trouble befell with the consistent depreciation of rupee which has now surpassed 57 against dollar bricking the prospect of even more widening CAD leading to even higher inflation which is already at an intolerant level.

It is in this backdrop that the Govt. has hiked gold import duty and RBI asked banks and nominated agencies to not import gold on a consignment basis for domestic use. Also, RBI disallowed import of gold on credit and advised banks to dissuade people from parking their savings in this glittery metal. Co-operative banks have been told to only lend against gold ornaments, gold jewellery and gold coins weighing up to 50 grams, amount of which must be within the Board approved limit. Though these measures might serve the purpose of Govt. in the shorter term but considering the fact that steps of similar kind have already been exercised earlier for no avail, it would not provide a medium term solution let alone long-term. The vicious cycle of yawning CAD, rising inflation, falling rupee and sputtering growth is the result of structural deficiencies but Govt. is hell-bent to put onus on Indian’s lure of Gold and fuel subsidies.

Considering the dearth of inflation-hedged investment options, Govt. has though launched the first tranche of Inflation Indexed Bonds but the fact that its coupon rate and principal amount are indexed against Wholesale Price Inflation (WPI) not Consumer Price Inflation (CPI), returns on these bonds would not be much profitable as its latter not former which directly affects the consumers. On the other hand Gold, despite its price-fall provides favourable return against rising inflation. Also, the ease of purchase, as against IIBs for which one has to go through the tedious system of opening bank accounts, filling up litany of forms, understanding complex formula etc, makes it handy and an obvious choice for investors over any other financial instruments.

Gold-frenzy is a global phenomenon. Only difference is that Government worldwide has channelled this frenzy into paper-based trading of Gold. Given this, instead of cynically hiking import duty, Govt. would do well if it paves way for either virtual trading of gold or it should launch gold-indexed bonds instead of IIBs. It is well past time to understand that it doesn’t matter how many hurdles or challenges being put up in the gold-game, Indians will bravely and enthusiastically sustain but would not give up till the end.

Rupee's Rout

Rupee meltdown has now become a structural problem and has put the country in a danger zone, coming out of which anytime soon is a herculean rather near-impossible task. 

Rupee-meltdown against dollar reached to its 10-month low this week, extinguishing every glimmer of economic-revival-hope emerging out of recent green shoots. In an import-driven country having skyrocketing inflation, rupee-depreciation brings multi-pronged negative outcomes with very little or no means to roll back to tolerant level of INR against USD. Recent GDP data, released by Central Statistical Organization, coming at a decade’s low of 5% for the last fiscal year i.e. 2012-13 has aggravated the disturbing repercussions of falling rupee denting the hope of Reserve Bank of India (RBI) going for policy rate cuts during its next monetary review. The current economic sentiment has led the rupee to fall in a vicious-cycle trap, coming out of which demands rigorous policy measures.

Though global factors like Eurozone recession, Euro weakness, monetary easing in Japan etc. , to some extent, led to rupee-deflation but failure at home to revive exports and to control its headlong inflation are primarily responsible why the value of rupee is going down. Immediate impact of this value-erosion resulted into petrol and diesel price rise by 75 paise and 50 paise respectively though global crude oil price is less than 100 Barrel. In the aftermath, inflation will certainly move upward which has been taking a downward route for last three months.

It is peculiar that 1.3 billion dollar has come to Indian shores via portfolio investment since the beginning of this calendar year yet the imports are rising unabatedly due to Indians’ lure of gold and oil import which results into ballooning Current Account Deficit and imbalance of payment.  Economy cannot rely on this so-called ‘hot money’ which can anytime be drawn out of the market. India requires huge amount of foreign capital which is invested in its core economy weeding out the prospect of capital flight. Foreign Direct Investment on sustained basis can very well serve the purpose. India has already allowed FDI in multi-brand retail and aviation yet attracting foreign investors is a pipe-dream given the domestic uncertainties like lowering growth, higher interest rates, policy-paralysis, archaic laws, political logjam and upcoming Lok-Sabha election etc. Also, global rating agency Standard and Poor’s retaining its negative outlook for India has added into the misery of beleaguered Government trying to impress foreign investors to invest in Indian Economy. Adequate foreign investment seems impossible in near future as domestic investors themselves are shying away from investing in India something which foreign investors will surely pay heed to.

Thus, if INR is perceived as a depreciating currency amidst high inflation and low growth, it will dry up Foreign Institutional Investment and Foreign Direct Investment at a time when India’s exports are not up to the required level and imports are rising with no sign of decrement, leading to severe balance of payment crisis. This currency meltdown has now become a structural problem and has put the country in a danger zone, coming out of which anytime soon is a herculean rather near-impossible task.

Not impressed!!

Political gridlock is crowding out positive impact of reforms.

To the surprise and embarrassment of Finance Minister, who has been long exerting to project India as a flourishing economy among foreign investors, global credit rating agency Standard and Poor’s has retained its ‘negative’ outlook for the country which is just one notch above junk status. Though Government doesn’t agree to it and is audacious enough to acclaim that global investors hold a different view, but this audacity is like living in a fool’s paradise and is nothing more than its face-saving exercise.

Undoubtedly many financial reforms have been announced by Government since September and also the country currently experiences various green shoots like easing-out inflation even reducing most stubborn Consumer Price Inflation, increased factory output, falling gold and oil prices leading to decelerated Current Account Deficit etc. However, why the world is not still convinced to rely on these positives is no rocket science to conjecture. India’s appalling political-paralysis resulting into acute policy paralysis, a cornucopia of corruption and scams, non-transparent and archaic laws etc has severely tainted its image worldwide which might require decades to get cleaned up.

The slow pace, at which reforms undertaken by Govt. were moving ahead, got further decelerated with a Government in dock due to series of scam revelations and an opposition in revenge-mode leading to precluded Parliament. Now it is not shortcomings at economic front but at political which has derailed India’s progress. Legion of policy bills are languishing from one session to another un-tabled or un-concluded. Spate of policy-discussions have been elasticizing from one meeting to another with no consensus to be in sight. It seems political brinkmanship in India has escalated to a toxic level where legislatures have now started compromising on even their core responsibility i.e. to discuss and draft legislation. Food Security bill, land acquisition bill, FDI in insurance, Goods and Services tax including many more bills will perhaps remain stuck till new government comes in.  S&P rightly pointed out “Given the political cycle—with the next elections to be held by May 2014—and the current political gridlock, we expect only modest progress in fiscal and public sector reforms. For example, reforms of fertilizer subsidies, introduction of a nationwide goods and services tax, easing of restrictions on foreign ownership in various sectors such as banking and insurance sectors, will take time.”

It seems that India has taken an oath to always flow against the wind. In the aftermath of global financial crisis when the whole world geared up to restructure banking industry, India didn’t pay heed to it. Now when all major countries are coming forward to clamp down on tax havens, India doesn’t seem to be taking this call seriously. When every other country is enthused with the green shoots in the global economy and trying to make the most of it, India is clogged with unnecessary political altercation at home and losing on the most opportune time to recover from the economic meltdown.

S&P must not be blamed for India’s negative rating, in fact, it would be no wonder even if it is downgraded to junk status given the disturbing trend of political logjam leading to legislation logjam which has severely dampened India’s already fading credibility at international forum. Global investors, who look for stable and transparent legislative regime for their long-term investment plan, no more sees India as a prospective investment-destination. They have gone wary, uninterested and indifferent towards Indian economy. It is high time that Government ignites its dormant insight and modestly accepts what S&P has stated. Government, which is so enthusiastically branding itself at home through ‘Bharat-Nirman’ campaign, would do well if it channelizes even a tad of this enthuse to improvise its depressing global-branding instead of national-branding.

Silver lining

it’s merely the prospect of a strong green shoot spontaneously fuelling the virtuous cycle of growth which  can lead to a revived economy, certainly not legislative insight of legislatures. 

In the vein of International Monetary Fund, recently Prime Minister’s Economic Advisory Council has also forecasted that Indian economy is bottoming out and getting back on the growth trajectory.  The emergence of green shoots in domestic and global economy like easing out inflation, increased factory output, gold and oil price fall etc. also gives the same sentiment. While global economies are trying to make the most of current green shoots, India is not being able to, due to constantly getting crippled with acute political-paralysis having been already in throes of policy-paralysis.

March Index of Industrial Production print at 2.5% has provided some relief to a beleaguered Government and Reserve Bank of India who were constantly troubled with sluggish industrial activity and sputtering growth. Reeling under the huge pressure of massive gold and oil exports, recent steep fall in gold price and decreased crude oil price has sparked the hope that India’s forex reserve will boost leading to a declined Current Account Deficit. In addition, the most significant green shoot favoring Indian economy is its assuaging inflation. Not only wholesale Price Index lowered down to 5.6% in March from 6.2% a month earlier, Consumer Price Index (CPI) has also dropped for the first time in six months, though it remained in two digits at 10.4% in March against 10.9% in Feb. Core inflation has fallen under the RBI’s tolerance limit being at 3.4% and food inflation has also somewhat alleviated. However, RBI is still cautious and refrained from adopting eased monetary stance in its Monetary Policy released back on 3^rd May 13. Going against the expectations of industry and stock market, RBI cut the key interest rate by just 0.25% to 7.25% and kept the liquidity enhancing cash reserve requirement untouched.

RBI not relenting upon policy rates is justified as India’s data computation system is not robust enough to produce micro-economic data and doesn’t give the clear picture of how small industries are faring at any given time. Therefore, it would be pertinent to wait for few more months in order to let the green shoots keep shining and solidify. It must also be noted that it is not economic constraints but escalating political-logjam that has bound the RBI to shower enthuse in the market. In the words of RBI-Chief D. Subbarao “the effectiveness of monetary policy in bringing down inflation pressures and anchoring inflation expectations could be undermined by supply constraints in the economy, particularly in the food and infrastructure sectors. Without policy efforts to unlock the tightening supply constraints and bring enduring improvements in productivity and competitiveness, growth could weaken even further and inflationary strains could re-emerge.”

Considering a Government dogged by scandals and corruption and an opposition hell-bent to spew venom against former, it appears that India has landed into a permanent crisis. It’s unfortunate that just because of petty political brinkmanship resulting into precluded parliamentary proceedings hindered the discussion on many important policy-decisions. Land acquisition bill, Foreign Direct Investment in insurance bill etc have been languishing from one session to another without getting tabled.

Economic recovery indicators are surely palpable. Having been in the throes of slow growth for long, this is exactly the time that India gears up to push reform agendas ahead and make the most of what global and domestic buoyant sentiments are offering. It must understand that economic slowdown is not as gruesome as the political slowdown resulting into policy stalemate. Expecting prudence on the part of Govt. and opposition at this time when general elections are round the corner is definitely like nurturing a false hope. Nothing is going to be done by these revered parliamentarians, it’s merely the prospect of a strong green shoot spontaneously fuelling the virtuous cycle of growth which  can lead to a revived economy, certainly not legislative insight of legislatures. 

Parliamentary Paralysis

Opposition-Goverment would do well by igniting their insight and pushing reforms ahead instead of getting clogged with insignificant altercation.

India is in throes of acute legislative deficit which doesn't seem to be tided over with ever increasing stand-off between Opposition and Government. It has now reached to the extent where parliamentary proceedings are getting disrupted on daily basis due to unnecessary uproar in parliament. While acrimonious political brinkmanship is the part and parcel of parliamentary form of Government which does exist in many other countries as well, but India’s situation is peculiar where acrimony between Opposition and Government has reached to a level that Parliament’s core duties i.e. decision-making and legislative functioning has come to a stand still. 

According to statistics compiled by the Lok Sabha secretariat, 1,157 hours of Parliament sittings have taken place and 634 hours have been lost on account of interruptions and adjournments until the 12th session of the 15th Lok Sabha, which was elected in May 2009. It is now well on track to achieving the dubious distinction of being the least productive in terms of business transacted among those that completed their full five-year terms.

Budget session is always the most significant session for Lok-Sabha, unfortunately, it has been the most chaotic and non-productive one for the current House especially with the resumption of second-half of the session beginning from 22^nd Apr. It is surprising that general budget and Railways budget sailed through Parliament with no discussion at all and many important bills like Food Security, Right to services, land acquisition, Lokpal etc are waiting in the cue to get parliament nod. It is highly unlikely that these bills get passed in the current session which will be ended by 10^th Nov.

The disturbing trend of political logjam leading to legislation logjam is the major dampener to India’s fading credibility at international forum. Poor governance and spate of corruption scams especially 2G spectrum and coal block allocation scam which led Supreme Court to cancel all allotments done by corrupt leaders have set a worrying precedent that deals can anytime be terminated and laws can any time be changed in the country. Global investors, who look for stable and transparent legislative regime for their long-term investment plan, no more sees India as the prospective investment-destination. They have gone wary, uninterested and indifferent towards Indian economy.

It is time that strict measures are taken to keep the parliament running. Petty politics of Indian politicians has reached to a toxic level where they’ve now started even compromising on whatever little they do for the country. Either opposition dares enough to promulgate no-confidence motion against Government or it simply let the Parliament transact its daily business. Point-scoring politics on the part of opposition and blatant denial of Government for its wrongdoings will help nobody. This is the time when global economy is reviving and India is also experiencing positive greenshoots. They would do well by igniting their insight and pushing reforms ahead instead of getting clogged with insignificant altercation.