Why Pranab Mukherjee's defence in the Rajya Sabha was weak?

Written by: Sunil Fernandes
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Why Pranab Mukherjee's defence in the Rajya Sabha was weak?
Sometimes we do not encounter the real enemy, which is more often than not, ourselves. Pranab Mukherjee's reply in the Rajya Sabha on Wednesday, on a range of issues was more like “living in excuses”. Here is a reply from Pranab Mukherjee, and a justification for why we believe that his arguments were weak and hold little water.

* Pranab Mukherjee: “Fall in markets is due to Greek crisis. It is a complex situation in Europe, we cannot ignore it.”

Greece is not a big factor for a fall in the Indian markets, but poor Indian economic fundamentals certainly are. India's GDP for 2011-2012 is likely at 6.9%, against the previous year's figure of 8.3%. We were growing at a much better pace even after the Lehman crisis. India's growth story is a domestic consumption story and we are relatively well insulated from global events, unlike China, which depends largely on global cues, since it is a large exporting nation. High current account deficit, high inflation, mounting subsidies, unsustainable fiscal deficit, ambiguous foreign tax norms and weak rupee have contributed more to the markets downfall than the “Greece” mask.

* Pranab Mukherjee: “The rupee fall arose out of the weakness in Euro.” 

The rupee has not fallen out of weakness in the Euro, but rising trade deficit and current account deficit. None of the BRIC nations have seen their currencies touch historic lows, despite the fall in the Euro. India's current account deficit is more than 4%, which has done severe damage to the rupee. Our inability to attract FDI like China has played on the rupee. Foreign Fund flows which were a mammoth Rs 44,000 crores in the first three months of the year, have now dried up due to policies like retrospective taxation, which has shooed foreign investors away. We are unable to reduce the trade deficit, as imports keep increasing (gold and oil particularly), while our exports are showing signs of slowing down.

* Pranab Mukherjee: “I will bite the bullet on subsidy when I know it will not end in a fiasco. They are around two per cent of the GDP.”

Subsidies have been instrumental in playing havoc with the fiscal deficit, which for 2011-2012 was projected at 4.6% of GDP, but has now touched 5.9% of GDP. Pranab Mukherjee might want to bite the bullet after the 2014 elections, since tinkering with subsidies is not too popular. Subsidies has done much damage to government finances and kept inflation at elevated levels. What is the fiasco he is talking about? Threat of  Mamata Banerjee and re-election if he tinkers with subsidies?

* Pranab Mukherjee: “I don't want to press panic button, but austerity is needed. I am going to put in some austerity measures”.

The economy needs more government spending to propel growth, particularly in infrastructure, when GDP growth has dipped sharply from 8.3% in 2010-2011 to 6.9% in 2011-2012. At such a time, stimulus rather than austerity measures would help.

BJP leader and former Finance Minister Murli Manohar Joshi was certainly right in asking during Zero Hour, "The crisis in our economy is growing. Are we heading towards 1991?”

We certainly are not very far, it's just that sometimes we like to mask it. 

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