THE DIFFERENT FACETS OF EMERGING ECONOMY

The growth of Indian economy has been characterized more by hyperbole than the results for the common man and the poor. The year 2007 may be a watershed moment for the economic growth of our country with the G.D.P. projected at 9%. Keeping pace with the new age developments the past few years have seen rapid economic growth. Rapid economic growth and the existence of millions of poor people in India have exemplified our country as a land of contrasts. India is a land of collisions between the past and the present. Two decades back though the economic growth was slow, it was poor oriented. It ushered in a green revolution which led to agricultural growth and community and rural development which alleviated the problems of the poor. But the benefits of the present rapid economic growth have not percolated to the poor and the common man. The rate of decline in poverty has not kept pace with higher growth. There is no denying the fact that 60 percent of the Indian population depends on agriculture. Agriculture alone accounts for more than 20 percent contribution to G.D.P. However the budgetary allocation is grossly low when compared to the other sectors. Though the government has emphasized on increased credit facilities to the rural population engaged in farming, Banks are fighting shy to provide loans to more than 50 percent of the farmers. Bank's apathy, non remunerative prices and poor rural infrastructure like irrigation, ware housing and transport has added to the woes of the farmers. Farmers were deprived of fair prices for their produce resulting in their indebtness and large number of suicides. Ironically most of the suicides were from agricultural advanced states of Maharashtra, Karnataka, Andhra Pradesh and Punjab.

India is a land of contrasts where there are some who invest lakhs and crores of rupees on an apartment or have the right to splurge in a licentious way while others are content and happy at being able to pay Rs.25/- for a square meal. The satisfaction at the macro economic situation gets camouflaged with the stark fact that nearly 77 percent of our population earns an income of Rs.20/- per day. The inequalities in human development have an adverse impact on the lives and capabilities of the people. The two faces of India should converge for a sustainable growth and bring about a social harmony in the country. The states of Bihar, Madhya Pradesh, Gujarat, Maharashtra and U.P. have accounted for 75 percent of the country's rural poor.
Poverty can be eradicated only by significant investments in health, human resources, education, and infrastructure. Investments in social infrastructure will provide the common man and the poor with access to employment opportunities. I believe that education is the catalyst that generates human resource and it is considered as the most effective weapon to fight poverty. In the eyes of the common man there are two Indias - an India which is focusing on generation and accumulation of wealth and the other on eradicating poverty. With the economic boom and the bullish share market wealth is cornered by only a section of the population. The inequalities in human development have adversely impacted the life and capabilities of our people. The two faces of India should converge for a sustainable economic growth to create decent employment opportunities which will not only eradicate poverty but will build a strong foundation for political and social stability.

It is high time the ground realities are accepted to rectify and address the crisis. India's phenomenal growth rendered in figures in graphs and bulletins appears to be a fairy tale. The government claims that the revenue collection during the present financial year is the highest when compared to the earlier periods.

The direct tax collection during April, December 2007 of the current financial year at Rs.164 crores is a whopping 42 percent higher than what the government collected in the corresponding period last year. Corporate tax contributed Rs.98391 crores. In order to widen the tax net and broaden the tax base the government is roping in new payers besides introducing new taxes like fringe benefit tax, securities transaction tax, banking transaction tax and service tax. It is reported that the securities transaction tax at Rs.5895/- crore was 74 percent higher than last year. The government claims to have brought down Inflation to 3.5 percent which is based on wholesale Index. It is not based on a reality check. The consumer price Index and the retail price of commodities are always on the rise which has deprived the poor and the middle class people from realizing their rightful aspirations. Unfortunately channeling the revenue for development projects and ameliorating the sufferings of the poor is bogged down by political avarice and bureaucratic cupidity. This has culminated in the rise of crime and passion which is finding expression in a stressed urban and rural scenario.

In public perception substantial revenue is wasted on non developmental expenses for running bloated government machinery which has no or little value to the common man. We are a democracy and hence it is imperative that the law of equity is given its due importance to narrow or bridge the gap between the abysmally poor masses and the well to do minority.

The economic gains can be felt only if the money spent on developing projects translates into a better standard of living for the poor and the common man. The government needs to realize that evolution of democracy should be out of the free will of the people and it cannot be imposed on them. It is for the people and by the people.

THE ECONOMIC GROWTH VIS-A-VIS SAVINGS RATE

The post Independence India saw our nation as frugal despite the fact that India was considered as a country of thrifty individuals. Though by and large the people were thrifty the savings rate remained static. This was so because the house hold savings was mostly invested in land and gold. Investment in land was mostly considered as a source of livelihood. Investment in gold was in consonance with the Indian tradition. As there was no generation of employment opportunities the savings rate among the individuals remained static. The savings rate then was comparatively lower to the rates of developing countries. The savings rate which was about 10 percent during 1950 showed a marginal increase of 5 percent in 1971. The new age development has ushered in economic growth since the past few decades. It has seen the magnificent resurgence of India after decades of poverty even at the middle class level. Encouraging economic growth has thrown up a few magical tricks and turned a bleak situation into a bright one. With the economic growth picking up there was a spurt in the savings rate which stood at 25.5 per cent in 1995. Since then there was no looking back. With a robust economy the savings rate spiraled to 32.4 percent in 2005-06. Consequently the per capita income also rose considerably.

With the advent of I.T. revolution and globalization services led growth has brought about phenomenal increase in the employment of the educated. The Industry which is reported to be employing 1.3 million people has a revenue growth potential of about 25 percent. Globalization has culminated in massive technological growth. The IT Industry and the BPO deluge offering high pay and perquisites have become a blessing and bane to the present youth. In contrast to the old socialistic system we have emerged into a society that is money oriented. Public have become more status conscious and money obsessed. With more money supply there is sharp rise in savings rate. Today the house hold savings is about 70 per cent of the aggregate savings, despite the consumption splurge. With the increase in income of the individuals, the consumption among the Nouveau Riche and the younger generation has catapulted. According to the Max New York Life 81 percent of Indian house holds have savings but only 51 percent deposit in Banks. This is so because there are other avenues for parking their savings with better returns like in Real Estate, Gold and to a certain extent even in Share Market. Substantial amount is invested in real estate which is presently at its pinnacle. However real estate boom depends on demand and supply and also the government policy. Hence such investments are not devoid of risk. It was envisaged that a faster growth in producing capital goods will entail in the savings rate increasing appreciably. With globalization and post liberalization boom the Indian markets were exposed to the foreign consumers abroad. This led to phenomenal increase in exports of garments, leather goods, carpets, rice, shrimp etc. India is today considered as an economic power house with the growth of economy projected at 9 percent. Apart from the house hold savings the corporate sector is reported to account for 60 per cent increase in private corporate savings. The reduction in wasteful expenditure at the Central and State Government level also contributed to the increase in the savings rate which was conspicuous by its absence a few decades back. With the appreciable increase in the savings rate which presently stands at 32 percent despite the spending splurge by the individuals, shopping has turned out to be an established national pastime in India. Retail outlets have given way to shopping malls. The right to splurge in a licentious way has become a way of life. Despite the substantial savings rate individuals in service sectors have gone berserk about material acquisition.

How ever the disturbing trend is the economic slow down in US which are a cause of worry for the global economy. The US economic slow down is expected to hit the software exports to the Banking Financial and Insurance sector in US. If the impending recession in US turns out to the full blown, it will impact the I.T. Industry severely so much so the annual growth in software exports may reduce from 30 per cent to 20 per cent. This in turn will have an adverse effect on corporate savings. The rupee appreciation against the dollar has added to the woes of the exporter. There is also an apprehension that a full blown recession in US will result in US cutting, spending and slashing outsourcing to India. All this means the job opportunities will fall drastically and consequently the savings rate will go for a tail spin. Coming events cast their shadows. This is best exemplified by the downward trend in the share market which has shed 4000 points within a span of few months. It is a known fact that the bulk of the investments in share market comes from foreign Institutional investors who sway the share market. As a result of the slow down of economy in US due to sub prime crises the foreign Institutional Investors have started pulling out their investments from the share market. The subprime crisis in US is as a result of non repayment of mortgage loans by the borrowers. The fall in the share market has resulted in retail and corporate investors loosing crores of rupees.

Fortunately for India the foreign exchange reserve is high at $283 billion. Since India's economy is robust foreign Institutional Investors are expected to reinvest in our share markets sooner or later.

The need for prudence and austerity in spending by the individuals and corporate sector will go a long way in sustaining the present growth in savings rate.

Monetary Policy - Inflation

The August 2007 issue of Reserve Bank of India Bulletin makes a interesting reading in as much as a robust economy is projected with commendable achievements in almost all sectors be it Agriculture, Industry, Manufacturing, Communication, Service, Banking etc. As per the Reserve Bank of India Bulletin Indian Economy continued robust growth in 2006-2007 for the fourth successive year buoyed by the sustained momentum in the services, manufacturing and other sectors. The Agricultural sector has also shown a sustained growth. The growth in Agricultural sector is mainly due to South West Monsoon which has been satisfactory despite hiatus due to initial delays in its onset over western, north western and central regions. The cumulative rainfall during 2007 season (upto July 07) was 4 percent above normal as compared with 14 percent below normal during the corresponding period of the previous year - Source India Metrological Department. As of July 07 total area of Kharif sown was 1.7 percent higher than that in the corresponding period of 2006. According to the fourth Advances estimate the food grain production during 2006-2007 was 216.1 million tones an increase of 3.6 percent over previous year source - Ministry of Agriculture, Government of India. Industrial output has increased more than the expected level in April / May 2007. The Industrial production remained robust during April / May 07. It has clocked a record expansion of 11.7 percent. The manufacturing of sector has shown an impressive growth of 12.7 percent - Source - Central statistical organization. The service sector growth during 2006-2007 has shown a commendable growth in as much as it has contributed 71.5 percent to the overall GDP growth of 9.4 percent - source Ministry of Tourism, Ministry of Commerce and Industry, Ministry of Statistics, Programmed Implementation RBI and CMIE. The other sectors which have shown significant growth are Communication, Corporate and Banking. The perceptible growth in other sectors also contributed to a robust economy.

Though our economy is growth oriented it is not a bonanza to the average consumer. The benefits of the growth in economy have not percolated to the common man. There are grey areas which needs the Government's attention. A large portion of the population especially in the rural areas and in towns is well below the poverty line. Unless the Government takes immediate corrective steps to ameliorate their standard of living the average consumer will find it arduous to make both ends meet.

As per the statement of Reserve Bank of India Governor on the First Quarter Review, Review of Annual Monetary Policy for the year 2007-08 and published in the August 2007 issue of Reserve Bank of India Bulletin, Inflation measured by variations in the wholesale price (WPI) on a year-on-basis declined from 5.9 percent at the end of March 07 to 4.4 percent as on 14th July 07. The inflation during August / Sept 07 is reported to have declined further. Though the figures are in consonance with the Finance Ministers expectations it does not augur well with the purchasing power of the average consumer. The average consumer is more concerned with retail prices of commodities rather than whole sale price.

After all he is not going to make purchases in bulk in the whole sale market as many of the commodities like vegetables, eggs, milk, fish, fruits etc. are perishable by nature. Further when the general inflation is reported to be hovering around 3.5 percent the food prices Index is about 8.5 percent. The prices of onions, potato, pulses and even rice and wheat are spiraling upwards. The common man is concerned only with consumer price Index as it gives due weight age for food, fuel, transport, clothing, housing, medical care, education etc. which has a direct impact on him. The Real Estate market is over heated and dreams of owning a house is shattered as the prices have sky rocketed in all cities and even in towns. It is only the affluent class of people and professionals from I.T. Industry purchase flats / house at exorbitant price as their purchasing capacity can withstand the buyers offer. It is not known whether the government has considered the housing cost when computing whole sale price Index. Another aspect which the average consumer is concerned is the medical care. There is no denying the fact that the cost of medicines and hospitalization has spiraled since the last couple of years and the Government has not made any attempt to curb the prices. The premium on Mediclaim policy issued by the Insurance Companies has shot up by 200 percent.

With the increase in prices of all commodities having a direct impact on the average consumer, there is no reason for the Government to gloss over the general inflation which they claim to have pegged. The inflation figures projected by the government are not based on reality check. The significant growth in the economy should have translated into a bonanza for the average consumer by making available the basic necessities at affordable prices.

It is imperative that the government takes appropriate steps at the earliest to evolve a fool proof system for computing the whole sale price Index which should not be in contrast to the Consumer price Index at least with respect to the basic necessities of the average consumer. This in reality will act as the yard stick for measuring the general inflation which otherwise gets camouflaged, by whole sale price Index.