Why Restoring Industrial Growth is More Important at Present Than Curbing Inflation
Now that the new government is in saddle , it is facing the huge expectations raised during election . While containing corruption is not a problem for this government and it has already constituted SIT for unearthing black money , curbing inflation and restoring Industrial and Economic growth are the bigger and more difficult challenges. It is more difficult because for the second year our GDP growth has been below five percent . Industrial growth in the last quarter was almost negative . Huge inventories have built up of unsold cars and houses . Power shortage is phenomenal due to shortage of coal . As PM used to say in his election campaign that 22000 MW of power generation capacity is lying unutilized due to non availability of coal .
Reserve bank has consistently refused to lower the interest rates fearing its adding to inflationary pressures . At the current interest rates housing and auto demand is bound to remain slack . Slack demand will keep growth low .
This year monsoon may be trying the ability and the patience of the new government . If rain gods are not benevolent, inspite of restrictive money supply and low fiscal deficit, inflation may still be high . Also India is now suffering from Stagflation and not the classic inflation . Stagflation cannot be tackled by restrictive money supply . Our past efforts from 2008-9 onwards have not succeeded in restricting inflation inspite of raising interest rates and restricting credit . Opening bank credit against foodgrain stocks was the cause of the beginning of mega inflation . It was made to order inflation that Manmohan government could not tackle due to coalition pressures . Later MNREGA and other wasteful schemes continued the inflation . Now government may not be able to stop those wasteful schemes and may not be able to reduce inflation immediately .
Meanwhile why continue to punish economy for poor politics .
Even if we have to take risk , people can be taken into confidence but we must put economy in top gear by lowering interest rates , easing credit , creating confidence back in bureaucracy and industrialists which got destroyed by witch hunting in the name of watch dog bodies .
Honesty is natural in human beings . It got destroyed by a very corrupt government and electoral pressures. Publicity of mega corruption lead to over emphasis on vigilance , CBI, CVC which is very counter productive to growth . The provisions for protection of senior officers from harassment on policy decision must be restored .
Big growth requires big risk and bold officers and Industrialis. Inspite of best intentions Tata’s Nano car project has not taken off . Can we hang people for it ?
In short the government must give preference to restoring economic and Industrial growth and live with minor inflationary pressures.
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