Bharatiya Janata Party
National Executive Meeting 12th, 13th, 14th September, 2008
Late Jagannathrao Joshi Sabhagar
In the economic field, the last four years of the UPA government have been a saga of gross mismanagement, missed opportunities, retrograde policies, and endless woes for the aam admi. The NDA had left behind an economy in the pink of health. The growth rate of the economy in 2003-04 was 8.6%. Every product was available in the market in plenty. India had moved from being an economy of shortages to an economy of surpluses. The country faced its worst drought in recorded history in 2002 as a result of which foodgrain production in that year was four crore tons less than in the previous year. However, since there was a stock of 6.5 crore tons of foodgrains in government godowns, we not only managed to feed all our people, we also kept prices under check through liberal releases of foodgrains from government stocks. The first Economic Survey presented by the present Finance Minister to Parliament in July 2004 recognised this in the following words “The economy appears to be in a resilient mode in terms of growth, inflation, and balance of payments, a combination that offers large scope for consolidation of the growth momentum with continued macro-economic stability.” Yet, this is exactly where the UPA government has failed completely. As long as the momentum provided by the NDA government lasted, the economy continued to grow at a brisk pace. No sooner was that momentum lost, growth has started faltering and the economy is beset with problems.
The single most important issue in the economy today is price rise and its adverse impact on the aam admi and the economy as a whole. The Economic Survey presented to Parliament this year notes in its very first paragraph “The decisive change in growth trend also means that the economy was, perhaps, not fully prepared for the different set of challenges that accompany fast growth”. This is an admission of failure by the government itself. Why did it not prepare the economy to meet these challenges? The Economic Advisory Council to the Prime Minster in its report on Economic Outlook for 2008-09 released recently has observed that inflation may peak at 13 percent and will take a long time, considerable effort and a concurrence of favourable factors to moderate to 7 percent. One of the great achievements of the NDA government was strict control on prices unlike the present government which has failed so comprehensively on this front. The most painful aspect of the current price rise is the uncontrolled spurt in the prices of essential commodities and their short supply. Food security has been seriously jeopardised under the UPA regime. Their procurement policy has been a failure, the public distribution system is in a mess and the ‘aam admi’ has no alternative except to starve. Food riots have broken out in many parts of the country, specially in West Bengal where the Left parties stand completely exposed. This is the direct result of the gross neglect of the agricultural sector by the UPA government.
Contrary to its claims, the UPA government has not only been anti-aam admi, it has also been anti-kisan. Agricultural infrastructure has been completely neglected by this government. All input costs relating to agriculture have gone up. There is a crisis in the fertilizer sector. Not only are fertilizers in short supply, even the appeal of our State governments to augment supplies fall on deaf ears at the level of the Central government. Fertilizer riots have become common place. The PM had set a target of doubling agricultural production by 2015, but there are no signs of that happening as agricultural production continues to stagnate and remains dependent on monsoon rains.
In the absence of remunerative prices, coupled with lack of timely, affordable and adequate credit and the hike in interest rates is forcing the helpless farmer to commit suicide. During the four years of the UPA government at least five thousand farmers have committed suicide in various parts of the country. The Prime Minister’s much touted ‘Vidharbha Package’ for the farmers has proved to be a non-starter. So is the farmer’s loan waiver scheme which has left the majority of farmers seething with anger and discontent.
The demand of the paddy farmers to be treated at par with those growing wheat is entirely justified. The BJP fully supports the demand of paddy prices being fixed at Rs 1,000 per quintal. The government, however, continues to sleep over the issue.
The response of the government to farmer’s woes has been to add to it further by importing food grains in large quantities and at high prices. From being a net exporting country during the NDA regime, this government has reduced India to being a helpless food importing country. Wheat imports have been a major scandal of this government. Not only was wheat imported at a high price, the quality was also compromised and the government ended up importing wheat which was not fit for human consumption.
The present policies followed by the UPA government will never succeed in controlling prices. The BJP is convinced that as long as fiscal issues and supply side constraints remain unaddressed, merely monetary measures will not suffice. Even the Economic Advisory Council to the PM has noted “The economy continues to be supply-constrained, most acutely in the areas of physical and social infrastructure like electricity, irrigation and drinking water, road and rail transportation and urban and rural infrastructure”. It is disappointing to note that most of the good work begun in these sectors during the NDA regime have either been abandoned or slowed down. On the infrastructure front, there is not a single achievement of this government worth noting.
Having failed totally on the inflation front, the UPA and its chairperson have decided to indulge in the blame game. They blame international factors like high petroleum crude and commodity prices; they blame the NDA regime and its policies as if four years were not enough for this government to change those policies; they blame the state governments for not taking stern action against hoarders, blackmarketeers and profiteers; they blame the traders and the business community; in fact, they blame everyone else except themselves. Fortunately, the people of India have seen through this farce, have taught the UPA government salutary lessons in a state elections one after the other and are waiting to teach them a lesson in the general elections also.
As was to be expected, high inflation has led to high interest rates. Declining demand has emerged as the major reason for the slow down in GDP growth which has fallen to 7.9% in the first quarter this year compared to 9.2% during the same period last year. Manufacturing growth has fallen to 5.6% compared to 10.9% last year. The other sectors of the economy like agriculture and services have also registered significant declines. It is also getting reflected in corporates cutting back on project investments. According to the latest report for Centre for Monitoring Indian Economy the number of projects which have been either abandoned or shelved during the quarter ending March 31, 2008 has risen to 39 compared to 16 a year ago. Similarly, only 64 projects involving an investment of Rs. 13,456 crore were completed at the end of the last quarter of 2007-08 compared to 184 projects involving an investment of Rs. 45, 925 crore during the same period last year.
Increasing interest rates have created a double jeopardy for the middle class. While on the one hand his budgetary calculations have gone haywire as a result of increasing prices, on the other, he is now required to pay 35 to 40 percent more by way of Equated Monthly Instalments (EMIs) for loans that he may have taken to construct a house, buy a flat or any other consumer durable. This has resulted in unbearable misery to the middle class.
Perhaps, nowhere is the mismanagement of the economy more evident than on the fiscal front. The EAC to the PM has observed “there are, however, serious fiscal risks arising from growing off-budget liabilities on account of fertiliser, food and oil, along with unbudgeted liabilities arising out of the farm loan waiver and NREGA schemes and the implementation of the Sixth Central Pay Commission. These liabilities could amount to 5 percent of the GDP in 2008/09, over and above the budgeted central fiscal deficit of 2.5 percent”. This is nothing but fiscal fraud. The EAC has said that “The problem with off budget liabilities is that not only do they impose an additional burden that has to be extinguished when the liabilities mature, but they also have a significant servicing cost”. The Finance Minister claims that he has not only stuck to the FRBM Act targets, in fact he has improved upon them. Does he think that the people of India are so blind or illiterate that they will not see through his game? He has very cleverly pegged the fiscal deficit at 2.5 percent of the GDP this year against the target of 3 percent. So, if it is increased subsidies or the Sixth Pay Commission burden or the farmers’ loan waiver or excess expenditure on NREGA schemes, his stock answer is that he has a headroom of 0.5 percent available to him to meet these expenditures. 0.5 percent of GDP is about Rs. 25,000 crore, 5 percent off budget liabilities alone amount to about Rs. 2,50,000 crore. Burgeoning fiscal deficit is directly responsible for inflation and the failure of the government to control it. With fiscal deficit at 7.5 percent of the GDP and revenue deficit at 6 percent, this government has completely destroyed all the efforts made during the NDA regime to bring discipline in government finances. Increasing interest rates are bound to impact on the interest burden of both the Government of India as well as the State governments, thus further adding to the fiscal mess.
The UPA government has shown an unhealthy propensity to transfer its fiscal burden to future governments. Be it farmers’ loan waiver or the arrears of the Sixth Pay Commission, the government has merrily transferred the bulk of the burden to future years. While implementing the Sixth Pay Commission’s recommendations, the government has decided to pay only 40 percent of the arrears this year and 60 percent next year. Now the news comes that income-tax on the entire 100 percent of arrears will be charged in the current year itself. Thus, not only will the government employees get no cash in their hand, the government which will come into power after the next general elections will have to pay 60 percent of the arrears and also give a miss to charging income-tax on it.
Large fiscal deficits tend to spill over into the current account also. This Executive notes with concern the fact that the current account deficit has swollen to 3.5 percent of the GDP, well beyond the comfort zone of 1.5 to 2 percent. It may be noted that during the NDA regime we had brought the current account into a surplus after thirty years of its being in deficit. That gain has once again been lost.
Another worrisome feature in the current economic scenario is the anticipated decline in domestic savings. The EAC to the PM says that public sector savings will be adversely affected by the increase in the subsidy burden. Erosion of corporate margins would also contribute to a relative decline in private corporate savings. Household sector savings after climbing to 24.2 percent of the GDP in 2005-06 have actually registered a decline since then. The Executive believes that higher gross domestic savings since 2002-03 have been responsible for the spurt in growth that we have witnessed in recent years. If gross domestic savings stagnate and decline, it is bound to have an adverse effect on growth.
The single most important reason for the current price rise advanced by the government, namely high international crude prices has ceased to exist now. Crude prices have declined from around US $ 150 to less than $ 100 now. The Petroleum Minister, however, continues to issue daily statements that petroleum product prices would not be reduced. The BJP demands that petroleum prices be reduced with immediate effect to provide some relief to the common man.
It is surprising that despite the reduced cost of oil imports, the value of the rupee against the US dollar continues to decline. The party feels that manipulators are operating in the exchange market also, like they are operating in the stock market with the full support and blessings of the powers that be.
For the BJP the issue is not that the growth rate this year will be 7.7 percent or 7.5 percent. The issue is that this will represent a decline of almost 2 percent in the growth rate compared to 9.6 percent achieved earlier. The issue is that we were on the threshold of double digit growth. That opportunity seems to have been lost by the present government. For the BJP the issue is that the common man and the farmers have suffered untold hardship in the last four years of the UPA government. The Kisan and the aam admi have been badly betrayed by this government. Unlike the NDA which bequeathed to its successor a healthy and growing economy, the UPA government will hand over to the next government an economy in total mess and unpaid bills of a huge magnitude.
The catastrophic floods in Bihar have once again brought the issue of disaster management to the forefront. After the Gujarat earthquake of 2002, the NDA had set up number of institutions to anticipate, manage and mitigate the risk of natural disasters. Under the UPA that system has been allowed to rust. Disasters impact directly on the economy apart from causing hardship and suffering to millions of people. This Executive calls upon the Government of India to streamline the functioning of disaster management systems and also assures the people of India that the party will, when voted to power, take effective steps in this direction. It is most unfortunate that Ministers of the Central government are shamelessly politicising the distress of the people of Bihar and far from helping in a strengthening relief operations they are creating road blocks for the state government.
After behaving like slaves of the Left parties for four years and not only stalling but destroying the forward movement of economic reforms, the UPA government has now suddenly woken up to the virtues of reforms and would like to move it forward with our support. Earlier, whenever we offered our support for some of the legislations which had originated in our time, the UPA government used to reject those offers with contempt. Why are they so keen on our support now? The BJP would not like to taint this government by extending its support to it for passing these economic legislations.
The people of India had been falsely led to believe that the UPA government had brought together a dream team of economic policy makers the like of which had never been seen before and that India was about to be ushered into an era of uninterrupted prosperity, plenty and happiness. That dream has not only killed by the so-called dream team, it has delivered a veritable nightmare to the people of India.
The UPA government has been an unmitigated disaster on the economic front. It has not only undone all the good work done during the Vajpayee era, it has followed policies which can only be described as anti-aam admi, anti-farmer, anti-middle class, anti-working class and anti-poor. The National Executive of the BJP calls upon the people of India to reject the UPA, specially the Congress party in elections whenever and where ever they get a chance if they want to have ‘dana’ in their stomach and ‘anna’ in their pocket.