Saturday, September 17, 2011

Please spare my pocket

Again friends came together to take money from us one at mid-night and other at noon. Both having their reasons for being poor so indeed need money from us. But what about the giver who is also confused to decide what to drink petrol or water. Water comes after paying EMI and petrol comes after paying huge tax. So its again a situation for common man to become uncommon and go corrupt. If i would be some one like Digvijay singh and sit in opposition i would just give a nice answer" This government is trying to promote corruption by targeting Anna's anti corruption movement by making people corrupt because if the goods and services will be high a common man standing at the gate of district office earning 4000 Rs but comes from 30 km by his two wheeler and the travel cost is 2500 per month then he will look for back rout money and will ask bribe to meet a babu consequently destroying Anna's challenge". But the issue is more than this and i would like to go about it systematically so that one can understand Why is this price rice from all sectors?, Why we always need to burn PM's or FM's nice photographs and protest?, Why we are asked to give away our own money to someone who is spending it for image purification by fast or to travel to US for a small operation?.....

The terms to be focused are inflation, fiscal deficit, monetary policy and demand and supply. In the name of inflation which has crossed double digits RBI has increased the interest rates 12th time since March 2010. On the other hand as oil companies are getting less returns for what they produce the oil prices have been raised by UPA as they claim.

Inflation or price rise comes due to many reasons but its unfortunate that the RBI and the govt. doesn't want to target it but they are keen to target us. Fiscal deficit comes into play when the expenditures of the govt exceeds what they earn. So the govt. requires to borrow from the central bank to fund its programs for development. Now this extra money is needed from us putting tax on us. The tax fills this extra amount and the situation balances. This raised tax on goods and services leads to inflation or price rise as we call. Now if money flow is high or in simple terms i am having enough money to pay taxes i would like to have those goods and services and if i have not i will not go for it. Now the availability of those goods and services also needs to be ensures. If the supply is more and the demands is also there the situation is fine but if the supply is less than demand then i have to pay more to get that thing. The extra amount will to the the G & S provider so that he will be able to supply more by investing that money into his enterprise. The present situation doesn't permit us to look for the reverse case of large supply and less demand.

What RBI is doing is to target the demand side. How ??. It has a thinking that the money flow is high in the society or we have huge sums in our pockets so it increases interest rates. this increased interest rates money goes to central bank which is giving this surplus money to govt. to fill its deficit on the expenditure side. Also the high tax on everything year by year in the annual budgets is providing money to govt. to the expenditure by earning more revenues. Now both in terms of RBI and Govt. we are the targets to fill the gaps. At one time it may be judged that the money flow is high but taking that into account every time to tackle a economic situation is not worth. Now what has happened is that money flow has been controlled in the name of inflation and it had come down to below 7 in 2009-10 but after that inflation is rising in spite of targeting the same demand side of it.

Now when the interest rates are getting higher people are taking less loans and those who have are paying more interest to their banks. This leads to spend less on the demand side. Now if the demand is less the growth of the G & T providers is declining. We need to think a second about a persons will be spend. This may lead to rise in poverty in a country like us. The huge taxes on everything is also putting a burden on the common man. How can you get food items in less price if the farmer is not even able to purchase the seeds, fertilizers at affordable prices. The government expenditure is getting higher and higher and this also leading to inflation and ultimate consequences.

The population of India has crossed 1.2 bn mark and its understood that the demand is high for everything. So there is no reason to target the demand side as it may lead to really unstable situation. The solution lies in the supply side too. How??. The govt. needs to focus on felicitating increased supply of goods and services. It means it should encourage entrepreneurs to invest money. The people can invest only when if they will have money. I would say the investment by common man. If the interest rates are moderate people will invest thus supplying the money to supply side directly and bringing the inflation down. Govt. expenditures are not returning in terms of revenues. In fact PSUs, welfare schemes, infrastructure developments are not generating good returns for which people are paying high in taxes. Retails, manufactured items, communication, electronics, etc. are getting cheaper as investment in those sectors is encouraged and focused. But India is still agriculturally oriented country. The primary industry is just vanishing and the focus is close to zero on it as the results are not that fascinating as those of tertiary activities. Food security needs to be ensured and implemented. If FDI is in govt. policy only for infrastructure or retails only and to claim that we can have food imported from the generated revenues and that food is just lying rotten in go downs or being unevenly distributed through Public Distribution System for BPL families. Then how can a govt. can think that people are having extra money to spend.

55 % people are hungry or malnourished and the heavy taxation is only for 84 % of the population unto middle income class then how can you say that money flow is fast. If only few corporates play for budget decisions and taxes influencing the govt. to exempt those from any hard stick and the results is total understanding between few corporates, Govt. ministers for their shares for avoiding primary industries and the unbalanced, wrong path adopted by RBI to worsen the situation. The supply side investments must be distributed and balanced. The govt. should ease the norms and regulations for investment in primary activities and the must thing is to implement the policies at best. The SEZs were established in the name of infrastructure and claimed to feed the farmers by importing foods. I think if that would have happened then the poverty figure could have come down. The fact is that there is clear instability in what is the intent and what is the outcome of govt. policies. Its time to focus on other aspects too to balance the economy rather than targeting common man and his pocket in the name of LOSS. Otherwise earlier it was farmers committing suicides now it would be middle and lower middle class people battling for their survival.

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