Will Rajan Idenify Faultlines Before Reducing Interest Rates?

Clamor for interest rate cut is gaining ground day by day. Finance Minister has already lent his moral support  for a reduction. He cannot dictate his term to the RBI. That is the beauty of delicate balance of power between union finance ministry and the RBI. While fiscal measures are within the exclusive purview of the finance ministry, monetary policy is tooled by the RBI. There were instances of power equations getting awry: one trying to transgress the turf of the other, leading to bitter exchanges. But consultations between the two are the order rather  than exception.  

Industry is expecting the long awaited cut to happen now. The government also has created an enabling situation for the RBI to go ahead with the rate cut. Reduction in fuel prices riding on the back of a sliding global price is an enabler. The other is the reduction in the wholesale price index, which  registered a five year low low of 2.36% in September. Consumer price index also went south. Industrial output moved up, according to the recent government data released.

The RBI, however cannot loose sight of the ground level realities. Prices of  food, vegetable, fruits and poultry prices  are   still ruling high in the retail market. For instance, tomato prices range between Rs 25 to 35 per kg, potato prices rules at Rs 25 to 45 per kg depending on the quality. Onion prices, though have come down from the peak, is still very high, as compared to the previous seasons. Most of the vegetables have become pricey in the recent days. Cost of medicines has increased after taking out a large number of items from the administered list. The only thing that has remained stagnant or near stagnant  are prices of real estate and  rentals, which have only limited bearing on the budget of the common man.

The RBI should also take note that the increased DA and salaries are applicable only to those who are in the organized sector or in the salaried group. For many in the informal sector and self-occupied people, their incomes are the same. With the increase in inflation, their purchasing power has considerably eroded. Many of them are tightening their belt. Those who cannot do that are selling their disposable properties  or  are liquidating their past savings to make both ends meet.

Unfortunately, our print media, particularly financial papers are focusing only the point of view of businesses. Naturally so,because they are their major clients  and benefactors. Voices of the  common man get downed in the cacophony of well orchestrated campaigns spearheaded by the vested interests. Governance apparatus should fact into their policy decisions  unknown and unheard voices.

Not that I am against a  cut  in the interest rate. If that is needed to kick start the economy, the RBI should not hesitate to do so. But the present governor of RBI is very good at identifying the  fault lines. He should do that here also very diligently to see that with the reduction in the interest rates, funds  are channelized for productive purposes and not for speculative deals. Such things had happened here earlier.

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Today in Kerala is the day of Boozers

If yesterday was the day of the booze haters today belongs to the opposite camp. A bench of Kerala High Court stayed the order of the single judge regarding closure of bars in three and two star hotels. The stay is for one month till the double bench court decides on the issue. it has given the bar owners a short reprieve and some degree of confidence to fight out the case.

 The stay  of the order of th single bench which  allows  status qua, was immediately picked up by the Kerala Opposition (LDF) to lash out the ruling UDF. it is alleged that there was a politcal brinkmanship game over the closure of the bars, between the two factions of the ruling alliance, one led by the chief minister Ommen Chandy and the other VM Sudheeran, KPCC President, each claiming the ban as the victory of theirs.

One has to see how the game is going to be played out in future. The liquor lobby has considerable stake in the game since they stand to loose considerably if over 65o bars   are closed down. They will play all the games up in their sleeves to avoid that eventuality, or atleast delay it till the time they have to renew their licenses. The bar licenses are auctioned out and the licenses are pricey. Also, by that time they can exhaust their stock, which according to some unofficial report, run into several crores of rupees.

One possibility is that if the court decision is delayed by any case (if  the bar owners do not get the right decision from Kerala High Court, they will approach the Supreme Court and vice versa) the issue can be precipitated as an election issue. Importantly, Kerala is going to polls in 2016. Also, the ruling UDF will not be able to take credit for the liquor ban. Also, the powerful liquor lobby will trow their support to the LDF in anticipation of favoring them once they come into power.

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MGNREGA Connect

If  you ask me what is the lasting connect between governors and governed in India, I  would say it is the Mahatma Gandhi National Rural Employment Guarantee Scheme, popularly known by its acronym MGNREGA. Of course, I owe an explanation. Because, it is the only scheme that gives the employment cover for those who are willing to work. Though it guarantees work up to 100 man days in a year, in effect the total employment per year works out to an average close to 40 man days or so. Perhaps, this is the only time the government gives money directly to the person as a dole and a guarantee against unemployment. In developed countries, there are regular schemes to take care of the financial, educational and health needs of the unemployed and the people dependent  on them.  That cast a huge expenditure on their exchequer.

The thinking in the government to downsize the scheme is borne out of the fact that there are considerable pilferage in the scheme. Fictitious names are created to corner the benefits. In several instances, there are mismanagement and corruption. The other reason is said to be thin coverage of the scheme, which makes the impact too shallow. Therefore, they want to concentrate the program to such identified areas where poverty is predominant and make the scheme exclusively tailored to poverty alleviation.

To me all these alibis to cut short the scope and range of the program is myopic. Admittedly, there will be pilferage and it is the duty of the government to plug the loopholes that are leading to mismanagement of funds. One way of doing it is to link the scheme with Aaadhar so that only one person from a household can take advantage of the scheme. Secondly, the government with its huge infrastructure at its command can undertake a survey for mapping the beneficiaries and in identifying the pockets where the mismanagement is taking place. Stirct punitive action should be taken against the people involved in complicity. This will send strong signals across the country.

About restricting the coverage of the scheme to limited number of blocks, say 2500 blocks or so, where poverty is crucial, I believe is  against the tenets of justice, equity and fair play. That would mean only such clusters where there are higher incidence of poverty will be covered under the scheme. By import, a  family  living in abject poverty in an affluent area will be outside the purview of the scheme.

 There is a lot of gainsay in the opinion that only rich in India are protected and the poor are thrown to the vagaries of nature. Credit from the banks and financial institutions flow only to the rich, whatever may be the incidence of default in repayment. Big infrastructure companies are granted  something called bridge loans, which comes almost free. The nexus between politicians, businessmen and bureaucrats are known. The CAG has come out with documentary evidences  how the rich  and  mighty have stashed funds meant for the entire nation.

The successive governments are showing leniency  in protecting them. Political parties compete  with each other in protecting them. The recent stand on black money revelation is a case in point. How the views of the UPA and NDA converge with each other, though they had diametrically opposite views  earlier? How Finance Minister lashed out at the  CAG and exhorted them not to become activists and confine to  their responsibility as mere auditors? Paradoxically, he held a diametrically opposite view  as the leader of the opposition in the upper house a few months back.

My limited point is that one cannot ignore the rights of the poor and underprivileged just because they do not have the perquisites of lobbying and the scant attention that they get from the media. MGNREGA is their legitimate right, which should not be encroached upon by anybody. Ofcourse, the pilferage can be plugged and nobody is against it.  

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An Economy of Watering Holes

The Kerala High Court decision upholding the decision of the Kerala Government for closure of the bars in two and three star’s hotels in the state by today evening was on the expected lines. The lobby working for the closure of the bars was powerful and had built sentimental inroads into every person who abhors drinking, cutting across party lines. Its vociferous supporters were women and some activists. Now the Kerala Bar Owners’ Association has to approach the Supreme Court to challenge the verdict.

The Kerala population is divided sharply on the issue.  Those supporting the ban ferret out many reasons to lend credence to their argument. Foremost is the impact it will have on the house budget since, according to them, a sizeable chunk of the earning of the male members of the household is spent on the booze. Health hazards, law and order, domestic violence etc. are the other reasons that point out for supporting the ban.

On the other side of the spectrum, those who are against the ban point out that this measure is easier said than implemented. Even now, the general public can buy and store liquor. Moreover, many of them would start drinking in private places and the likelihood of brawls and fights will be more in such places, which are beyond the surveillance of the police authorities.  Also, illicit liquor brewing can become rampant, which are done on most unhygienic conditions.

An objective analysis of the restrictions on liquor trade ranging from –total ban in state like Gujarat, Tamil Nadu (withdrawn later on account of the widespread use of illicit liquor) and selective ban in states like North East did not augur well. Not only the state governments lost huge revenue, which they would have collected as taxes, there was heavy movement of people to states where liquor was available. Interestingly, people flock from one state to the other where liquor prices are low. For instance, in the 1980’s there were many people going from Delhi to Gurgaon or NOIDA the nearby satellite cities but in another state-Haryana-to quench their liquor thirst.

What is important is to educate the people about the pernicious effect of heavy drinking. Apart from boring holes in their pockets and putting family budget under strain, it will have harmful effect on their health. How about promoting social drinking? Put it in the context it would mean: drink moderately if you cannot avoid it totally. Is the message loud and clear?

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