Prof. D. Mukhopadhyay
Of late, it is observed that the Indian economy has been very vulnerable to the effect and impact of inflation and other macroeconomic variables’ mismanagement. India is facing a situation when ‘too much money chases too little goods’. Our motherland is recently facing challenges of high inflation rate, unemployment and lack of demand . To be specific, the recorded retail inflation rate is 7.8% in April, 2022, implying that the consumers are to pay 7.80% higher than that of April, 2021 and this is the recorded highest inflation rate in last eight years . It is almost double the rate targeted by the Reserve Bank of India (RBI), the architect of the national Monetary Policy . It was hypothesized , since October, 2016, that the RBI shall be required to manage inflation rate not above 4%. The Russian Military Offence of Ukraine is one of the major causes that fomented eye-catching rise in world commodity market prices and looming the global financial markets simultaneously. The global economy was struggling hard to recover from catastrophic disaster eclipsing economic recession on account of Pandemic that broke out during 2019 end and beginning of 2020. India is still under the category of the developing economies and effect of global recession and its impact on the Indian economy that too when the law of globalization rules the international markets is too vulnerable to long term sustainability of the economy. The escalating geopolitical uncertainty and tensions caused by the Russia-Ukraine conflict during 4th week of February, 2022 are likely to impede production, movement of capital and labour and international trade to the extent of unusual magnitude , the shock of which can hardly be avoided by India today and even tomorrow. India has to allocate considerable amount of resources to mitigate the risks to her sovereignty and integrity arising out of contingent geopolitical threats from the neighbouring countries and the unusual population pressure. Inflation rate is calculated on the basis of Consumer Price Index(CPI) and it consists of different categories attributed with varying weight-ages. However, the main categories include Food Items Category consisting of 46%, Fuel Category attributed with 7% and the Core Category consisting of 47%. This is worth mentioning that rise in one category has contributory impact on other category out of proportion such as say 10% hike in food items would raise the overall inflation more than 10% in fuel prices. For instance, 4.8% was the overall inflation rate in 2019-2020 when 6% was rise in the prices of food items. Again in 2020-2021, food items prices rose by 7.3% while Core Items Inflation rate was recorded at 5.5%. It is important to note that Fuel Items Inflation was recorded at 1.3% and 2.7% in 2019-2020 and 2021-2022 respectively. The year 2021-2022 witnessed a sharp recovery of the global economy when Food Items, Fuel Items and Core Items prices rose by 4%, 11% and 6% respectively and during the current year, the estimated inflation rate is likely to be more than 6% in all three categories of indices. The persistent rises in prices affect the purchasing power of the consumers and consequently shrinkage in overall demand and it acts as a boon for the borrowers but burn for the savers. During the reign of inflation, savers earn at the predetermined rates of interest which by and large remain fixed . If the inflation rate is 5% and banks offer hardly 5% on the deposits kept by the savers and this culminates to nil earning and even many a time it generates negative earnings if inflation rate is greater than the interest rates offered by the banks , financial institutions and small investors’ savings schemes such post office saving bank and other government bonds etc. On the contrary, borrowers gain magnificently since they repay on the basis of ‘real’ interest rates. Foreign exchange rates during inflation affect the strength of Rupee and most of the times it gets deprecated to an unusual extent and its impact has been affecting severally the exchange strength of INR as well as Forex Reserve of India.
Indian economy has been observed to have suffocated due to unemployment, high inflation, low purchasing power leading to low demand for non-necessaries and high rise in prices of food items, fuel prices and resultant economic chaos has been observed to be in place. If necessary measures are not taken immediately, it is likely to cause an injurious havoc to negative economic growth. RBI should immediately raise the interest rates phase wise keeping in view how the economy responds to such monetary policy. It is to mention that raising interest rates at this point of economic sluggishness may cause stagflation also which may dangerously lead to lower wages, evaporation of jobs from the employment markets and further shrinkage in the purchasing power of the consumers. Corporate sector is also likely to be hit by the burning impact of stagflation since it generally results to low profitability.
Under the given situation, India should boost up the metal markets and production of industrial and agricultural products more during stagflation. More efficient value added tax and higher tax incentives may be in assistance of bailing out of the crises. Tax system needs to be more progressive and transparent. Development of informal selector of the economy needs to be given more special attention. The current arms conflict between Russia and Ukraine has fomented uncertainty and India just simply cannot avoid its burn since she is part and parcel of the global economy and different economic blocks. The current Omicron outbreaks in the People’s Republic of China is quite vulnerable to the global and regional supply chains and therefore, indigenous production and distribution system needs to made more stronger and efficient. To call a spade a spade, India is observed to be standing undecided at crossing point of the roads and hardly knows which way to cross the road and where to go . She hardly subscribed to any proactive sustainable economic policy , instead, she preferred to remain reactive all through , consequence of which landed Indian economy perhaps nowhere even after passage of seventy five years of her self governance. Saving, capital formation, investment, income, aggregate demand, aggregate supply, fiscal and monetary policies are the macro economic variables and the concerted influence of them is the force that drives the economy from one stage of development to the next higher stage of socioeconomic development. Further, they work in very very dynamic manner and in order to obviate the negative impact , entrepreneurship-micro, small, medium and large and entrepreneurial habit of the nation can possibly bail out the economy from the persistent economic chaos.
The strategy formulators and the decision makers should focus their attention to the economic phenomenon addressed by William J. Baumol in his seminal authoritativeness-‘ Micro Theory of Innovative Entrepreneurship’ (2010) that entrepreneurs are the engines of growth . The entrepreneurship and entrepreneurial culture may act as the catalyst for solving the unemployment problems and it is not the not the job of any government. Government has nothing to do with employment creation but it has to frame the enabling policies for employment creation and distribution income and wealth , ensuring good governance through efficient public administration. Moreover, it is the high time to revisit the application context of orthodox economics in arresting the economic mismanagement and what Peter F. Drucker says in his ‘Innovation and Entrepreneurship (1985), ‘success comes from taking management and ideas seriously ‘ is of high relevance for preventing mismanagement of resources and ensuring judicious and optimum utilization of the same. Again, it is worth referring , Milton Friedman, Noble Laureate in Economic Sciences (1976), ‘free markets and not government, protect the individual and ensure quality’ is aptly applicable to address the macroeconomic mismanagement issues . India has recently freed the markets (early 1990s) but freed the government possibly from the dawn of the 15th August, 1947 and that is why Pooja Singhal got the opportunity to become the ‘Headlines’ of the National Dailies during last fortnight . Ms Pooja Singhal, an IAS officer of Jharkhand Cadre, has been detected to have hoarded hard cash to the tune of 17.49 Cr. and Suman Kumar Singh, a Chartered Accountant by Profession , Adviser of Pooja Singhal, could not have been scanned who has been deemed to have violated the provisions of the Chartered Accountants Act, 1949 besides other Legislative Forces meant for curbing this kind of financial scams and crimes in the country. It is interesting to note that an IAS officer by and large is responsible for discharging the duties and responsibilities by ensuring efficiency in day to day public administration and preventing mismanagement and misappropriation of national resources . But in reality it is just the reverse.
The latest MNREGA Scam in Jharkhand may just be the tip of the iceberg. Moreover, the MNREGA is financed by budget allocation from the General Fund Account of the nation which is the taxpayers toil. Moreover, it may sound logical that this kind of unaccounted and uncontrolled mountain of hard cash is also one of the drivers of unprecedented inflation in place in the country. Benjamin Graham’s seminal work, the Intelligent Investors(1949), one the evergreen Economics Classics advocated that an economy grows in wealth through long-term investing , not speculating . In this context, it may be opined that speculation and not planned investment rule the investment climate of the country and an economy can hardly sustain the burn of such ‘short-term paradox’ of investment and a fluid economy is always prone to create bubbles and bubbles means uncertainty and it can only ruin the economy which is just the function of time.
On an overall analysis, the problems of Indian economy in the version of John Maynard Keynes in his seminal publication- the General Theory of Employment , Interest and Money (1936), theorized that in order to achieve social goals like full employment, Governments must actively manage the economy’ and in totality Governments need to be more effective to ensure optimum utilization of the resources so that it shall not be be very difficult to bring the economy on its track even after meeting the challenges of the unprecedented catastrophic disaster like the Covid-2019 Pandemic. Under spirit of the forgone analysis, it is imperative to state that India should immediately concentrate on demand side management, architect long term investment plan, strictly vigil on the speculative investment in order to avoid ‘bubbles’, entrepreneurial development, providing technology oriented skill, innovation and training so that cost of production and quality management cost can be saved and products and services become competitive both in domestic and international trade parlour , offering tax related and other incentives to the entrepreneurs of all types and tightening the belts of the public administrators for bringing about efficiency in file clearance, policy implementation, monitoring and taking timely corrective measures based on the regular feedback and last but not the least, ‘ free markets, not government, protect the individual and ensure quality’ and preventing and exercising uncompromising rigorous control over revenue leakage , ‘loot’ and ‘plundering’ of the exchequer of the nation.
(The author is an Independent Researcher and a Practising Educationist)
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