Economy amid war

 

Russia's war on Ukraine is having global economic repercussions. If Ukraine joins NATO as it intended Russia's security will be threatened. that is the primary reason behind this war. Instead of seeking peaceful means the Russian State waged war causing the death of many lives that is highly condemnable. But the the United States of America which commited countless war crimes and massacred millions of people remains with impunity, does it have any moral right to impose sanctions on Russia? The United States has imposed severe sanctions to isolate Russia in the international arena. Many countries, including the United States, the European Union and Canada, have imposed sanctions on Russia. But US does not ban export of energy-crude oil, natural gas from Russia as it would affect the US economy.

Biden said "We will control Russia's ability to trade in dollars, euros, pounds and Japanese yen,". The value of the Russian currency, the ruble, has plummeted to unprecedented levels due to sanctions, Swift blockade and foreign assets of Russians are frozen.

It is noteworthy here that in 2018 itself, the United States blocked 20 percent of arms deals that Russia planned to buy. As the United States blocked Russia's international transactions, Russia developed the SPFS (System for Transfer of Financial Messages), a financial messaging system, as an alternative to Swift ( Society for Worldwide Interbank Financial Telecommunications system) and carried out 18 per cent of its transactions.

India imports mineral fuels, oils, fertilizers, machinery, nuclear reactors and its components, pearls and precious stones from Russia.  Raise in the prices of these commodities, supply chain constraints will increase India's import bill.

India is dependent on imports for 80% of its crude oil demand. India's crude oil import bill is expected to cross $ 100 billion in the current fiscal year ending March 31, which is more than double from last year. Rising crude oil prices will push up prices of other commodities as well. If the price of crude oil rises by $ 10, inflation will rise by 0.5%, according to RBI analysia. Rising prices of fuels such as crude oil and natural gas will increase India's trade deficit, weaken its rupee and inflation will surge further and limit India’s economic growth potential.

 India imports sunflower oil from Ukraine. sunflower oil Import is affected due to Russian-Ukraine war. India imports 25 lakh tonnes of sunflower oil a year, of which 70 per cent comes from Ukraine, 20 per cent from Russia and 10 per cent from Argentina. India is 65% dependent on imports for edible oil. Due to global price hikes India's total cooking oil imports surged to Rs 1.17 lakh crore in the 2020-21 market year (November-October) from nearly Rs 72,000 crore last year.

There is no effort taken to reduce petrol and diesel prices or bringing them into the GST system, but our Finance Minister is more concerned about reducing the price of Air turbine fuel. She is looking forward to bring ATF within GST in the next GST council meeting. Five items, crude oil, petrol, diesel, natural gas and aviation fuel, are out of the purview of GST.

Ast global economy is paralyzed by the Covid Pandemic, in 2020 the US Federal Reserve has cut interest rates to zero, world economy has not yet reached the pre-Covid level. Inflation in the United States surged to 7.5 percent, the highest level in 40 years. The US Federal Reserve has announced that it will raise interest rates from March to control rising inflation.  It is not a right solution to control rising inflation in the present scenario. Generally Inflation occurs when the demand for goods / services exceeds their supply, or the supply for goods / services is lower than its demand. Why Inflation is currently rising, is it due to increased demand for goods / services, or disruptions in supply. Inflation has risen due to supply side disruptions. Generally central banks control inflation by raising interest rates if inflation is triggered by high demand in the economy. While it is true that zero interest rates did not lead to a real economic recovery and boosted financial speculation in the stock market, since Covid-19 economic crisis increased the debt levels of countries, corporations, individuals if the US Federal Reserve raises interest rates it will push a large number of enterprises into bankruptcy, and impede economic recovery.

Raising interest rates will exacerbate unemployment problem and debt crisis. Economic growth will slowdown and economy will contract. Working people are most affected by this. But at present inflation is not due to high demand, since the income and purchasing power of working people worldwide declined. Economic growth and employment level have not reached pre-Covid levels. Can inflation caused by supply side constraints be corrected by raising interest rates? Say for example, due to heavy rains supply of vegetables is disrupted and their prices have gone up. What should be done then? We have to take steps to increase the supply of vegetables. Can an interest rate hike increase the supply of tomatoes? Yes, says the think tank of US Federal Reserve. Indian Reserve bankers in this regard are relatively better placed. RBI Deputy Governor Michael Patra says: the surge in inflation is not because of excess demand rather due to supply constraints and monetary policy has a role in aligning demand with supply but not the other way round. “When inflation is driven by demand, monetary policy can stabilise inflation and growth. Monetary policy has no role when inflation is the result of supply constraints.

RBI has not announced any change in interest rates, noting that India's economic growth is uneven and has not reached the pre-Covid level. RBI external member Ashima Goyal assertedt although the third wave appears to have passed with a low economic impact, consumption continues to be at a pre-Covid level, indicating a loss of income and demand.

Retail inflation surged to 6.1 percent in January. Wholesale price inflation, which represents the cost to manufacturers, stood at 12.96% in January. WPI remains in double digit for the tenth consecutive month. People have been affected by rising prices. But RBI governor says don't panic even if inflation rises above the 6% upper limit! Our finance minister is praising it as if an achievement saying current government has been able to control inflation (CPI) to 6.2%, while it was 9.1% during the 2008-09 global financial crisis. Prime Minister N. Modi is proudly claiming that 'India is the only major economy with high growth and low inflation.

The outflow of foreign investment from emerging markets like India has been steadily increasing since October 2021 due to the cautious approach taken by foreign investors. The amount of foreign investment in India is less than last year. There is also a risk of BOP crisis with declining foreign exchange reserves and rising import bills. More than Rs 35,000 crore of FPI pulled out from India in February. India's National Stock Exchange Nifty index (52-week high 18604.45) come down by 10 per cent and reached its first correction. The Nifty index fell to 16898.80 on 27 February. The Bombay Stock Exchange index also declined by more than 10 per cent and attained its first correction level, on 27 February it was at 55329.46.

According to the Department for Promotion of Industry and Internal Trade (DPIIT) data, total foreign direct investment (equity inflows, re-invested earnings and other capital) declined to $ 60.34 billion in the first nine months of the current fiscal from $ 67.5 billion last year. During the April-December period of 2021, foreign direct investment (FDI) equity inflows into India contracted by 16 per cent to $ 43.17 billion. Equity inflows which stood at $ 21.46 billion in the third quarter of the fiscal year 2020-21 (October-December 2021), declined to $ 12 billion during the same period this fiscal. Total foreign direct investment (FDI) inflows fell to $ 17.94 billion in the third quarter from $ 26.16 billion in the year-ago period.

During the April-December period of 2021, Singapore was the largest investor in India with $ 11.70 billion. It is followed by the United States, which has invested $ 7.52 billion. Mauritius has invested $ 6.58 billion. Cayman Islands has invested $ 2.74 billion. Netherlands has invested $ 2.66 billion. United Kingdom has invested $ 1.44 billion. It is worth noting that all of these act as secret jurisdictions.

2022-23 budget, cut 28% in food subsidy, 12% in mid day meaks scheme and 25% fund for Mahatma Gandhi National Rural Employment Guarantee Scheme and buried the welfare of the people. But unconcerned about all these, Finance Ministry in its Monthly Economic Review said the Indian economy is poised to grow at the quickest pace among the league of large countries on the back of various initiatives taken by the Centre in the Union Budget 2022-23.

Union Finance Minister Nirmala Sitharaman said the government wanted a sustainable recovery and hoped that the budget plans on infrastructure development would have a multiplier effect on the economy and the rise in capital investment would crowd in private investment.

Prime Minister Narendra Modi has said it is time to reach 100 percent saturation in providing basic amenities like drinking water, electricity, gas connections, toilets and roads to the people the Federal Budget for 2022-23 has provided a clear map to achieve this. The budget, which does not provide even modicum of support to farmers, But our Prime Minister praised it saying it focuses on making agriculture modern and efficient.

The BJP government, which continues to ignore the interests of farmers, has told in the Lok Sabha that agriculture does not need a separate budget. Responding to a question in the Lok Sabha, Union Agriculture and farmers Welfare Minister Narendra Singh Tomar said separate budget. for agriculture would not benefit the country or the farmers.

When questioned about the low-allocation of funds to the health sector in the budget., Finance Secretary TV Somnathan irresponsibly responded  that health sector is primarily the responsibility of the states.

Production-Linked Incentive (PLI) scheme, support only capital-intensive companies, and is just a wishful thinking of our FM to claim that it will create 60 lakh new jobs.

India Ratings has opined cutting more than 20% for MNREGA scheme despite a build-up of distress amid the pandemic is perplexing. About the 35 per cent increase in capital expenditure of the budget, India Ratings said the focus is on less employment intensive sectors like roads and long gestation projects.

“A more judicious mix whereby a significant proportion of the capex would have been spent on projects having a short gestation period and the projects are employment intensive would have been better for the economy which is struggling with depressed consumption demand,” it said.

Introducing the Ombudsperson (APP) for the Mahatma Gandhi National Rural Employment Program, Central Rural Development Minister Giriraj Singh expressed concern over the non-appointment of Ombudsperson in various districts and noted that persons belonging to political parties have been appointed in many places. It has also been announced that under the Mahatma Gandhi National Rural Employment Program, funding will not be provided to states that do not appoint Ombudsperson in at least 80 percent of the districts.

Inflation:

Wholesale price inflation increased to 12.96 per cent in January this year from 2.51 per cent in January last year. Fuel and energy prices are surged by 32.27 per cent. Prices of manufactured goods is increased by 9.42 percent. Inflation has been driven by higher prices of mineral oils, basic metals, foodstuffs, crude oil, natural gas. Consumer price inflation surged to 6.01 per cent in January, 0.30 per cent down from the previous month. Food prices are increased by 5.43 percent Which is 1.32 percent down compared to last month. Prices of vegetables are surged by 5.19 per cent. Fruits became dearer by 2.26 per cent. Pulses became dearer by 3.02 per cent. Egg prices increased by 2.23 percent. Oil and fat prices increased 18.70 percent. Prices of fish and meat have risen by 5.47 per cent. Inflation in Tamil Nadu has risen to 5.56 per cent.

Industrial growth in December:

 According to the Index of Industrial Production released by the Ministry of Statistics. Production is increased by 0.4 percent in December Among the major sectors, output in the mining and power sectors grew by 2.6 per cent and 2.8 per cent, respectively. Output in manufacturing sector is declined by 0.1 percent. Production volumes of primary goods, intermediate goods and infrastructure goods are increased by 2.8, 0.3 and 1.7 per cent, respectively. Production of capital goods is declined by 4.6 percent. Production of non-durable consumer goods is declined by 0.6 percent. Production of durable goods is declined 2.7 percent.

Industrial growth in January:

The combined manufacturing index of eight key industries released by Department for Promotion of Industry and Internal Trade is increased by 3.7 per cent in January. Coal production is increased by 8.2 per cent and cement production is increased by 13.6 per cent compared to January last year. Crude oil production is declined by 2.4 percent and fertilizer production is fallen by 2.0 percent. Production of steel is increased by 2.8 per cent and Production of petroleum refineries is increased by 3.7 per cent. Natural gas production is increased by 11.7 percent and electricity generation is increased by 0.5 percent.

Second advance Estimates of National Income for 2021-22:

The National Statistical office has released second advance estimates of national income for 2021-22. The real GDP at constant price (2011-12) in 2021-22 is estimated to be at Rs 135.58 lakh crore in the first advance Estimates and now in the Second advance Estimates it is revised to be at Rs 147.72 lakh crore. In 2020-21 the gross domestic product (GDP) was contracted by 6.6 per cent, comparing to that, real GDP growth is projected at 8.9 percent in 2021-22. It was estimated at 9.2 per cent in the first advance estimates.

Real Gross Value Added (GVA) in base prices showed a growth of 8.6 per cent from Rs 125.85 lakh crore in 2020-21 to Rs 136.24 lakh crore in 2021-22.

Private final consumption expenditure as a share of GDP is declined from 57.3 per cent in 2020-21 to 56.6 per cent in 2021-22. Government final consumption expenditure has declined from 11.3 per cent of GDP in 2020-21 to 10.9 per cent in 2021-22. Gross fixed capital formation increased from 30.5 per cent of GDP in 2020-21 to 32 per cent in 2021-22.

The manufacturing sector, which contracted by 0.6 per cent in 2020-21, has grown by 10.5 per cent in 2021-22. Mining and quarrying grew by 12.6 per cent. Services related to trade, hotels, transport, communications and broadcasting grew by 11.6 per cent. The agriculture sector grew by 3.3 per cent. Electricity, gas, water supply & other utility services grew by 7.8 per cent. Growth in financial, real estate & professional services increased to 4.3 percent. Public administration, defence & other services grew by 12.5 per cent.

GDP Estimates for the Third Quarter (Q3) of  2021-22:

The gross domestic product is projected to grow by 5.4 percent in the third quarter.

Real Gross Value Added (GVA) in base prices in the third quarter of 2020-21 is Rs 33.66 lakh crore, comparing to that it grew by 4.7 per cent to Rs 35.25 lakh crore in 2021-22.

Private final consumption expenditure fell from 59.8 percent of GDP to 60.7 percent in 2021-22. Government final consumption expenditure declined from 9.5 per cent of GDP in 2020-21 to 9.3 per cent in 2021-22. The value of gross domestic product (GDP) increased from 31.1 per cent of GDP in 2020-21 to 30.1 per cent in 2021-22.

The manufacturing sector grew by 0.2 percent in 2021-22 in the third quarter. Mining and quarrying grew by 8.8 per cent. Services related to trade, hotels, transport, communications and broadcasting grew by 6.1 per cent. The agriculture sector grew by 3.3 per cent. Electricity, gas, water supply & other utility services grew by 3.7 per cent. Growth in financial, real estate & professional services is increased by 4.6 percent. Public administration, defence & other services grew by 16.8 per cent.

According to Controller General of accounts (CGA)'s data for December 2021, the central government's revenue reached 96.9 percent of its budget estimates. In December last year, the central government had collected 53.9 per cent of revenue. The proceeds from the sale of government shares are called non-debt capital receipts. Total government revenue, including non-debt capital income, accounted for 89.1 per cent of budget estimates in December. The central government received 49.9 per cent of the revenue In December last year. Central government’s capital expenditure is 70.7 per cent in December this year and it was 75.0 per cent in December last year. Government’s total expenditure is 72.4 per cent in December this year and it was 74.9 per cent in December last year. The government’s fiscal deficit is 50.4 per cent in December 2021 and it was 145.5 per cent in December 2020.

Food subsidies accounted for 108 percent of the budget estimates during December 2020, and it amount to 76 percent in December 2021. 76 per cent of nutrient-based fertilizer subsidy was spent till December 2020 and 171 per cent of nutrient-based fertilizer subsidy is spent till December 2021. The urea subsidy provided till December 2020 is of 116 per cent. The urea subsidy spent till December 2021 is 83 per cent. The petroleum subsidy, which was 70 per cent until December 2020, is only 10 per cent in December 2021-22. While the total subsidy provided till December 2020 was 100 per cent, the amount of total subsidy disbursed till December 2021-22 is 81 per cent.

The central government has set a target of raising Rs 1.88 lakh crore as non-debt capital revenue for the 2021-22 financial year, of which it is able to garner 15.2 per cent, Rs 28,469 crore by December 2021. It is estimated that Rs 65,000 crore will be raised through disinvestment in 2022-23. The disinvestment target has been reduced to Rs 78,000 crore in revised estimates for fiscal 2021-22. Of this, the central government plans to raise Rs 60,000 crore by selling 5% state-owned stake in Life Insurance Corporation of India via initial public offering in March. The Union Cabinet has approved up to 20% FDI automatic route in Life Insurance Corporation of India.

The habit of eating processed, fast food is increasing among the people day by day. Thus people become obese and suffer. Obesity also occurs among children. To control this, the Niti Aayog is proposing an additional tax on high-salt, high-fat foods. At present, branded snacks are subject to a 12% GST and unbranded snacks items are taxed at 5%.

The Prime Minister lauded the Gathi Shakti project saying it is going to make small and medium enterprises in India globally more competitive. The BJP government has given only lip service to MSMEs.

According to government data, the under spending of Ministry of Micro and Small Enterprises (MSMEs) to various projects related to the development of the MSME sector has increased. Of the 7,572.20 crore rupees allocated in the Union Budget for MSMEs in 2019-20, only 5,647.50 crore rupees was spent. 25% or 1,924.7 crore rupees was not spent and the government had spent 14% less than the allotted amount for 2019-20 says KE Raghunathan, Convenor and Spokesperson for Consortium of Indian Associations.

For the Development of Khadi, Village & Coir Industries, totally Rs 1525.94 crore was allocated but only Rs 947.52 crore was spent.

For Prime Minister’s Employment Generation Programme (PMEGP) and Other Credit Support Schemes Rs 2,800 crore was allocated and only Rs 2,413.21 crore was spent..

PMEGP: Rs 2,500 crore allocated; Rs 1,905.80 crore spent

Credit Support Programme: Rs 100 crore allocated; no spending

Marketing Promotion Scheme: Rs 103.63 crore allocated; Rs 14.49 crore spent.

Entrepreneurship and Skill Development Programme: Rs 611.92 crore allocated; Rs 164.38 crore spent

Infrastructure Development Programme: Rs 1,460 crore allocated but only Rs 795.08 crore spent.

National Scheduled Caste/Scheduled Tribe Hub Centre: Rs 150 crore allocated; Rs 120 crore spent

 “As I am the head of this center under the MSME Ministry, I wonder where they spent this Rs 120 crore for the SC / ST Hub Centre. I do not know where they spent that money," said Milind Kamble, chairman of the National SC / ST Hub and chairman of the Dalit Indian Chamber of Commerce (DICCI).(source:Financial Express)

 “Except for the Technology Upgradation and Quality Certification scheme and Secretariat Economic Services, all other areas saw underspending such as KVIC with 45 per cent amount left unspent; 19 per cent amount was left unspent in PMEGP, 85 per cent in marketing and promotion, 80 per cent in entrepreneurship and skill development, 50 per cent in infrastructure programme, and 30 per cent in research and development. What will we call this inaction as? Raghunathan added.

Jan Sarokar, a national policy advocacy group has suggested government should raise additional revenue and increase investment for the poor. It recommended imposing wealth taxes and inheritance taxes on the top 1% richest. It estimated that a 2% wealth tax and 33% inheritance tax on the rich would fetch ₹ 11 trillion a year, which could support basic social sector entitlements

The Finance Minister argued that the methods of the Oxfam report and the formula used by Oxfam, which claims that economic inequality and poverty have increased in India, are wrong and that it does not take into account the various welfare initiatives of the government!.

Capitalist Naushad Forbes, co-chairman of Forbes Marshall, says the first step for recovery is to create more jobs and put more money in the hands of the people.

 

He recognizing the lack of demand / consumption in the economy and regarding the Budget he argues for more Government spending in the social sector. But our finance minister who presented a capitalist budget and our prime minister, who claims to be trying to win the hearts of the peasants, are acting asif blindfolded economically.