Saturday, May 14, 2011

IMPACT OF RISING INFLATION ON GDP GROWTH - MATTER OF SERIOUS CONSIDERATION

The Government of India, Reserve Bank of India, Planning Commission and the various economic experts of the country have been concerned about increase in inflation rate and have been exercising a very old technique of Economics to control inflation, by substantially reducing the liquidity in the system as well as increase in the interest rate. In spite of the efforts made by the Government on the monetary side, the inflation has been on the rise, more particularly in food articles and items of necessity, thereby impacting the common man. The impact of increase in rate of interest and absence of liquidity in the market has already started impacting the growth of the capital goods sectors, large industries, real estate and housing sectors as well as various other important businesses.. In case appropriate and adequate action is not taken immediately, the growth rate of Indian economy may go
even in 7% range from 9% range expected few months ago. This is a matter of great concern to the economy as a whole. The Government need to immediately take necessary steps to provide the oxygen and blood of finance and reasonable rate of interest to the Indian businesses so that the
competitiveness is not lost internationally and the dithering growth rate do not impact the common man on a long term basis. The monetary policy needs revision. The control on extravagant Government expenditure would also be necessary at this crucial hour. On the other hand, it is important for the Government to ensure, through necessary regulatory and financial support mechanism that the increase in food, vegetable and other agricultural goods prices reaches the agriculturist and is not usurped by intermediaries. In case India is able to achieve this target, the increased inflation rate will be rather more beneficial to the Indian economy and will bring inclusive growth to a section of the society which has been neglected over last few decades. It will also be important to take adequate care of the hand workers and fixed salary classes appropriately to take care of increased costs of living by raising minimum wages and improving efficacy of labour related legislation. Some of the labour laws including ESI, PF, Industrial disputes Act, Minimum wages Act, Factories Act and Shop and Establishments Act etc. require comprehensive new outlook to meet changed expectation and requirement of labour and working class. A close monitoring of working
hours, labour welfare, labour empowerment and judicious treatment would be necessary to ensure
inclusive equitable growth.

Impact of Scams on Economic Outlook:

The Government is busy in prosecuting the corrupt and in certain cases even undertaking witch hunting. There is no justification to trap business professionals and even senior industrialists in such a manner that it may vitiate business atmosphere, credit ability of the system and create a sense of terror It is important for the Government to nab the real guilty and most importantly to bring necessary systematic changes to eradicate corruption by transparency and a social movement towards increased education, awareness and commitment towards ethics and integrity. The Government is ignoring open corruption in tax department, licensing, land development wings, power, water departments, hospitals and education. 

Bank Licensing:

RBI has recently decided to grant more licenses for setting up banks. The terms and conditions for such setting up must be fair, transparent and just. Even the norms stipulating the eligibility for tender or open offer must not appear to be motivated. We hope that Bank Licensing shall be undertaken professionally with appropriate weight age being assigned for CAs/ other Qualified professionals with core finance or banking exposure in order to derive higher level of excellence in the area. It should not be distributed in the manner that only people with deep pocket make them deeper. At least 30% of Banking Licences must be reserved for Finance Professionals. The concentration of Economic power with Industry and business groups may be dangerous. The Government decisions in this regard should be after consulting all political parties, Business Associations and Professional bodies. 

0 comments:

Post a comment