Saturday, June 29, 2013

Indians' lust for gold dents the economy

I found it rather odd that the Indian Finance Minister had to be beseeching people of the country not to buy gold. He has requested everyone not to buy gold for at least one year in view of the mounting current account deficits. Rising demand for the precious metal, he said, is met increasingly by imports which push up the trade deficit, impacting on balance of payments. The consequential mounting current account deficit is causing scarcity of dollars weakening the rupee. Lately the rupee has lost heavily against the dollar and is now pegged around 60 to 61 to a dollar. 

Reportedly around 95% of the requirement of gold is imported. In the month of May this year alone 162 tonnes of gold was reported to have been imported. Gold is only next to crude oil for the import of which billions of dollars are expended annually. With the economic slowdown in Europe and elsewhere our exports are slack, unable to match the outgo of dollars for imports. Dollars have thus become scarce, seriously affecting the value of our own currency. If this situation persists prices of all consumables are likely to rise, adding to the prevailing high rate of inflation. Apart from a few millions sinking into poverty a fear has been expressed that we may face a 1991–like situation when we had to mortgage away our gold. Perhaps, the appeal of the Finance Minister has to be viewed in this context.

But one must point out that making an appeal is not really enough. Our people are largely cynical and indifferent to all that happens around them. It wouldn’t be too much to say that they are basically self-centred in most respects, more so in respect of securing their lives and those of their dependents against emergencies. Renunciation cannot be expected from them in this respect, particularly when they see politicians and their relatives filling their own coffers by corrupt means regardless of the country’s difficult economic situation.

Gold has traditionally been considered an ideal form of security against financial emergencies. The stock market see-saws frequently causing enormous losses to investors, investing in real estate is full of risks and hassles and returns on deposits   Investment in gold, however, is not only risk-free but also hassle-free. It can be bought right off the bazaar. Middle and upper classes, therefore, load their daughters with gold while marrying them off. The demand for gold for this purpose is born out of age-old tradition and has, of late, been effectively stoked by the daily TV soaps where women of the house are shown all the time loaded with gold ornaments from head to foot.
don’t beat the prevailing inflation rate.

Even the corrupt involved in cases of astronomical sums of money find gold convenient for salting away their ill-gotten pickings. Whenever law enforcement authorities have chosen to raid the corrupt – their incidence are few and far between than what it should have been –they have come across tonnes of gold in the shape of bricks and ornaments. For the corrupt gold is easier to exchange for goods and services as also amenable to easy concealment. Very few have been daring enough to flaunt their ill-gotten gold in the shape of furniture, cutlery, golden coronets for their deity and so on like the one-time mining magnates Reddy brothers of the “Republic of Bellary” who are currently cooling their heels in a Hyderabad prison.

Gold, therefore, is something which is precious and continues to be chased by the rich or poor and by the corrupt. Its demand is highly unlikely to wane at any time soon unless restrictions are placed directly or indirectly for its acquisition. The government had recently tried to curb its demand by increasing the import tax on it from 4 to 6%. In the context of the escalating unsustainability of the current account deficit it was a
feeble attempt. If the import of oil and gold are the villains it is the latter that needs to be up against the axe. Oil imports cannot be curbed for reasons that are too obvious. It is gold the import of which can be restricted, if not by a ban, at least by hiking the import tax which, the experts say, should be raised to at least 20% to make it effective. Its price may go through the roof, giving the smugglers a field day. If criminality gets promoted, so be it. At least the economy would be saved. Smuggling, however, is something that the government can always clamp down upon with stricter vigilance.

The Finance Minister recently opined that there was no need to panic over the falling Rupee. He may not feel panicky and, ostrich-like, also claim that the economy is stronger than what it was this time last year. Regardless of what he says, a weak rupee adversely affects people in myriad ways, most important of which is the rise in prices, especially of fuel. The oil marketing companies recently raised the price of petrol by as much as Rs. 2 and hikes in prices of diesel and LPG may not be far away. When that happens, it will have a proverbial cascading effect on most commodities. Besides, in a globalised economy the cost of everything that has an import-content will go up. Already the manufacturers of consumer goods and electronics have threatened to pass on the excess costs of imports to consumers. The ministers and other politicians need hardly panic over the price rise as most of them are billionaires and have adequate cushioning to tide over such minor contingencies; it is the people at the lower economic strata making an honest living will face the music.
To meet the mounting trade deficit the government, apart from curbing gold demand, would also need to look out for opportunities for increasing exports not only by diversifying the product range but also by exploring possibilities of markets in countries that are not traditional importers of Indian products. Our export earnings need to match the mounting costs of imports or else we are likely to become an economic basket case.
Vigour has to be brought back into slipping manufacturing and infrastructure spruced up. Action is, reportedly, now being initiated to “unlock” investments in projects amounting to a mindboggling 7 lakh crore (seven hundred thousand billion). Some of them are World Bank funded and others relate to infrastructure that have been languishing for want of clearances at the central and state levels. The PM directed their fast-tracking and ordered constitution of a monitoring group within the Cabinet Secretariat to keep a keen tab on them.

To me as a layman, it appears to be a little shameful for the government to decide now at such a late stage to start monitoring progress of approved projects when things seemingly have come to a crunch. This should have been happening all along. I recall, while visiting Malaysia under the Advanced Professional Programme on Public Administration conducted by the Indian Institute of Public Administration in 1981, our group was told by a representative of Malaysian Government that all projects of more than 100,000 dollars (the then Malaysian currency unit) were being monitored by the Prime Minister. Why have we been so sluggish in doing what other countries richer than ours have been doing for decades?

Monday, June 17, 2013

Fall of the Indian Rupee

A report appeared recently of a Reserve Bank of India (RBI) study about the share in circulation of various currency denominations in 2010-11. The study effectively reflects how the value of the country’s currency unit, the Rupee, has gradually eroded. The erosion seems to have picked up pace since the economic reforms process began in 1990-91 and was, seemingly, accentuated since 2003-04.

The study has revealed that in 2010-11 the share of Rs. 500 denomination bank notes “has gained significance and accounted for 47 per cent of the total currency in circulation”. These quickly emerged as the second most important denomination since 1998-99 and soon became most important denomination in 2003-04 replacing Rs 100 denomination. The report further indicated that the Rs. 100 bank notes which had a significant presence in circulation even after introduction of the Rs. 500 note lost their second position after introduction of the Rs.1000 bank notes in 2007-08 that came to account for 27 per cent of the total currency in circulation. Accounting for close to 50 per cent of the value of the total currency in circulation from 1970s to 1990s, the share of Rs 100 steeply declined to 14.8 per cent in 2010-11. 

Going progressively back in time, the study has traced the changes that occurred in circulation reflecting the emerging usage pattern of currency notes of various denominations since 1970s. It also reflects changes in the state of the economy over the last few decades. Rise in prices of goods and services is a problem that has been stalking the country since independence. In almost every speech since independence prominent national leaders talked of fighting this, what they called, “monster” and yet they could never put a leash on it. The prices kept moving northwards and simultaneously the smaller denominations, rendered valueless, kept falling by the way side.

During the “license-permit raj”, with the so-called Hindu Rate of Growth of 3 to 3.5 per cent there used to be incremental price rises barring the sporadic bouts of high rate of inflation. The currency did lose its value but the process was gradual except during years of extraordinary stress on the economy. However, with the opening up and liberalisation of the economy in the 1990s the fall in value of the rupee gathered momentum and it picked up pace in tandem, as it seemed, with the rise in the rate of growth. The decline in the rate of growth during economic slowdown since 2008 has surprisingly failed to arrest the Rupee’s depreciation.

All this is amply illustrated by the RBI study. Between 1970s and 1990s Rupees 100 notes occupied a position of significance accounting for almost 50 percent of the currency in circulation as against around 14 percent in 2010-11. Likewise the share of Rupees 10 currency notes that was pretty high before the 1970s and was around 34 percent during the decades of 1970s and 1990s progressively declined and came down to only 2 percent in 2010-11. As we all know, there has been enormous shrinkage in its value. Whereas at one time, especially during 1950s and 1960s, Rupees 10/- commanded appreciable purchasing power its value today is, perhaps not even like that of a Rupee of those times.

The study also revealed that the currency note of Rupees 20 denomination that was introduced to supplement Rupees 10 currency notes remained important only until 1982-83 and constituted 8 percent of the notes in circulation. However, it lost whatever little significance it had by 2010-11 when it accounted for only 0.6 percent of the notes in circulation. Similarly, the Rupees 50 denomination currency note, introduced 
presumably to reduce usage of Rupees 10 and 20 notes, became second most important denomination in 1980 and 1990s. While in 1992-93 it accounted for 32 percent of the currency in circulation its importance declined in 2010-11 to an utterly insignificant position of 1.7 percent.
The study has not dealt with the coins that used to be or are in use. Perhaps, it was confined to the circulation of currency notes of Rupees 10 and above. No mention has been made in the report of the currency notes of Rupee 1 and Rupees 2 and 5. Perhaps these are no longer being printed having been substituted by coins. While notes of Rupee 1 and 2 have disappeared from circulation one occasionally comes across heavily soiled Rupees 5 notes. Coins of fractions of a Rupee have long since disappeared. A cost benefit analysis led to discontinuance of minting of 1, 2, 3, 5 and 10 paise coins, eventually ceasing to be legal tender along with those of 25 paise in 2011. Though the coin of half a rupee, that of 50 paise, continues to be legal tender, it is not seen any more, having lost practically all its value. Small change has just vanished from the markets. Today’s small change is constituted by the coins of Rupees 1, 2 and 5. The recently introduced coins of Rupees 10 are not yet quite visible.

Empirical studies generally reflect accurately the situation on the ground. Those of us who spent our adult life in post-independence years know how over the years the Rupee saw its value being pared down. Gone are those days of 1950s and 1960s when a seer (approximately a kilo) of grains – rice or wheat – and lentils would be available for 10 to 12 annas, from half to three quarters of a rupee and a kilo of mutton for a like amount. In those far-away days fractions of a rupee had value. One could have a meal in less than a rupee. halwai (confectioner) would sell a paav (quarter seer) of puris  (about 8 puris) in 10 annas with a substantial plate of vegetables (aloo tamatar or aloo matar) on the house. I recall having had a meal off an eating joint in Agra in early 1950s in four annas comprising four chapattis with free daal, sabzi (lentils, vegetables) and delicious pickled mixed vegetables. For breakfast in a restaurant near St. John’s College we used to get an omelette of 2 eggs and 2 buttered toasts for 6 annas.
Our next door

Being packed with value, Rupees 1, 2 and 10 were very precious. Incomes were by and large low and so was consumption and hence what circulated more were the coins and currency of lower denominations. Even the then prestigious Civil Services commenced with only three-figure salaries, slowly progressing to four figures and retiring off officers when they came close to five figures. Today, with the steep fall in the Rupee’s value the pension of the same officers is in five figures.

The prospects for the Rupee do not seem very bright, what with adverse trade balance, high current account and fiscal deficits, mounting external debts, slowing economic growth and current political instability. In addition, with large scale political and bureaucratic corruption involving mindboggling sums enormous amounts of unaccounted wealth is floating around in the system pushing the demand that a weak supply network is not able to meet. The consequential inflationary pressure on the economy is most likely to further weaken the Rupee. Sinking to 57 to a dollar is a sign of weakening of the Rupee which, none would believe, was equivalent to a dollar in not-too-distant 1947.

From the way the things are going soon the RBI might find that Rs. 500 currency notes have been displaced from their prime position by Rupees 1000 notes.

Wednesday, June 12, 2013

"Amazing Thailand"

Crematorium Nonthaburi
The blurb of Tourism Authority of Thailand sells the country as “Amazing Thailand”. Thailand, indeed, amazes you. Endowed richly by nature and coupled with its cultural heritage the place offers all that makes an attractive destination. It has everything – beach tourism, adventure tourism, nature tourism, temple tourism and what have you. All those have been remarkably exploited to give tourists an unique experience. Welcoming as the Thais are one feels like going there over and over again.

That is precisely what my wife and I did late last year. I had been to Thailand in 1981 and 1982 and again with my wife in 2003. But we could not resist the temptation of going there again. An added attraction was my Thai friend for 30 years, and his beautiful family who, like all Thais, are very charming, hospitable and a delight to be with. Not interested in any kind of tourism, this time we just wanted to be there and spend some time with them.

Visiting Thailand after almost a decade we came across enormous changes – changes that, perhaps, cannot be wrought in India in the same length of time. Below is a brief description of all those changes and other significant features that attracted our attention.

This time the Air India plane landed at the spanking new Suvarnabhumi Airport located about 25 kilometres away from Bangkok. The Don Mueang international airport is still in use for domestic and regional flights but its inadequacy was being increasingly felt. Spread over around 8000-odd acres Suvarnabhumi is a massive airport that makes a passenger walk around a kilometre to have the entry formalities completed. Conceived
In the temple at Nonthaburi
about a decade and a half ago, its commissioning got delayed because of political and financial problems. All that is behind it now and it has become one of the busiest airports of Asia. A lovely Expressway links it to Bangkok. We, however, were taken beyond the metropolis by my friend to Nonthaburi, around 20 kilometres further west. Although we did not use it, there is a standard gauge high speed rail link with Bangkok that connects with its subway and sky-train systems.

I remembered Nonthaburi from our 2003 visit as a far-away suburb of Bangkok, removed from the hustle and bustle of the metropolis. My friend had his house there and had shown us around. It was beyond Laksi that was in the outskirts of Bangkok and still developing with several institutions coming up in the area. The Asia-Pacific Postal Training Centre was located there. The place seemed to me to be of rustic type with traces of civic amenities reminiscent of our Indian towns. This time as we approached it we found a sea-change. Laksi was unrecognisable and no longer what it was. Peppered with institutions with their
Rahu Temple at Nakhon Pathom
agnificent complexes it is no longer the ‘outback’ that it used to be. Many public authorities, including my friends’ Telecom Authority, have moved here to their expansive complexes from the crowded interiors of Bangkok. A huge, imaginative government complex too has come up accommodating most of the government offices in one monolith of a building with a beautiful facade. Its covered inner court is so massive that officials use segways to commute to its various parts.

If Laksi was unrecognisable Nonthaburi was no less. Situated on Chao Phraya River the place of about 250,000 has undergone a dramatic change in these nine years. It has shed its quiet sub-urban residential sleepy ambiance and has become a bustling town of massive malls, 24-hours convenience stores and street markets just as Bangkok. Only the mass transit
At Sakon Nakhom temple
systems of subway and skyways are yet to arrive. The work for them, however, is on and it will soon be closely linked with Bangkok. My friend continues to stay in his bungalow in the same lane which has since been upgraded with modern shopping, cafes and the ubiquitous street food joints. Nonthaburi has recently been designated as a “growth centre”.

Amazingly massive malls in Nonthaburi co-exist with small retailers, street markets that open for limited hours and street food outlets. Obviously foreign investment in retail has not caused the upheaval that the Indian politicians have been apprehensive of because of government’s decision on foreign direct investment in retail trade. In fact small traders operate from next to the malls or from in front of them. Even the omnipresent international chain of 24-hour convenience stores called “7-Eleven” have not had any effect on the small mom-and-pop type store. Obviously the market is big enough for everyone to do business in. The Indian fears clearly were largely exaggerated and politically motivated and has avoidably set the country back by a few years.

In the inner court of government complex, Laksi
The Thais have taken to condos in a big way. All over one sees high-rise condominiums (condos for short) coming up. In fact, Laksi and Nonthaburi are dotted with condos. It is apparently good business as the large foreign expat population go for them. No wonder the rents have gone up and so have the land prices. Even the government has g
ot into the act. Huge numbers of multi-storeyed condos have been built in a cluster for those who cannot afford to buy the fancy ones from builders – a very thoughtful step.

With Agadej, my friend, at his village
For an Indian going abroad from the country’s chaotic traffic in its cities the traffic in Nonthaburi, as in other towns, despite rising number of vehicles, appeared to be far more civilized. Yes, there are hold-ups but none would either break the traffic rules to get ahead or persistently honk like they do here. One just doesn’t hear car horns there. Bangkok was once known for its traffic chaos but, I guess, over time things have changed. What’s more, small cars are pas
sé. People go for sedans and SUVs/MUVs, Toyota being the preferred make. Commuting is cheap as it is ethanol that is used and covering a kilometre in a Toyota Corolla takes just a Baht – Rupees 2/-. Amazing, isn’t it? Surprisingly Thailand has retained the strength of its currency vis-a-vis the dollar during the last nine years. A Baht was still 30 to 31 to a dollar whereas our Rupee, thanks to our renowned economists at the helm, has sunk from 34 to 57 to a dollar.

Government built condos
This time we travelled through towns and villages in the country. We travelled to far north-east to Sakon Nakhon, Saraburi in Central Thailand and Nakon Pathom in the east. Though each differs slightly from the other because of slight cultural differences yet the feature that stands out is exceedingly well-run villages and towns. Governance seems to be pretty strong and having been so over long years has made the people conform to the civic requirements. Whether it is a village or a town or even a crowded city one wouldn’t see disorder, filth and litter anywhere.

King Bhumibol keeps a watch
One wonders whether it is because of the adulation for the Thai King Bhumibol Adulyadej and his Queen, Somdej Phra Boromarajini, whose portraits in their regalia adorn every important place in every town, road and highway junctions, foot over-bridges, government buildings and so on. Virtually omnipresent, the Royal couple seems to be keenly looking and assessing all the goings-on in their Kingdom. Thais look up to them and hold them in the highest of esteem.

If only we in India had somebody to look up to.

Monday, June 3, 2013

A reporter's fond wish

An excellent photograph of the green cover in the Link Road No.3 of Bhopal was published the other day in a vernacular daily. Huge trees on both sides of the road seemingly stretched themselves to grasp each other in a permanent embrace. A very beautiful view of a very good looking avenue! No wonder, the reporter said that one doesn’t feel the blazing heat of the day in the shaded avenue and also wished if only the entire city could have such green canopy on each and every road.

I am sorry to say that his fond wish will hardly ever be fulfilled. The culture of public works in this town or in this state or, for that matter, in the country wouldn’t allow it. This road is a road which is a little more than a couple of kilometres long and is considered one of the main arteries of the newer part of the town. The greenery is confined to about 500 metres length of the road and the rest of it has very sparse greenery on two sides. The reason is not far to seek. The last 500 or so metres have official houses on two sides and have, therefore, seen much more of public spending and effort. The Capital Project Authority – the authority which was created as a special purpose vehicle for construction of the new capital after Bhopal was designated as such of the new state and has curiously survived miraculously for the last 50-odd years – made special efforts to make this limited area green. Since on the remaining parts of the road the residents were ordinary folks and shanty-dwellers the Authority did not think of doing anything for them worthwhile.

It is the same story in the Link Road No 2. It has been beautifully greened on two sides on only the stretch that is the habitat of powerful and influential. The two sides of the rest of the road – about a kilometre and half long – had been occupied by squatters and hence, naturally, did not deserve the same treatment. It was only after the onset of the Urban Renewal Mission that the rest of the road seemed to be getting some attention. On being asked, the local divisional Commissioner once told me that under Central directions three roads of the city were being pepped up and this happened to be one of the three.

The third road is the Link Road No.1 which has seen enormous makeover in recent times. Again, around this road are concentrated ministers and senior officials and no wonder this was the first road taken up for revamping. All those who live in the city would have noticed the road evolving into one which is indeed very good looking, though still nowhere near international standards. Perhaps, all the film people who have started visiting this town in increasing numbers go gaga after seeing it and the so-called VIP Road – which again is the only artery for the rich and powerful straight to the local airport. Both have appreciable amount of greenery on the sides as well as on the central verges.

As must be evident from above all these are important areas from the point of view of those who reside in them. Other areas where commoners live out their lives are never given the same kind of treatment. Not a single tree has been planted on the Idgah Hills where a jungle of high rises has come up for the economically weaker sections. The feudal mindset comes so naturally to those who provide civic amenities. It is the “VIP Culture” that they are steeped in and that determines where and what amenities are to be dispensed. So, you find the segments of the city where the political and bureaucratic brass live green, spic and span and well-provisioned with goodies whereas the rest of the town languishes in filth and squalour. All the resources of the state – financial and human – seem to be meant for their use. Quite evidently, Bhopal is not alone in this respect; this is markedly visible all over the country. We have “equality” on paper but not on the ground.

That wish of the reporter, therefore, will remain only a fond wish – not to be fulfilled for a long, long time.

DISAPPEARING FREEDOM OF EXPRESSION Rama Chandra Guha, free-thinker, author and historian Ram Chandra Guha, a free-thinker, author and...