Tuesday, 17 September 2013

Are we Heading into Recession?

There are increasing talks that we are going into recession and bear stock market phase. I strongly disagree with this. The slowdown that we are facing now is not a structured lowdown or recession like the one that started in western world in 2008, where demand declined because everybody was having full stomach...But we...we just can’t demand even after having empty stomach. Our problem is only of policy framework.

This empty stomach is itself an opportunity to reap the benefits of demographic and geographical dividend which our country has. We are having the highest young population in the world (after 10-15 years china will also grow old due to one child policy), we are the best English spoken people among our Asian peers, our young ones are coming out of the clout of low confidence and low self image to demand equality and dignity and to stand up against anything they find wrong and unethical.

We are having most fertile lands, almost all the climates sufficient to crop huge varieties of crops, rivers, huge untapped mineral resources, 7000Km long coastal line (we are best placed to import/export from varieties of choices).

We are having empty stomach only due to policy flaws which are normal for a huge democratic country like ours where language/culture/life style changes after every 100 km. Also no growth happens vertically in absolute, there are occasional ups and downs. These occur to absorb the shocks of any misallocation of productive resources, to absorb any excess supply (mainly due to over production during initial growth phase).

So what we need is to align our policy framework with our objective of inclusive growth. Like for example, our problematic import of oil/gas. First if we want something than we must have the capacity to give something in return and if we are not having something at that point of time, then we have to borrow but we have to make sure to create the environment to return the same along with some markup or interest. To import such huge quantities of oil we must focus on agro export, which is our strength...but look at our situation. Avg land holding in india is around 2-3 acres, in USA it is 400 acres. We have made some idiotic laws of maximum land holdings of around 50 acres which completely defies the benefits of economies of scale which USA enjoys. Our farmers are uneducated with old agro techniques which passed unto them from their fathers.

We terribly lack the policy for the benefits of all. Our much hyped food security bill will only increase inflation. At present due to Minimum Support prices announced by Govt to meet their targets of food security, everybody in Punjab/Haryana is harvesting Wheat/Rice madly. The result, huge reserves of wheat/Rice with govt to rotten and no land for sowing pulses/vegetables/oilseeds and these are the main culprits of high inflation for last 4 years. Also the benefit given to poor in the form of cheap (but low quality) wheat/rice is wiped out by high inflation in other food articles like pulses/vegetables/oilseeds.

More due to lack of infrastructure development for agriculture like roads connecting villages, high quality warehouses, cold chain systems we are wasting almost 40% of our Vegetables/Fruits and 10-15% of grains, which equals to total consumption of the same by UK. We can reduce food inflation by huge margin only by saving these wastages let alone the growth in productivity. Hence the need is to provide support to cold chain/warehouses/Road rather than announcing non sense bounties like free laptops, free water/electricity, bailing out Indian Airlines (better convert it to local 3 wheelers carrier).

Avg truck speed in india is 30-35 KM/H against Global avg of 70-80 KM/H. In china, length of national highways is 20 lakh Kilometre against our 70000 Km. Our Freight trains charges highest freight charges in the world but lowest passenger fare in the world.
But these are not dead blocks but opportunities because air moves only where there is a vacuum. 


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