In an earlier article, we saw about the steps taken by the reserve bank of India to prevent the downfall of the downfall of rupee.
In this article, we see the steps taken by government of India, to prevent the downfall of rupee, to boost the GDP, confidence of Investors and Credit rating agencies (S&P, Moody’s etc).

1. Steps already taken by Government
2. Policy paralysis: What are the problem areas?
   • FDI issues
   • Oil Price
   • Gold Import
   • Aviation Fuel
   • Roads, Railways and ports
   • Telecom

See this diagram

Steps already taken by Government

1. Infrastructure review meeting by the Prime Minister, he says we need investment of Rs.1 lakh crore in the infrastrcture. (hahaha, in another meeting or seminar he had said we need Rs.2 lakh crore investment, As if money falls from the sky!)
2. Investment tracking system to monitor the status of project of Rs.1000 crore and above.
3. Manufacturing industry promotion board (MIPB) headed by the commerce and industry Minister, has been set up.
4. Aviation Ministry has cleared and India's new operation plan.
5. Cabinet has cleared the National Telecom policy 2012, and a move to introduce unified licensing regime.
6. Empowered group of Ministry on spectrum pricing, has endorsed Telecom commission suggestion that a 10 MHz spectrum per circle be put up for auctions.
7. A nine-member ministerial panel has been formed to hasten the draft coal regulator bill.
8. Finance Ministry set up a meeting with pharmaceutical industry, to work out a mechanism for fast clearance of FDI proposals
9. Finance Ministry has issued austerity guideline to ministers and bureaucrats
   1. Restrictions on foreign travel.
   2. Restrictions on purchase of new vehicle
   3. Ban on meetings in the five star hotels.
   4. Although Planning Commission has been kept out of these auterity measures, and allowed to build toilet worth Rs.35 lakhs.
10. Government agreed to amend the pension bill and incorporate the suggestions of the standing committee of Finance, including a 26% FDI and a mechanism for minimum assured returns. (update this was put on backburner after Mamatha blocked it.)
11. Individual Qualified institutional investors (QFI) are allowed to bring up to one billion dollar in the Debt Market. (i.e. the “Bonds” market, for explaination read my Debt Vs Equity, Bond vs Shares article.)  Apart from that, rules have been relaxed to allow entry of QFIs from gulf countries. More on that given in previous article (click me)
12. New sops for the exporters in foreign trade policy 2009-14.

Policy paralysis: What are the problem areas?

FDI issues

Proposal for the foreign direct investment in the key sectors such as multibrand retail, aviation, banking and insurance are either stuck at various level or simply put in cold storage because of coalition politics

coal

1. There is a huge gap in demand and supply of the coal, and it is negatively affecting the IIP and WPI Index, and electricity supply.
   1. How does coal price affect WPI? Click me to understand.
   2. What is IIP? Click me to understand.
2. Gas output has declined, directly affecting the CNG and Fertilizer prices.

Oil Price

• Higher petrol / diesel price has snowballing effect on entire economy. It increases the cost of production and transport of various goods (milk, vegetables ) = Supply side inflation. What is Supply side inflation? Click me to understand.
• On one hand Oil companies say we are making losses so we’ll hike the prices, one the other hand Government  (At union and state level) keep high taxes on fuels to finance their bogus Development schemes. So you and I are crushed from both the sides paying Rs. 80 per litre of petrol.

Gold Import

Already explained in the previous article, how Gold import increases our Current Account Deficit, thus increasing the demand of dollar = rupee downfall. Hence there should be a heavy excise duty on gold, to prevent its consumption.

Aviation Fuel

• high cost of aviation turbine fuel (ATF)
• State taxes upto 33% tax on ATF, thus airlines are not generating decent profit. Some are exiting, some are cutting down the staff.
• Proposal for allowing FDI in domestic airlines = stuck
• Air India = loss making, financed by tax payer’s money.

Roads, Railways and ports

• Slow pace of highway projects, because of the land acquisition issues and environmental clearance. Strong road-infrastrucutre is a prerequisite for boosting the economy.
• Railways is messed up because
  • Passenger fares are not hiked due to vote bank politics. And to cover up the losses, they keep the freight costs high (i.e. the price you’ve to pay to get goods delivered from one place to another.) this is called cross-subsidization.
  • Higher freight charges = lower profit margin = higher MRP = Supply side inflation
  • Because of the Naxal blowing railway tracks, the Indian Railways doesn’t run many trains through the red-corridor during night hours and the pilots are instrucuted to drive the train at 30-40 kmph speed only, while going through the naxal regions = slow transport of men and material = bad for economy.
• Most of India's major ports are short on capacity and grossly insufficient in terms of tonnes of cargo handled and turn-around time for vessels, when compared to Singapore or Japan. (Example: If you come up with a cargo-ship containing 500MT of goods from US to India, it’ll take 2 days to unload the ship in India while it’ll take merely a few hours in Singapore, due to the unskilled manpower, lack of latest machinary and lots of paperwork and bureaucratic procedures.)

Telecom

• Telecom and internet are essential to generate more business and employment.
• But the foreign investors are exiting because of the flawed implementation and court orders.
• Because of the policy uncertainty in the telecom sector, there is very low investment thefore prices of mobile connection and broadband internet are extremely high compared to Japan or USA. It directly affects the profit margin of cybercafe / call centre and other similar businesses.

Credit

• IndianExpress’s business section dated  7^th June 2012
• Restrcturing, elaboration by You know who.

For more articles on Economy by Mrunal Patel, click www.mrunal.org/economy