Cleaning up the Augean Stables, an unenviable job for Prime Minister Mr. Modi – By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

May 23, 2014 | Posted by bobbysrinivasan << back to blog

Legend has it that the King of Elis decided to clean up the Augean Stables, which was filled with dirt and filth, for well over 30 years. Again, according to the folklore it was cleaned by Hercules, who diverted a river through these stables. Now, cleaning up the mess created by the UPA led government will be a lot more challenging than the efforts taken to clean up the Augean Stables. Ten years of their rule has put India many decades behind, in terms of missed out opportunities.

The UPA government, under the leadership of Dr. Man Mohan Singh, should be held responsible for the mess our economy is currently in. For example, the price of staples in the US over the last 10 years has remained the same while in India it has gone up by more than two to four hundred percent. The income growth of Indians during this period was marginal. The ever increasing prices of essentials have caused so much pain. This is the primary reason why they did so badly in the election of 2014.

To sit in the opposition, they require at least 10% of the parliamentary seats and the UPA has fallen short of that. Serious damages have been done to the economy and its prospects that it will require a Hercules to set it somewhat right. Hopefully Mr. Modi fits the bill. Let us look at the major issues.

Inflation: the worst enemy in the world is inflation. Warren Buffet called it the number one enemy to the stock market. It has decimated the purchasing power of the Indian Rupee.

The ever and continuously increasing inflation rate has brought so much scare as meeting ends meet is becoming a challenge. Mr. Prime Minister, What steps are you planning to take to reduce the inflation rate and its expectation?

Hike the interest rate to sky high levels like Paul Volcker did in the US during the 1970s. His action worked but killed every initiative, which could not survive the high interest rate. With this policy, the economic growth that is already weak, will take a big hit.
Improve the supply of essentials through imports and/or through providing incentives to the local farmers to produce more.
Check the supply chain to see how the inflation gets built in at every stage.
Tell stories like miracles will happen and the inflation will automatically disappear through consumer resistance to reduced consumption.
Like the UPA government, distribute free food to the poor and ignore the middle class, who have nowhere to turn to. The poor won’t be affected by the inflation rate but the middle class will.

2. The ever increasing budget deficit and the allocation of funds

The last budget of 2013-14 was 16.65 Trillion Rupees. With a 29% of it borrowed (Rs. 4.82 Trillion Rupees), these monies have been allocated to activities that should have helped the UPA to win the election, and it didnt. Nearly 11% of budget or about 1.85 Trillion Rupees was allocated to subsidies. These are wasted away money. No country in the world can survive with these kinds of subsidies. It is the tax payer’s money that was fritted away. Mr. Prime Minister, please take a look at it critically as we will become a basket case once our debt level reaches above 100% of GDP. Currently we are moving steadily towards that and our bond rating will definitely move one notch down.

3. Our trade deficit:

This year we hit a trade deficit above $ 180 Billion ($320 Billion exports and $500 Billion imports). The software export reduces this by 60-70 billion dollars. Besides, the FII money is coming in steadily to reap the advantage of the most speculative market in the world. Your expected victory is good enough reason to push the markets by more than 10%. How do you make sure that these FIIs don’t exit? They did this in 2008 and our Sensex dropped from 21000 to 8000. Mr. Prime Minister, our market should not become the gambling casino. You should curb the FIIs and encourage local citizens to participate. After 2008 crash local investors are staying away from the market.

Mr. Prime Minister, you should go to the trade surplus countries like China, Saudi Arabia, and Germany and encourage them to come and do business in India and create jobs. Indian foreign reserves stand around $310 Billion while the liability against it is about $430 Billion. This is the time to seriously formulate policies favoring FDI as well as export incentives.

Non-Performing Assets:

The UPA government closed its eyes while the NPA soared. Currently it is at 10% of the lendable funds with our banks. Mr. Prime Minister, we want growth and not speculate with banks money. How are you going to find more money to lend? Are you going to print it? A thorough investigation is called for; otherwise it will amount to abuse of the system for personal gains.

Job Creation:

This will determine your chances for winning the next election. Encourage FDIs to come wholeheartedly and create jobs. Reward local companies who create jobs. Cancel schemes like MNREGA. Instead put people to work and bring them dignity. If you are a parent, the pain they go through seeing their children unemployed or underemployed will hit you like a brick. Job creation is a top priority.

Finally, Mr. Prime Minister, they have turned to you in large numbers to seek your help. Please don’t behave the way UPA did. Their discussion was always whether Rs. 20 or Rs. 30 is enough to live. You and your party discussion should be how many meaningful jobs you have created and how you plan to create more. The misdirected policies as well as policy paralysis later on have destroyed our economy. Time for you Mr. Hercules to clean up the Augean stables.

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