THE GAME OF BLAME AND GLOOMED ECONOMY

Chidambaram blames Pranab; RBI governor blames Chidambaram; opposition MP’s blame Manmohan; FINALLY, CHIDAMBARAM and Manmohan BLAME Indian Public.

Discussion points:

§  RBI decision to buy back gold from the public and give this gold to the refiners

§  Issue of gold bonds to the public against the purchased gold

§  Continuation of the FDI policy

§  The real problem of the economy

§  Solutions for the problems

§  Sector to concentrate

As the rupee rate against dollar is falling down, the common public of the country become panic. Their

concern was on the price increasing of the basic commodities. While looking from the side of commoners it’s correct. But the prime minister of the country, a person who has never appeared before the general public, (even for election!!) said there is nothing to be panic. Everything will be normal; the present situation is due to some actions taken by the US to improve their economy. If you remember, in 2008 he said the economy is down because of the economic meltdown in US.

So what is the present problem of our country?

In economical terms we can say due to the trade deficit and current account deficit the rupee is getting weaker against the dollar. The trade deficit can be explained as the difference between the export and import. Since the import is more than the export our requirement of dollar is more, accordingly, the demand and rate of dollar will be more.

The game of blame is continuing.

The finance minister and prime minister said that the basic problem for the trade deficit is the import of crude oil and the gold. As per the statistics around 31,000 tons of gold is available with Indian citizens. (But still these Indians are still buying the gold. What to do!!)

RBI governor says the policies of the government are the reason for current situation and he suggests buying gold from the public and diverting it to the refiners for making the jewels. So the import of gold will come down. The annual import of gold is around 800-900 tons. Even if they are able to buy 500 tons of gold, temporarily they can save the Indian currency from the depreciation.

Comments: In a scenario where you are not able to trust the value of the rupee or even your leaders who are formulating the policy who (other than really needy public) will sell their gold?

Minister Mr. Anand Sharma was mentioning about buying gold from the public and issuing a gold bonds to the public. Subsequently the government can sell this gold to the refiners and can reduce the gold import. I think he is talking about the securitization of the gold. Making the gold bonds without having a proper plan is more dangerous. Once these bonds are getting matured how they will honor the bond?

Comments: In case if they are issuing bonds with a nominal return, who will give their gold to the government? (By keeping the gold physically, at least you are having an assurance that you will get the equivalent value (means the real value) of the invested amount whenever you are selling the gold.

Finally our prime minister (who rarely opens his mouth), yesterday addressed the parliament and said the economic policies and FDI policies will continue. (Even if the country collapses) according to him, once the FDI in retail sector also comes all the economic problems of our country will be over!!!!!

Comments: I hope you will agree on the below mentioned points.

1.       The capital investments will be always repaid from the business;

2.       No one invest if the return of the capital is assured within a minimum period of time.

Now tell me any foreign companies will invest in India for the development of India? As usual the owners will take out all the money to their own country or other countries where they can secure the value of the money. Once Mahatma Gandhi said "The big industries can never, they don't hope to, overtake the unemployed millions. Their aim is primarily to make money for the few owners, never the direct one of finding employment for the unemployed millions.”

WHAT IS THE REAL PROBLEM

The present problem of the world economy is due to the wrong economic, financial and accounting policies.

The increased concentration on the service sector developments and making the economic, financial and accounting policies to strengthen the service sector has damaged other sectors of the economy. All those world economies that were relying on the service sector developments (service sector GDP growth) are in deep problem. The wrong practice of the trading, like (a) options trading with a small amount as deposit (b) allowing to trade without real delivery made the world more vulnerable. The marked to market concept of accounting and the recognition of the unrealized profit into the books of account is also put the fuel into the problem.

The option trading of commodities made the life of the common public more risk. There are many companies who are doing the crude oil business whose owners or executive managers are really don’t know what is crude oil. The same thing happened in the case of gold also. More than this the gold bonds issued by the financial institution helped these business people to buy the gold in paper. The same is the case of all commodities.

Due to this a lot of companies (I will say brokers) born which are doing business in trading of gold, crude, other commodities without any value addition in the chain of activities or in the product. Without putting any effort, these companies made huge profits. But what happened once the problem started in these institutions? a big catastrophe to the economy. isn’t it?.

(In my native place there are a lot of people who are in the business of real estate. If you analyze in detail you can see that these people are merely brokers and making money more than the real owner of the property!).

The commodity trading of the necessary grains and goods has made its presence by way of increasing the price of the goods. The only value addition taken place on the goods is the profits of all intermediary traders (I will say brokers).

WHAT IS THE SOLUTION

A WORLD SCENARIO

·         Gradually reverse the wrong economic, accounting and financial policies.

·         Eliminate the intermediaries (who didn’t add any value addition to the products or services) from the activity.

·         The necessary goods like crude, grains and goods which can directly affect the world economy like gold etc. should be traded based on actual delivery. No option trading should be allowed on this kind of products.

INDIAN SCENARIO

To reduce the import of Crude oil, do the following:

·         Increase the internal productivity of the oil, gas, coal etc..

·         Nationalize the oil, gas and coal industry.

·         Invest in the infrastructure, road, railway line, water transport etc..

·         Improve the public transportation facilities.

·         To reduce the private vehicles, stop the bank financing for the private vehicle purchases. (is your car through finance?)

To control the prices of the rice, wheat and grains, vegetables etc

·         Invest in the warehousing system across the country.

·         Introduce the public distribution system (Ration shops) across the country.

·         Use the bio-metric equipments and networking of the computer systems to ensure the proper distribution of the goods through the PDS system.

·         Introduce the “Kudumbasree” model of Kerala across the country.

·         Promote the “Kudumbasree’ products and revive the village industries.

·         Promote the co operative stores across the country, through which the state governments can supply the goods and regulate the price.

Sector to concentrate:

The GDP from Agriculture is only 18% but around 55% of the population is depending on the agriculture activities in the country. Hence the government has to concentrate the agriculture sector. The agriculture sector should be supported in the seed development, new methods for nurturing, farming etc to increase the productivity.

According to the 2011 census of India, 68.84% of Indians (around 833.1 million people) live in 640,867 different villages.

Conclusion:

I would like to conclude with the statement of Mahatma Gandhi. He said: “The soul of India lives in its villages” and "If village industries are revived, millions of villagers will get full wages."

[Note: I have seen a lot posts and requests to avoid foreign goods and promote Indian goods; the entire country is in confusion to segregate the Indian products and foreign products. Even the Indian origin products are also traded by the foreign companies in India!!]