Saturday, March 2, 2013

CAG, SC and RBI all responsible for economic slowdown….

In all the hullaballoo that surrounded the presentation of the Union Finance budget, a very important event got completely ignored. In the 3rd quarter of the financial year, India’s GDP growth plummeted to a 10-year low of 4.5%. The record of the lowest growth rate (3.8% in 2002-3) still remains with the NDA of course. It’s time we focused attention on the culprits of this disastrous economic showing.

The primary culpability for the economic slow-down has to be the government’s. Through fiscal prudence, determined action on clearing large sized projects, smart economic policies and deft management of Parliamentary numbers, the ruling government is expected to overcome the typical hurdles that face a coalition government. The UPA-2 government must thus accept a large part of the blame. And it must be deservedly panned in the public domain. Our media specializes in government bashing and we have to agree that the government has got it left and right from the media over the last couple of years. This is the way the government is held accountable for its lapses. The ultimate punishment would come from the voters, if they voted it out in 2014. So lets leave the government out for the moment. Let’s focus attention on the other key players – none of whom are even remotely held accountable by either the media or the public.

The first in the list is no doubt the CAG. How big a blunder the CAG made in the 2G scam is becoming more and more clear with every 2G auction failure. The reserve fee for GSM auctions has been lowered from Rs 18000 crores to Rs 14000 crores to less than Rs 10000 crores. Yet, the auctions haven’t managed to attract any bidders. As a result, MTS, one of those who lost their licenses in Feb 2012, has managed to win its spectrum back at the base price without bidding. The CAG has to answer the question about how it got its loss estimate so wrong. By first suggesting, and then actively publicizing its kinky Rs 1.76 lac loss figure through repeated media interactions, the CAG created the impression that the ruling government had pocketed the money. But the CAG was wrong. Not only was the figure wrongly estimated, it was also wrong on its part to dive into policy matters. The government was within its rights to set whatever reserve fee it wanted to keep.

The CAG’s irresponsible auditing is responsible for the policy paralysis that followed. The CBI was put on the chase of allegedly guilty bureaucrats and politicians. After so much time, all that we have is a Rs 200 alleged crore scam between Raja and the DB Realty group. Worse, the 3G business – on the basis of which the CAG estimated the huge 2G loss – has all but tanked. Tariffs are steep; penetration pathetic. It is now clear that the 3G auctions were a mistake; the telecom industry had goofed up in estimating the revenue opportunity. But the CAG made an even bigger mistake – of perpetuating the wrong for eternity.

The CAG went on to make more gaffes. It’s estimate of a Rs 2 lac crore scam with S-band spectrum was unpardonable. Yet, it never apologized for it. Likewise the coal scam was completely misplaced. In all cases, the CAG confused implementation failures and corruption at grassroots levels with flawed policy, setting the entire process of governance behind by years.

The SC is the next constitutional authority that must share the blame for declining growth. Wanting to be seen as being in line with public sentiments, the SC acted on the CAG report and canceled all 2G licenses issued by Raja. What kind of a justice was this, with those not connected with any wrongdoing also being made to pay for the crimes of the ones who did. The SC in fact went further and ordered that all natural resources should only be auctioned, vastly exceeding its mandate. Thankfully, the government recovered its wits, and challenged the verdict, leading to its annulment by the Constitution bench of the apex court. Should the government not have challenged the cancelation of the 2G licenses also? Of course it should have, but it chose to take advantage of the opportunity afforded by the SC order to raise resources and cut the fisc deficit.

As a result of the SC ordered auctions, the 2G telecom business is in a tailspin. Operators are refusing to participate in further auctions until the policy is made more realistic. They are culling low paying subscribers – the poorest sections – as they search for efficiency in spectrum usage. After all, why should they cater to low end subscribers if the government won’t give them cheap spectrum? It’s not their job to take care of social equity issues. If the government  wants to extend the benefits of this revolutionary technology to them, let it ask BSNL and MTNL to do so, and let it fund their resultant losses. Do we hear the SC accepting its mistake? No way….

The SC has also been over-zealous in canceling all mining licenses in Karnataka and Goa, leading to the mining sector crashing.

The last institution I want to blame is the RBI. It decided to narrow its mandate to just “inflation management”, leaving the job of economic growth solely to the Finance Minister. It has completely misiunderstood the high inflation, thinking in traditional ways that it hurts the poor. It failed to recognize that this time around, it was the demand arising from the poor – thanks to NREGA, higher MSPs, and thousands of crores of subsidies of various types – that was leading to the demand. The poor were not hurting. Yet, the RBI did nothing to wisen up; to remove the blinkers covering its eyes. It went ahead clerically, raising rates 13 times in a year and a half, till it all but completely crushed India’s growth story. Has the RBI realized that inflation has actually come down after fuel price hikes, and after it lowered interest rates, not before? Had its theories been right, inflation should have increased right? But the RBI doesn’t understand that it simply has to drop rates sharply. Will it do that? No way. It will stick to its ostrich like approach; causing much pain and agony to the entire economy.

These three institutions must be made answerable. In fact, they must be made answerable to the government, not to Parliament. That kind of supervision means nothing. It is impossible to sack the CAG, thanks to the political animal that this CAG has made his office. Ditto, SC judges. And the RBI governor is so keen to prove that his office is truly independent of the government, that he has made it a point to do the exact opposite of what the Finance Minister wants. How can this continue? All those people who demand that more and more institutions should be made independent must give the state of affairs of the current institutions a thought.

And what about the fourth estate – media? The less said the better. In its desperation to garner more viewers and readers, the media has completely sold the country out. It’s irresponsibility has breached all limits. It has blindly supported the public mood; hardly bothered to search for the truth. It is as responsible for the mess as the others.

The real truth is that India has been let down by irresponsible leaders heading important constitutional bodies. Unfortunately, none of them can be held accountable. The CAG in particular has shamed the country the most – even talking at international fora about our domestic issues. Its time we take all of these bodies to task – just as we do the government every single day….

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