Friday, February 17, 2012

The black February of bad news continues – and the people’s senses are numb

We are in for a difficult time in managing our personal finances as the spate of price increases does not have a limit or a time frame, as long as the threat of further devaluation of the Rupee remains. The pundits are now saying this was inevitable as the Government was living on borrowed time, but why were they so silent all this time? It was because the Government carried out a very successful campaign of misinformation, about the state of the Country’s finances. The foreign reserves position was not as rosy as was being portrayed, and the rising level of the balance of payments gap could not be contained forcing the need to either prop up the rupee or go for a devaluation on top of the steps taken to plug the budget deficit.

The government further wanted to get all the Local government elections out of the way. Now when they have strengthened their hold on power, are able to go for a two year period without elections, by which time they hope to have sorted out the problems that have arisen.

It was clear at the Budget presentation that the Government had an impossible deficit that it just could not fund out of borrowing. So they had no choice but to cut the subsidies that would directly reduce this deficit. It is therefore wrong to blame the price rises on the Iran crisis or the increase in the price of oil. Now, due to the pressure both on the rupee and the reserves and need for borrowing, the Treasury Bill rates have risen and we will see a further tightening of the money supply with increasing interest rates, which will see a further dampening of the growth rate. The latter is also required to prevent a free fall of the rupee.

The government has also raised the prices of fuel to a level, where at present they will also earn an additional tax, and be able to cushion fuel prices from a further devaluation. Therefore only the Fertilizer subsidy of Rs50Billion and some wasteful infrastructure spending remain to be tackled.

The truth now needs to be explained, as being a direct result of the policies of the government and as a direct result of fooling the public over the past three years. The pain would have been minor or not even felt if the action was timely at facing the crises when they occurred and not waiting for them to get out of hand, where there are no options but to go for these huge and painful steps that are definitely going to affect the poorest sections of the community especially hard despite the promises of subsidies to those who are at the bottom of the pile. Subsidies in the end DO NOT reach the truly deserving and it is only people’s imagination that they will help. It is therefore BAD POLICY SHAMEFULLY EXECUTED

No comments: