|»5 Minute Wrap Up by Equitymaster|
On This Day - 21 APRIL 2011
If India's GDP is galloping, why are people worse off?
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Now, isn't it ironic that a country whose economic growth has been a toast of the world, still has so many of its citizens struggling. Agreed that a survey made up of a small sample size shouldn't be taken so seriously. But one look around us and we will be forced to believe that the survey's conclusion could perhaps be valid. If India is indeed growing, it is certainly not fully showing up in the quality of life most of its people are leading.
We have managed to zero in on two major culprits responsible for this apparent dichotomy. One goes by the name of the rich-poor divide and second moves around as inflation in the price of basic necessities. Let us tackle the second one first. It bothers us immensely that while mobile phones have gone on to become cheap year after year; a basic necessity such as food has seen its prices shoot through the roof. And this is one of the major reasons for growing discontent we believe.
A second or a third mobile phone may have limited utility but a little bit of extra food on the table goes a long way towards making people feel more satisfied. So while the country brags about how it unleashed the mobile revolution bringing about tremendous boost to productivity and growth, majority of the country's citizens are struggling to come to speed with rising food prices.
As for the rich poor divide, the less said the better. Issues like land grabs and corruption at all levels are making only a select few rich at the expense of the vast majority. And with speculation in areas like real estate rampant, we may be veering towards creating an asset based economy rather than the one that is based on real economic activities. The US is a prime example of what happens when one creates an asset based economy. The rich poor divide increases sharply and we get violent booms and busts.
Thus, unless the Government takes drastic measures to tackle these issues, GDP growth in even double digits may not be able to make most of its citizens well-off!
Do you feel your wellbeing has increased in line with country's GDP growth? Share your views with us or comment on our facebook page.
And mind you, this is just the sovereign debt that we are talking about. There's a lot more. As per a leading news agency, the world's banks are going to face a US$ 3.6 trillion "wall of maturing debt" in the next two years.
This will lead to a situation where banks and governments will be scrambling for funding resources. But who is going to fund these western economies? Japan is not at all in a position to do that, especially after the recent disasters. China is facing serious issues at home and is beginning to show signs of a slowdown. So the funds seem to be quite scarce.
Given such circumstances, we'll witness many bank and sovereign bankruptcies in the coming times. So forget all the noise about 'global economic recovery'. The global crisis is still very much here and about to intensify.
Interestingly, the incumbent SBI chief Mr Chaudhuri calls the special 'teaser' loan scheme non compliant with the RBI guidelines. These accounted for more than 40% of total outstanding home loans in the bank's books at the end of December 2010. With SBI's exit from the 'teaser loan' pricing, the home loan rates in the Indian banking sector are clearly expected to remain firm.
It is a good idea to export the 'excess' food grains. It would definitely help to add to the government's coffers. At the same time, it would probably not make that much sense to Mr. Pawar to just distribute the so called excess grain to the starving poor. Also, it would not make sense to actually wait and see how the monsoons pan out. After all, we are all only too aware of what happened to the cotton prices thanks to faulty forecasts and assumptions of the government. We really wonder if Mr. Pawar thought of these issues before making his suggestions.
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