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HindustanTimes Thu,23 Oct 2014

The hiccups of 2012 set to trigger rejuvenating reforms in New Year

HT Correspondent, Hindustan Times  New Delhi, December 30, 2012
First Published: 21:05 IST(30/12/2012) | Last Updated: 21:07 IST(30/12/2012)

Most of us will probably remember 2012 as the year when getting by got harder.

Almost all everyday products and services — from food to footwear, movie tickets to medicines, from restaurant meals to deodorants and lipsticks — have turned dearer in the last 12 months hitting family budgets hard. The same amount of money now buys fewer goods.

A not-so-benign nature only made matters worse.

Generally, monsoon or June-September rains provide relief from a sticky summer. Schools shut down. Families go on vacation. It’s also the life-blood of Asia's third-largest economy. However, this year it played spoilsport, crimping food output and raising prices.

While food items turned more expensive on weather-induced supply shortages, the government also raised excise duty by 2 percentage points to 12% for most manufactured goods and brought more services into the tax net, making them costlier.

In the last three years, home loan EMIs (equated monthly installments) has steadily gone up.

Higher prices and the need to find additional money for EMIs have forced cuts on purchases of televisions and cars.

It was also the year when policy pronouncements such as a retrospective tax on older corporate transactions such as the Vodafone-Hutch deal and uncertainty over general anti-avoidance rule (GAAR) did dent India’s image as an investment hotspot.

This was also the year when the rupee, first introduced as a silver coin for transactions by emperor Sher Shah Suri in the 16th century, hit a record low. The sliding rupee would have probably made your education fee or a holiday abroad costlier.

For the government, battling to counter a crippling industrial slowdown and a persistently weak rupee added to an array of problems, graver than just mounting travel and college expenses. An imploding Europe, India’s biggest export market, has negated much of exporters’ gains from a weak rupee as shipment orders dried out. 

Costlier crude oil and the resultant increase in fuel prices — diesel prices were raised by a steep R5 a litre in mid-September — have knocked up prices of most goods, spreading into what economists call “core inflation”, or prices of non-food and non-fuel commodities.

To stymie demand and cool prices, the Reserve Bank of India (RBI) maintained lending costs at high levels. Costly borrowings and inputs, however, dampened investments, hurting growth.

India’s economy grew at an alarmingly slow 5.4% during the April-September period, putting the country on track for its worst financial year since the drought and dotcom bust of 2002-03.

Slower industrial growth have also resulted in fewer jobs and lower wage hikes as companies, facing weak sales, held back planned investments and cut hiring.

In sum, factories produced less, exports shrunk, prices continued to rise and salary hikes remained nearly flat. As consumers struggled with less in their pockets to fund their aspirations and essentials, for most it was a sombre 2012.

But there are silver linings.

For a capital-scarce economy, allowing overseas investors to deploy funds in high-growth sectors such as retail is perhaps the first step in seeking to spin jobs and income.

The banking laws (amendment) Bill that Parliament passed in the winter session also marked a significant step in seeking to create effective intermediation of households’ savings and growing investment needs. Besides, India has been

long found wanting on a legislative framework for checks and balances to prevent frauds, make corporate board room decisions transparent and hold auditors and directors more accountable.

The Companies Bill, which the Lok Sabha passed in the last session, will fill this gap.

In the final analysis, if prices pinched your pocket in 2012, it also marked the beginning of the slog overs of India’s second innings of reforms.


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