The signs of collapse

It doesn’t take a rocket scientist to realize that inflation is hurting badly. One just needs to be a shopper with a fixed income. The question of when this would come to an end depends on an improvement in the economy. However, the economy is showing every sign of tanking, and what is perhaps worse, how hapless the government seems. One of the most indicative news items is that Pak Suzuki posted its highest ever quarterly loss, of Rs 12.9 billion, in the January-March quarter just ended. Apart from a dip in sales, caused by a loss of purchasing power, the depreciation of the rupee was also quoted as driving up financial costs, which tripled from the second quarter, and were 12 times higher year-on-year. This result was merely a concrete example of the macro picture, which saw large scale manufacturing output decline 5.56 percent as compared to last year, in the July-February period, covering the first eight months of this fiscal year. This has been seen in conjunction with the 12.4 percent decline in textile exports in the year so far, which is a precipitous drop in one of the country’s main export categories. Does the exchange rate and its fluctuations have anything to do with this?

The bottom line is that jobs are being destroyed. Falling exports mean smaller orders and layoffs. This applies to large scale manufacturing. Domestic sales are being squeezed, as the unemployed put off spending. Industries dependent on imports (such as the automobile industry) are hard-pressed by the fall in the rupee, and cannot stabilize themselves. The government has failed to remedy the situation, though that it was committed to do. It proved to not be entirely forthright about the exchange rate, and when the IMF ordered a free float, the government failed to take any of the stakeholders into confidence.

As it is, despite placating the IMF as best as it could, and despite fulfilling its conditions, the IMF programme resumption is not in sight. The present economic strategy has failed, and if the Prime Minister does not accept the blame, the Finance Minister must. It is time that a new policy be tried, perhaps by a new Finance Minister. The government was very quick to change the previous minister, because he was doing what the IMF said, taking unpopular steps, The previous incumbent also took ‘unpopular steps’ (which actually means raising taxes to appease the IMF), but was turfed out to make way for someone who somehow satisfy both the IMF and the consumer. That did not happen, and not just the government but the whole country is suffering.