The Indian Rupee Crunch....(7) - Recapitulation

As a blogger I take pleasure in writing for my own cerebral fulfilment, not for work. And, I feel happy if people read my blogs, not only in Bhutan but around the world in 17 countries so far (the most popular being one -- blog no. 4 -- posted on 8 April 2012). There are pageviews of the first blog everyday even more than three months after I posted it. I guess people like reading them.  But I am not sure if people take anything, deduce any message and/or are indifferent to the issues. No one has posted any comments, not even as anonymous, despite the fact that the readers included cross-section of national (from leaders; peoples’ representatives; people in civil service, private sector, and civil society; to non-resident Bhutanese) and international elites. You don't need to!

I write with a purpose, not of self-centred  direct intent seeking name, fame, recognition and/or wealth  now or later. I write to emphasize four directional hairpin turns including:

(i)              rethinking our development model and making slow longer-term economic shift in harmony with other three that follows here;

(ii)             strengthening government institutions balancing power, authority, responsibility and accountability;

(iii)           moving forward development process with positive public-private partnership concept for creation of "coalition of the positive"; and

(iv)           undertaking austerity measures, regulating economic activities and  introducing financial discipline to ease rupee crunch.

So, let me recapitulate and see if it will stir your thought process and stimulate some substantive discussions.  

First, I place emphasis on taking tougher hard-work  route with a slow and step-by-step shift towards export-led growth model from current relaxed  import-driven internal consumption-based pattern characterized by high credit growth and internal and external imbalances. If not now, we will not even be able to take the future path tagging along catching a little finger. The initial steps to this: instilling into the system  financial accountability; undertaking institutional reform; and streamlining policies, regulations and procedures to improve medium- to longer-term socioeconomic performance. If the need for improving the core structural strength including institutional and individual capability to perform,  with creativity (thinking new things) and innovation (doing new things), is not recognized no one will see national enthusiasm inundated with optimism  forthcoming in near future. Earlier we recognize and move in this direction, the better it is. My main points in  “The Indian Rupee Crunch in Macro Perspective” posted on 17 March 2012!

In second and third issues, I have reviewed RMA’s austerity measures introduced to ease INR crunch with somewhat irrational excitement with little/no consideration to day-to-day problems of the people including small business people, retailers, travellers, students, patients, and poor residents in border areas; and financial environment created by its measures and no realization to how important a role INR plays  in people’s daily life. Also included in the review are bank deposits and credit growth scenarios. We need to learn to respect the  peoples’ value and their problems with no carry-forward financial burden to future generation. A responsible nation does not disregard the aspirations, both present and future, of its people of all levels!  

Fourth, every country has potential to do well but the potential is lost if its citizens’ days are spread thin. The people in public as well as private sector  have to take national pride in associating themselves as committed partners in the development process: a shift from the present culture of business fronting, tax evasion, illegal authentication, and taking advantage of other loopholes at all levels of economy. First step towards this: block every possible route to cronyism. Then foster public-private partnership clearly underpinning what is done best by public sector vis-a-vis  to be best left to private undertaking, with no debt liability to future generation. The debt can make a country effectively bankrupt. Therefore careful assessment of debt sustainability and judicious utilization of credit will go in line with economic shift to support   production base for export of goods and services. In near-term regulating economic activities in both public and private sectors at manageable/affordable level with key fiscal and monetary measures is crucial to realizing institutional capacity of the economy and easing rupee crunch.

Fifth,  casual oversimplification of issues dilutes innovative drive as well as development accountability.  There is a need to create conducive environment for true professionals, both in public and private sectors, to deal every issues in depth and make positive contribution with innovation and creativity.  It takes massive effort and time to build institutions/organizations with professional values. But ignorant destruction of values takes flick of a second.  Adequate space is required for qualified and educated professionals, be the growth model export-led or import substitution. The import substitution is good provided it is supported with economic and strategic rationale, with or without rupee crunch, but has limitations. The best strategy is to realize what you are good at and focus fully on it with an intention to carve out your own regional space. For this we have to have vision!

And last one before this blog, I have reviewed Task Force recommendations. The Task Force has essentially focused on immediate measures in financial sectors, but included no substantive recommendations on longer-term scale that reflect future development perspective and foresight including in dealing with  country’s debt situation.

While I emphasize the importance of paradigm shift in both public and private sectors and  formation of  "coalition of the positive", synchronized austerity measures to ease rupee crunch in parallel cannot be overstressed more.  The rupee crunch is not the cause, it is the symptom of a weak long-term developmental foresight. You may treat the symptom but cannot get over the problem unless you take care of the root cause. As simple as that! The problem must be fully addressed along the policy paths. If someone argues that the heavy dependence on public sector, including hydropower, is a consequence of -- and a foundation towards -- a future free market regime, it sounds unreasonable to me.

Bhutan has hydropower potential. In 2010, the total exports of electricity to India was Nu.10.4 billion (17.6% of nominal GDP). While we look into tapping 10,000 MW, there are critical issues: hydropower is dependent on summer rainfall and winter snowfall, and its competitive advantage in the long run considering also that the energy focus of the world is shifting from traditional sources (crude oil, natural gas, thermal, nuclear, hydro…) to more environment friendly and renewable sources (wave, tidal, solar, wind, fuel cell etc). For example, United States uses about 4,000 terawatt hours (TWh) of electricity per year. The recent report found that the nation’s waves and tides could potentially produce up to 1,420 TWh (35%) annually.

The hydropower is water dependent, and so are other assets, land and forests. So water is by far most important of our natural resources. Bhutan’s total annual internal renewable surface water resources are estimated at 78 km³ (78,000 million m³) without accounting groundwater resources. Mostly groundwater gets drained by the surface water network because of hilly terrain. In 2008, total water withdrawal was estimated at 338 million m³, representing a mere 0.43% of the annual renewable water resources while the world is withdrawing water from aquifers at a rate faster than the aquifers can recharge.  Also, water is not a renewable resource in many parts of the world. The internal renewable water resources (IRWR) per capita of Bhutan at about 43,000 m³  compared with Asian IRWR per capita average of 3,300 m³  deserves attention and priority. I was wondering why we do not have department/ministry to deal with  internal renewable water resources while all our neighbours have ministries dedicated to water resources. 

We do need a shift in our strategy! 

continuation.....................The Indian Rupee Crunch..........(8) - Tax Increase