Economy in real danger, government misleading on fundamentals: BJPOctober 14th, 2008 - 8:44 pm ICT by IANS
New Delhi, Oct 14 (IANS) The main opposition Bharatiya Janata Party (BJP) Tuesday said the Indian economy was in real danger and that Finance Minister P. Chidambaram was misleading the country by stating that the fundamentals of the economy were strong.Senior BJP leaders Jaswant Singh, Yashwant Sinha and Arun Shourie warned that the economies of Brazil and Argentina had failed in the recent past despite being fundamentally strong, and India might face the same fate.
“If the government continues to fail in taking appropriate measures, India may face the situation of Brazil and Argentina. Our already vulnerable economy is now in real danger of being seriously destabilised,” Shourie told reporters here.
“To go on chanting the lullaby, ‘our fundamentals are strong’, is worse than useless. Nothing happened to the fundamentals of the Southeast Asian economies overnight, yet their currencies, their financial systems, and eventually their economies collapsed,” he added.
“Nothing happened to the fundamentals of Brazil, and Argentina, and yet the same sequence of collapse occurred. Indeed, nothing has happened to the fundamentals of Western economies during the last year, and yet they are today plunged in a deep crisis.”
Sinha said the finance minister was tirelessly repeating that the root cause of the present uncertainty is ‘liquidity’ and that the fundamentals of the economy remain strong.
“This is simply not true. The fundamentals of our economy have been decidedly weakened by the United Progressive Alliance (UPA). The unfortunate fact is that this UPA government did not build the needed hurricane shelters when the sun was shining,” he said.
Sinha said the present liquidity crunch in the market was certainly not because of any global crisis. “It is the government’s own creation. The liquidity crisis occurred because they presented a very weak budget.”
The BJP leaders, quoting a report from the Prime Minister’s Economic Advisory Council, said the government’s off-budget liabilities - oil bonds, fertiliser bonds and farm loan waiver - stood at 5 percent of the country’s GDP.
“Which means the government sucked Rs.2.5 lakh crore (Rs.2,500 billion or over $63 billion) from the market to meet the deficit. In the last four years, it had also raised the cash reserve ratio (CRR) from 5 percent to 9 percent,” Sinha said.
“The government also raised the repo rate and interest rate. The government also failed to curb the inflation rate. All the factors now resulted in large liquidity crunch,” Sinha said.
CRR is the minimum balance banks have to keep with the central Reserve Bank of India (RBI) against deposits, while repo rate is the rate at which banks borrow from RBI.
Shourie said pulling out of money by foreign institutional investors (FIIs) has little impact on the market; according to him, it was the wrong policies of the RBI and the centre that have created the liquidity crunch.
At the same time, he also warned that if FIIs continued to withdraw their investments, small and medium enterprises might collapse due to the lack of funds.