The latest dramatic official announcement of the rate of inflation having gone negative makes this palpable because it only means that the government is clearing the ground for a third fiscal stimulus and cut in interest rates for borrowers of credit and depositors in banks and financial institutions.

No one is taken in by the official price statistics and treats them as a fraud on the people. Prices are rising even as the rate of inflation is supposed to have become negative by 1.61. The fact is that the minimum wage of workers have not improved at all, and their position is miserable. Those employed in industry have been retrenched or their real wages cut. Even the cushion provided by the Pay Commission to neutralize to some extent the effect of price inflation on government employees has been totally negated by price rise in last two years. Poverty in India has grown far more than in the most countries since 2007 when global economic recession broke out and had its baneful effect on India, which was, to begin with, attempted to be obfuscated and even denied by the UPA government headed by Prime Minister, Manmohan Singh.

The Congress party, flush from its electoral triumph seems to ignore the mass discontent over the prevailing state of public affairs. But it will have to come to terms with the sentiment of the mass of the people sooner or later. For the time being, Congress MPs are relying on Union Finance Minister Mr. Pranab Mukherjee, the union finance minister guided by the Prime Minister, to come out with a pro-people budget with financial allocations for mass welfare schemes announced in the President's Address to the joint session of Parliament. At a meeting with the party leaders on budget, Mr. Mukherjee, was however, somewhat cautious. He said that he will provide for the aam aadmi but “with constraints”. What must not be missed is that the chief economic advisor in the finance ministry has gone to the extent of publicly proclaiming that higher fiscal deficit of the central and state governments is the only way for economic revival.

The fiscal position and the balance of payments position of India has already become grim in the wake of the impact of global recession on the organised sectors of the Indian economy. India's capital account has become negative after ten years of being positive. There has been large loss in collection of taxes, direct and in direct; the banking system too has come under strain. The exchange value of the Indian rupee has gone down.

The Reserve Bank of India too has little space to finance the government beyond 2009-10. Global financial services firm, Goldman Sachs, said in a report that scrutinised the RBI's balance sheet: “Its calculation show that the RBI can fund about Rs. 1.5 trillion ($30 billion) of the Government's borrowing needs without stoking inflation”. Given the size of the fiscal deficit, of the government, however, this would still require the market to absorb more Government bonds than in 2007 and 2008.

The government had said it would sell bonds worth Rs. 2.41 trillion rupees in the April to September period of fiscal year 2009-10. The amount is two- third of its target for the next fiscal year.

The growth of the core sector is as yet not an indicator of a turnaround in the overall economic growth process though it is being projected like that. Jobs are not growing and the Government's borrowings are likely to come under stress.

It is not correct to read too much into the core sector `growth'. Power, crude oil, refinery products, coal, cement and finished steel grew 4.3 per cent as per the April estimates. It had fallen to 1.1 per cent in December. It is, however, not more than three per cent additional growth. It includes the figures of the normal growth period during the initial months of 2008. After July it had dipped to 2.7 per cent. The pick-up after December was minimal.

It is being touted that FMCG is moving faster. In April-May, key products segments such as soaps, detergents, toothpastes, biscuits, snack foods and soft drinks saw a 20 per cent volume growth. It was ascribed to lower prices. Basically biscuits, snack foods and soft drinks added to this growth. Most companies may have lowered or maintained prices instead of raising it as they do every season. This busts the myth of the companies that they are forced to increase prices for a “host of reasons”. It is simple. Lower prices generate demand. If manufacturers keep prices low, there is always a chance of better demand and hence growth. But this does not establish that there is real growth. At best it can be said to have brought the normal consumers back into the fold. But would FMCG companies adhere to price management to help demand to grow? That is the moot question.

The government has promised all-round activity for different segments of the society. But this requires funds and the trend presently in the corporate tax payment reverses. Cement, construction and engineering industries have provided far lower taxes following pre-tax profit. Tax provisions for 13 per cent companies have declined by as much as 25.4 per cent in 2008-09 as they have about 19 per cent fall in pre-tax profit. Tax provisions of ten construction companies have also declined.

According to CMIE data, there is hardly a company which is paying higher taxes. Almost all companies are paying taxes at a much lower level. Some companies are paying 68 per cent les than what they had paid last year. Most others are paying 30-40 per cent less. Mr. Pranab Mukherjee has rightly told the Congress party that he would try to provide for the mass welfare schemes announced in the President's Address to Parliament subject to financial constraints. Whether market borrowings and fiscal deficit left uncovered would give necessary push to market for the economy growth is in the realm of speculation. Lower GDP growth, fall in industrial production and manufacturing have hit the economy hard. The spectre of job loss and wage cuts is haunting the nation.(IPA Service)