Tuesday, June 24, 2014

Bitter Medicine

Vasu Reddy From Chicago
vasureddy@aol.com

Just about a month into the new government in New Delhi, they had to increase the rail charges with the notification that the charges are needed to fix the balance of payments. The opposition and the general public immediately cried foul and want them reversed, and both the increase in fares and the outcry are absolutes in our society. The opposition outcry on the price increases and the demands to withdraw are almost certain in any democratic society as they attract voters sympathy to the parties demanding the repeal of the price increases, but here what good will it do as the party in power has almost five more years to present its case to the public next time they need to ask for votes. Five years of power in absolute majority is a life time, and the hard decisions to increase prices will be long forgotten if the public sees the benefit and utility of the pricing plans.

It is impossible to keep things static while we have exponential growth in population which demands huge increases in services and benefits. Everyone knows that they are demanding something that the population as a whole must bear the burden. There is no doubt in democratic countries looking at meeting the demands of the general public, and only way is to make sure that the balance of payments; revenues and costs are a match. In most of the global democracies, the revenues are typically falling short of the cost of managing the countries, and no one single country which has a large population is immune to the budget deficits. The gap between revenues and spending gets bigger and bigger in in the case of the good old USA, it is more than ten trillion dollars (just imagine how many zeros after one is a trillion dollars) and even in the USA, people constantly bitch about any talk of paying for the benefits, but constantly demand more and more services. Democracies at work, which argue about the management of the country, and rightfully so, but no one want to balance a budget.

India is a wild child with not yearly plans, but developing five year plans. I have a personal story which is from sometime in the 1990's when I attended a financial planning program conducted by Dr. Mike Kami, and he used the GAP analysis for budgeting in India in Nehru's government. GAP is simply the difference between revenues and expenditures, and in India's case each five year plan, would have a GAP, and the Indians never accounted for the old plan's GAP, but simply developed a new five year plan, without including the deficit for the past into developing the new five year plan. Just imagine if Nehruvian policies are constantly applied what could be the real GAP in Indian budgeting? I have no idea if India continues to do this in the current planning, and if they do we would have by far exceeded the costs by any revenues we might be generating in current day. After all these years I still remember Dr. Kami and the example of GAP analysis in Nehru's time.

Modi government definitely will have a good deal of time before they have to hit the road again and ask for votes. Modi has come out and already stated that some of the decisions that the government will have to take, and will take will be bitter medicine, which will turn out to be for the good of the country, and he will certainly bring his policies and positions back to the people in five years, and he is also certain that they will not only benefit from the decision being taken by the new government but people will appreciate these difficult decisions but will also appreciate them and will vote his party back into power. Probably wise political moves n early stages of the new government as these decisions are warranted to meet the demands of the ever increasing population, and if they are close to meeting the demands of the people, they would only remember the benefits of the infrastructure, rather than a five year old price increase.

Utilizing the public resources well, avoiding duplication and stagnancy in decision making, and avoiding looting of the public property will go a long way in handling the national budgets and demands, and also the value of good management will certainly show in the overall economic growth of the nation. Modi who is still quite new in the office is pushing hard to bring the work culture to work hard, and make decisions to positively impact the public needs; and if he continues to do what he says, we should see a better management of India budgets, and perhaps eliminate the age old GAP of Indian financial planning. The bitter medicine might be the cure of age old problem of Five Year Planning that never accounted for the history of poor financial planning of the country.

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