The Government is doing all it can to save face before the run up to the general Elections slated for 2009. The latest step in this direction is the increase in the salaries of 5 million central government employees and several defense personnel to the tune of 21%; i.e. 42% higher than the hike proposed by the Sixth Pay Commission, with effect from January 1, 2006. This magnanimous exercise will cost the exchequer a sum of 42,762 crore. While this may have been a pay day for these employees, there are serious implications of this salary hike.It was a welcome step for all as this is a time of inflation in the economy and essential commodities, food, petrol and diesel are priced higher. This will open up the spending capacity of the people too. Moreover, this has been pending for long. Practically all run families and money is a serious need.Serious concernsNumber CrunchingNews has it that the current level of inflation, 12.44% is a 16 year high one. This sensationalizing of information certainly creates panic and pressure in the market. Moreover, the Central Bank is forced to take stern steps. However, this time we can expect a rate hike in the CRR or Repo Rate (the rate at which commercial banks borrow money from the govt.) as there has been extra money pumped into the economy. This extra money will increase spending and demand. More demand will not be backed up with immediate supply, giving rise to prices. This is precisely what happened during the farm loan waiver too. This hike in rates will backfire as fresh loans and EMI's will be affected snail-pacing the industrial growth. UPA's policies have often backfired previously too. This will create a larger fiscal deficit and the GDP numbers will not be pleasing. Deficit financing will further increase inflation and the scenario will only get grimmer. When this news reaches the stock markets, there is investor panic, beaten sentiment, loss of money, MF funds withdrawal, falling stocks, low participation in IPO's and lot more evils.InequalityNot only this, there is a case for state government employees and others who will demand equal treatment from the government. There is no mechanism to check parity. These are serious and restrictive in nature. It is important for the government to think before it leaps. The Government will only fall victim to its own policies if things continue this way.Challenge for the GovernmentWhile the Congress led coalition government has worked overtime in order that it does not face a nightmarish election, its human nature to forget the past record of the Government if the current situation is grim. No employemtn schemes, loan waivers, midday meals and Sarva Shiksha Abhiyan will be rememberd. After realizing that Kashmir issue is important for them, the government tried taking action to this effect but, emerged out as a loser. The Government certainly has other reforms like allowing FDI in retain and insurance apart from allowing pension funds to invest in shares, pending. There are many things waiting to happen. It' alright, these will help you win elections, if you are doing this for votes. But, if the Government wants to come out as a winner in the end, it is important that the Government must focus on inflation, J&K, terrorism and all current issues that bind people, in a dedicated manner. People look at the present. This is what the ruling parties need to know. Ironically, if the Government fails to deliver, BSP supremo, Mayawati may well end up with a new ruling coalition, you never know.
Posted by RAVI GROVER
Posted by RAVI GROVER
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