Twin Deficits: Daunting task for RBI Governor & Finance Minister!

Rahul Agarwal

With whopping oil subsidies of Rs 96000 crores in 2012 and a high fiscal and current account deficit, Can Finance Minister & RBI Governor revives the sluggish Indian Economy?

From past three years Indian economy has been on a very slippery path with a GDP growth rate which is below 6 percent. Now after these three years, we can see the sign of recovery in the Indian economy in which UPA (United Progressive Alliance) government has been taking reforms in the form of steps to revive this Indian economy. But, after the massive reforms taken by the UPA government, still there is a concern for both Finance Minister and RBI Governor and that is “Twin Deficits”. With a record high CPI (Consumer Price Index) around 10% in December 2012 and WPI (Whole Sale price Index) around 7.4% (It’s still very high) in December 2012. Fiscal deficit, which is excess of expenditure over its income was also very high around 5.3% of GDP where as CAD (Current account deficit), which is excess of imports over exports was also very high around 5.4% of GDP. Both these deficits lead Indian Economy into a Twin Deficits. So to curtail the effect of this Twin Deficits, UPA government has been taking steps of reforms to boost the Indian economy like FDI, deregulation of Diesel prices, cap on LPG cylinders etc.

Reasons for these huge Deficits…

1.  Subsidies:

In 2012 alone, the burden of subsidies on the head of the government was around Rs 2.16 lakh crores in which Petroleum subsidy’s share was 31.7%, fertilizer Subsidy’s share was 31%, Food subsidy’s share was 33.7% and rest for others. Due to this whooping subsidy bill, the expenditure of the UPA government had increased and on the other side its revenue decreased and this lead to fiscal deficit which UPA government had been tackling this menace from past many years. This is a huge concern for any government of a nation which has a fiscal deficit of 5.3% of the GDP. Now to tackle this menace government took serious steps like increase in the prices of diesel (decontrol of oil prices) which will reduce the gap between petrol and diesel and will curtail the subsidy bill of the government.

2. Yellow Fever:

In past one year the demand for precious yellow metal gold had been rising due to sluggish economy with high cost push inflation. So, people of India felt that gold is the safest investment because gold prices were kept on rising. Due to this, Indian jewellers were importing gold from Thailand. In the (FTA) foreign trade agreements between India and Thailand there was a point of import duty. So when someone import gold from Thailand then the person have to pay Import duty of 1% where as if someone import gold from any country other than Thailand then they have to pay import duty up to 10% approx. Due to this, a massive demand of gold emerged and huge amount of gold imported from Thailand and this lead to Indian currency going outside the country which increased the CAD (Current Account Deficit).  To curtail the demand of gold, Finance Minister P Chidambaram took the step of raising import duty on gold to 6% percent. Due to this, people need to pay higher prices for gold to import which lead to the demand of gold fallen down.

Now to overcome from these twin deficits Finance Minister P Chidambaram would likely to announce higher tax rates for the rich ones in his next budget which he will announce on February 28. But according to some top economists, tax rate shouldn’t be increase for rich because if tax rate would increase for super rich then it directly encourages tax evasion because the tax base is not rising. In 2002, the number of tax payers was just 316.88 lakh where as in 2012, it was around 324.16 lakh. If the tax base will not rise and if the tax rate will increase of super rich people then it will lead to tax evasion and the rich will shift income to tax havens, it will also lead to massive under reporting of incomes by professionals and traders and companies will structure salaries to make their employees less taxing. So it shouldn’t be increased for the rich, as high income earners already pay bulk of tax. The solution for this is widening the tax base so that more and more people will pay their tax honestly. So this is one of the challenges for the Finance Minister to curtail fiscal deficit.

After increasing the tax rate proposal, to reduce the fiscal gap, UPA government would likely to reintroduce the inheritance tax in the Union budget which will be announced by the Finance Minister on February 28. This tax was introduced in 1953 and abolished by former finance minister VP Singh in 1985. Inheritance tax is a tax which imposed on a person who inherits assets. It is also known as death tax. This is the recommendation of finance minister to reduce the fiscal gap but the argument against this proposal of implementing this is when the deceased had already paid income tax on income earned and possibly wealth tax every year for possessing the assets, to pay tax on it again is harsh and may result in multiple taxation. This argument could lead to create problems for Finance Minister.

Recently, to reduce the consumption of diesel, government wanted to impose green tax on diesel vehicles and the tax rate is 25 percent of the cost of the vehicle. This would lead to discouragement of diesel vehicles by consumers. But there is also an argument against this proposal that if the green tax will impose then the demand of second hand diesel cars will increase abruptly and will extracts more carbon than the newer one. Already consumers are paying premium on diesel models over petrol models and if this green tax will impose then the demand of diesel models will decline sharply which lead to huge losses to the auto sector. Due to this, many foreign companies who are planning to increase their share in India will go back to their respective nation and remove India’s name in their lists of investment destination. So this is also one of the challenges for the finance Minister

Deregulation of oil prices:

With a view to revive the economy, Finance Minister took the step of Decontrol of oil prices in which prices of diesel will increase by 50 paise every month for ten months which will ease the pressure on OMC (Oil Marketing Companies). This was one of the good steps taken by the Finance Minister. But, after implementing this step, Sales of diesel soared up to 22 percent in Delhi in December quarter. This happened because the bulk users of diesel like malls, public transport buses etc are directly purchasing diesel from petrol pumps because the bulk users which usually purchase diesel in tankers directly from oil companies, now have to pay about 20% more than the price at retail pumps. This has triggered a rush of big buyers to petrol pumps where they find diesel about Rs10 cheaper. This increase in the sales of diesel is a bad news for all the OMCs (Oil Marketing Companies), which were hoping bigger margins from big customers.  So this is also another bad news for the Finance Minister as well because it is very difficult to prevent malpractices.

Rate Cut/CRR:

On 29 January 2013, RBI Governor Duvvuri Subbarao nodded for the market sentiments and lowered repo rate and CRR (Cash reserve ratio) by 25 bps which created boost for the inflation hit economy. Lowering the two key variants will no doubt increase in investment but also benefit the borrowers which will take loans from the commercial banks at a lower rate. But, after the announcement of the rate cut, Subbarao said Twin Deficits leave little room for further easing. This means that in coming months RBI can increase repo rate and CRR and that will depend on the situation of the economy. Subbarao also said that CAD (Current account deficit) poses a barrier on the easing of the monetary policy. This means monetary policy cannot be further down due to high Current account deficit in a slowing economy.
Moreover, Subbarao told to the reporters that high Current Account deficit in a slowing economy with a huge fiscal deficit of 5.3% of GDP exposes our economy to the risk from Twin Deficits. So we are keenly watching the market and will take appropriate steps in the future.

So a question comes in the mind of every citizen of India “Can RBI Governor & Finance Minister revives the sluggish Indian Economy”?
Let’s wait and watch!

Loss of Humanity!

Rahul Agarwal

On December 16, 2012, A 23 year old girl was enjoying the day with her friend by watching a movie in a theater, but she didn’t know that, that day will be the horrific day of her life which leads to her death.  The victim’s name was Nirbhaya, Damini which were given by the Times Of India and the nation. All these names are just merely the identity of that girl who came to Delhi by having dreams in her eyes. The girl was doing a job as well as studying and who was a medical student by profession. She is the elder daughter of her parents and who had two younger brothers. Her father spent all his savings into her daughter’s study by only one hope she will become the backbone of our family and will feed her family by getting a good job, but on December 16, the most heinous crime took place in which she was gang raped by six people in a moving bus and was thrown out of the bus on a chilly winter night. After fighting for nearly thirteen odd days with courage and determination and after that, she lost the battle of her life and India lost a brave daughter. This gruesome incident shocked the nation about the safety of women not only in urban areas but also in rural areas.

Protest across Nation

After the incident happened, huge numbers of youth were protesting against the government for the safety concerns of women in the national capital. Students from various colleges joined and protesting at the India Gate with only one hope that this could open the eyes of the government and can punish the perpetrators. After the protest, government took serious steps to overcome from this incident. Government ordered DMRC to close down ten metro stations which were near to India Gate areas. Almost every road was close with barricades and huge amount of police force deployed near to India Gate and Rashtrapati Bhavan. Huge numbers of individuals were praying for the girl with candles in their hand but no candles and no pray saved the girl who was brutally assaulted and gang raped by six men in a moving bus.

Furore after comments by Asaram Bapu

After this incident, many politicians and yog gurus came into the center and made some unacceptable comments which no one can expect and this created vigilante euphoria in the media. First, Asaram Bapu came who has known for his lectures and yog, made the atrocious comment that “The girl was as guilty as the rapists, she should have called one of them brother and beg them before those six heading towards her.”  This pathetic comment by a Yog guru created huge outrage across the nation, as this was not expected from a yog guru. Perhaps, “people should preaching a yog guru like him” said by the brother of that girl after knowing the comments made by Asaram bapu. After this, one of the politicians made a comment that “Biharis were responsible for the Delhi gang rape”. After this comment, people made their mindset that this incident benefited politicians a lot. Many of them came forward and had sympathy for the family of the girl but none took the appropriate steps to improve the safety of women in the Delhi. After this incident, when news reporters of various channels took the initiative to find out how much Delhi roads are safer for the women? Then news reporters were also became the victim of eve-teasing and got weird comments by the bad boys and nobody took any action against them.

Justice by the Blind Law

Only one good thing about Delhi police in this case was culprits were nabbed by police within 24 hours when they did the most heinous crime in the history of the India. But only putting all the perpetrators behind the bars is not the only solution. So far the hearing is going on as usual in the Indian law. Police already gathered huge amount of proof and only eye witness in this case is the victim’s friend who was with her when the incident took place. Now, according to the news the six prime accused who is a Juvenile (according to his family) will get maximum punishment of three years and will come out from the bars after three years. This shows how bad the Indian law is. Now let me start with the law. Juvenile is defined under the Juvenile Justice (Care and Protection of Children) Act as someone below 18 years. This Act states that the justice system, as available for adults, is not suitable for application to juveniles. Thus, the purpose of the Act is to provide for the care, protection, treatment, development, rehabilitation and social integration of delinquent juveniles. Disputes relating to juveniles are heard by specially constituted Juvenile Justice Boards.
It’s important to clarify a common misgiving that an inquiry initiated against an accused, who at the time of the offence was a juvenile, does not abate merely upon such person crossing 18 years during the course of such inquiry. The societal changes over the last decade, changed nutritional diet and the exposure that the children have from a very young age, it is true that they are maturing faster and hence, the age of the juveniles must reduce it to 16 or up to 14.


This brutal gang rape of a 23 year old girl in a moving bus is a grim reminder of how unsafe the capital is for women. The Horrific incident draws attention once again to the disturbing phenomenon of crimes against women and weak enforcement of law.
The primary reasons of the crimes and the perpetrators are fearless because of low conviction rate for sexual crimes, absence of police reforms and a pathetic judicial process.
After the confession of the incident by the victim’s friend on the national TV, it was confirmed that India lost not only a brave daughter but also its humanity. A moving bus which was roaming for more than two and half hours was not seen by anybody. When both the girl and boy thrown out of the bus and they were not having clothes on their body, nobody gave them clothes and three PCRs came and were discussing this case will go in which police station instead of taking them to hospital. This was the ridiculous part of duty from police side. A girl lost her life, a father lost his daughter, a brother lost his sister, a friend lost his prestigious friend,  a nation lost his brave daughter but nobody will understand the pain of a mother who lost her princess. After this brutal gang rap murder India definitely lost its humanity!