Generating funds

Surplus cash

No effort is being made by any of the govts to force private companies to take out surplus cash and invest in national economies.

It has been one of the most contentious of the issues in recent times. At a time when the fiscal deficit is growing, prime minister Manmohan Singh has time and again said that FDI in retail is required because it will bring in investments. With the GDP growth struck at less than 6 per cent, foreign investment is desperately required to kick-start the economic engine. He has therefore put the UPA government at stake to seek approval for FDI in retail.

But how much foreign investment is expected to pour in with the approval to retail FDI? According to government’s own estimates, Rs 16,500 crore ($3 Billion) is what is expected to come in as investment in the next five years. Isn’t this peanut considering that finance minister P Chidambaram has warned 25 public sector undertakings to flush out the surplus cash of Rs 2.5 lakh crore that they are sitting on. He wants the PSUs to invest the surplus cash in economy or be ready to lose that cash.

Not only the PSUs, India Inc too sitting over massive piles of cash. Call it hoarding or surplus, at the end of last financial year ending March 31, Indian companies were sitting on cash and cash equivalents -- liquid investments that can easily be converted to cash -- of over Rs 9.3 lakh crore (or $ 166 billion), says a news report. And still, the Indian government is gung-ho over the move to open up for FDI in retail, expecting just Rs 16,500 crore in the next five years. I can’t understand the jubilation within UPA government over such meagre investment. There is something terribly wrong with the way economy is being managed.

Take a look globally. I don't know how can any sensible person, least of it an economist or a policy maker, justify this paradox. The US economy is in crisis at a time when many businesses are sitting on record levels of cash on their balance sheets. Amid a lacklustre earning season that has featured many companies missing sales expectations, cash balances have swelled 14 per cent and are on track toward $ 1.5 trillion for the Standard & Poor’s 500. The IT giant Apple alone sits over $ 117 billion.

What’s the situation in Europe? According to reports, in Eurozone, corporates overall hold around euro 2 trillion, in the UK. The American companies operating in Europe are sitting over a cash pile of US $ 2 trillion. It is therefore quite evident that there is no shortage of money in the world. It is only that the governments’ treasuries across the world are empty while the private sector is hoarding mountains of cash reserves.

Higher taxes

US president Barack Obama, getting into his second term, had talked consistently about the “rich paying their share” to prop up the sagging economy. Many believe he won because he spoke the language of the majority, the 99 per cent. But no sooner the elections results were out, I see the mainline economists launching a tirade against his election promise of imposing higher taxes on the rich. You watch them articulating their flawed hypothesis on TV, and of course their voice resonates in the corporate-controlled media across the globe.

The fiscal deficit argument is so strong and so well entrenched in the political thinking that the European governments too have been blindly adopting it to overcome Europe’s debt crisis. No government however is launching any assault to curb corruption, which could easily wipe out the fiscal deficit. Nor is any effort being made to force the private companies to take out the surplus cash and invest in national economies. So it is the poor who have to suffer to keep the rich in saddle. The impacts of such negative policies are visible across the world. 

With millions of workers thronging the streets across Europe in protest against spending cuts which has aggravated recession and led to mass unemployment, the frustration is growing. Whether it is the US, Europe or India, the average citizen is angry at the policies that are cutting into social security funding making it more difficult for them at the time of an economic recession.

But is this a sacrifice that the poor have to entail? How long can the ordinary people be made to suffer while the rich sit pretty over tons of hoarded cash? How long can the economic system allow concentration of wealth in the hands of a few while the world struggles for a decent livelihood?

The well-known economist John Maynard Keynes had once said: “The boom, not the slump, is the right time for austerity,” I turned to Paul Krugman to see whether he prescribes any other solution. He blames the self-styled hawks – who swear in the name of fiscal deficit – for taking over the public discourse. At time of mass unemployment and record low-borrowing costs, Krugman wants job creation to be the most important economic priority. 

If only the global leadership had stood steadfast in making big businesses fork out cash surpluses and invest in public goods to reignite the economy, the world wouldn’t have been in such a deep economic crisis.

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