Subramanian Swamy on what ails the Indian economy

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Subramanian Swamy21 Sep 2013

Subramanian Swamy | Indian economy | rupee revival

 

By all economic criteria, the Indian economy is today sick and in a tail spin heading for a crash unless effective steps are taken soon to reverse the trends by a new economic reform policy.
Some of these criteria are:

» Foreign exchange reserves divided by short-term foreign debt is at a very low[1990] level.

» Balance of payments’ current account deficit as a ratio of GDP is highest since 1990, at 4.0 per cent.

» Total fiscal deficit in the Central and State Budgets now exceeds the danger mark of 12 per cent of GDP, thereby committing a crime under the Fiscal Management Act passed by Parliament in 2005.

» Reverse short-term capital outflow by panic cashing of Participatory Notes, hawala operations, and rigged short-selling of the rupee in Dubai and Singapore, has accelerated destabilising the rupee/$ rate, which as a consequence has fallen by record amount.

India’s household savings rate, which was the highest in the world in 2004 has fallen, and is also shifting to hoarded non-financial assets, which is causing a huge fall in the growth rate of GDP, due to decline in investment and in employment.

These trends are aggravated by the sharp rise in corruption and the reckless spending spree through stupid leaking schemes such as NREGA and the Food Security Act during the UPA tenure. The Indian economy is today in a financial ICU and on a ventilator.

Hence unless the economic situation is rectified by new reform policies, disaster and default of debt payments await the Indian people.

The announcement yesterday by RBI Governor of an increase in the REPO rate shows his short-sightedness and foreign mentality. His economics has been known to be the same as that caused the US Depression of the 1920s, namely following a conservative fiscal policy.

Just when investment and capital market needed an injection of adrenalin, Dr. Rajan asphyxiated the investor. By mid-2014, the Union Government will be on the verge default of payments for past obligations.

The NDA government in 2014 will have to usher some radical reforms to remove the dark clouds of despondency that has descended on the nation to revive the economy and put it back on a growth path of more than an annual growth rate of 10 per cent per year.

My suggestions for this would be as follows:

» Make income tax-deductible all recognisable forms of financial savings such bank term deposits, share certificates etc.

» This will boost the rate of savings (If direct income tax is abolished, it will mean minimal paper work for the people).

» Streamline excise taxes on goods, by making only the top 25 revenue providing commodities subject to excise tax.

» Issue Ordinance nationalisation of all bank accounts of Indian citizens in 70 countries that permit secret banking.

» This will net Rs 100,000 lakh crores or $ 1.6 trillion for government revenue.

» Confiscate and Abolish Participatory Notes, arrest under PMLA the prominent hawala operators, require special passport clearance of Indian citizens for travel to UAE, Singapore and Macao.

» This will bring the rupee/$ rate down to Rs 40 within two weeks. NDA’s goal should be to make Rs 10.00 = $1.00.

» Fast track the infrastructural projects by allowing 100% FDI in them under the automatic route subject only to a strict national security clearance and to a level playing field for Indian competitors. High priority should be given to infrastructure that enables agricultural exports of grains, milk, fruits and flowers. Linking of all national rivers should being immediately to promote rural employment and agricultural productivity.

» This will attract desirable FID, empower the local investors, and divert the semi-processed exports of East Asia to China to India for enable enhanced value-added re-exports to US and Europe from India.

Source: http://www.niticentral.com/2013/09/21/subramanian-swamy-on-what-ails-the-indian-economy-135868.html