Governance paralysis adds to Economic woes

When the whole world is fighting abnormal Economic upheaval and finding fast remedies so that it becomes equilibrium. However, in India we are seized of various issues for which undue focus has been forced upon, with the result that there is a leak in our vessel of economic woes. The governance of the country is not with the executive, but with others who see no reason to indulge in removing the litters that the economy has left behind. Alas, we are at discomfort with the reality. Government’s dithering and hesitation to act because of coalition’s compulsions left a void in economic recovery. We are not even at the cross roads. Every planning prophecy made need alteration. Growth has gone dismal. Industrial production has trespassed to negative territory. The Rupee continues its slide with venom. Interest rates remain prohibitive. GDP growth during 11th Five Year Plan was expected to garner an 11% growth. This year’s growth if it achieves 6.5%, it would be remarkable. These show negativism in the Economy. They do not show a positive sentiment for the economic growth. But no alarm bells rung. We should be worried, and alarmed at the state of affairs to declare a financial emergency. But we accept difference in every idea, that in every action all the political parties agree to dissent. True, we should not concern only in growth figures, but look at lackadaisical industrial and economic climate, scams vitiating pro investor policies, focus on corruption, and only on corruption, negative monetary prescriptions like interest rate increase 13 times in 18 months, hikes in petroleum products periodically making planning inconsistent, roll back on FDI on retail sectors which has sent a wrong signal to foreign investors. This has put a halt to FDI and FII and repatriation of investment which has created the dollar crisis. Rupee devaluation has hit the roof with as much as 20% slide against the greenback at a time the Dollar is vacillating. This increases input costs, import cost of capital goods, prices of petroleum products. RBI says the crisis has been caused by Euro crisis, instability of the American dollar, intense buying of dollar within the country, repatriation by FII, FDI, re-payment by Corporates of their External Credit Borrowing, higher import costs of Petroleum products. RBI has been clearly in the wrong with its monetary policy. Raising interest rates caused narrowing in the Spread between the interest on what banks pay to its customers and what interest they get from the corporate debtors. As per RBI, In Table 6.4 of Statistics, in 2011(Nov 14, 2011), the Banks had provided additional advance to 24.11 lakhs accounts (including direct and indirect agricultural advances) @ Rs 42,414 Cr. The total advances to agriculture and indirect agriculture is estimated as 339.32 lakh accounts with a Credit of Rs 4, 14,990 Cr. This poor advance to the agricultural sector has been responsible for agricultural growth failing to achieve a modest 4% growth envisaged under the 11th Plan. The Banks should give a new boast of fuel to that leg of the priority sector. Credit growth, best predictor of financial crisis, said an eminent Economist. Debt inflows could pick up only if differential monetary policy stance is adopted by the Central Banks in developing Economics against advance economics. Our central Bank inaction is the only action taken so far. Coal Sector, Kundankulam Nuclear Power project, crisis at Mullaperiyar, infrastructure deficit, country’s export related problems, including inflated country’s export by $ 9 billion (April-Oct) by DGCI&S, poor investor confidence, policy paralysis, needs exemplary solutions. Fundamentals are strong, says Finance Minister. Where are our fundamentals?

Is Indian Economy going haywire?

Letter to the Finance Minister of India: Mr Pranab Mukherjee, India’s present FM may be a trouble shooter for the Congress, and is a loyal Congressman having been the chip of the old block of its party cadres of the Indira era. He has his own disappointments in his Public life having failed to achieve his due, many a time. There is a Congress divide, internal squabbling, which has risen to commendable proportions due to the weakness of statesmanship and upmanship of many Scholars within the party who think they are full of wisdom. When the economy is in the cross roads, when growth is going haywire, fiscal deficit is taking a turn for the worst, when liquidity is a problem forcing government to borrow atleast around Rs 62,000 Cr to offset Income: Expenditure of the budget, when headline inflation has pervaded to increases the price line, food inflation has grown without common sense, when the watch dogs have to increase interest rates 12 times in last 18 months, when the greedy oil companies have been raising the price of petrol every alternate week, making one litre priced Rs 70/- when it was Rs 45/- an year ago Planning Comm on the eve of the 12th Plan estimated that it would be adequate for an Indian to go to above poverty line if he spends Rs 32/- per day, forgetting that somebody made the calculation in 1950, and present scribbling just scribbled it. Sugar, milk, wheat, rice, vegetables, egg, tea powder etc , even if you buy 200gms, it will cost you Rs150/-The Planning Commission seems to be in a mirage, inside an air-conditioned glass house throwing stones. It is Economics of the American kind suited for safari suit clad CEOs. Too bad and very sad, indeed. In a country of 1.2 billion, not even 10% are in the direct tax net. Very bad. When tax collectors become creative, the taxpayers become indigenously clever with inventive ways to avoid them. India’s core of taxes does not come to the exchequer. No body wants to part with their hard earned money. Large corporations dodge artfully while the less vulnerable sits in their stupour. The loop holes in Law help the evaders and the honest is prosecuted. Many of the millionaires amongst the Politicians, how much taxes are collected? Finance Minister, when wealth multiplies, the chances of getting more taxes from this tribe look much bright. Probe the income of the political class without discrimination. It will yield a rainbow. Settlement Commission is a tool where the rich corporates get off the hook squarely, with the country being the loser. Only the salaried class, is getting his pay deducted at source (TDS), service tax is lavished on him, hike after hike, year after year, in your budget. This lot is the sheep for your butchering. Now let us look at some ways by which you can raise the taxes without getting any fierce opposition from those who paid taxes forcefully. The Government of Bihar employed bands of singing hijras who sat outside the house of defaulters. The tax payers made no compliant. They paid up. Eunuchs demanded 4% commission for their work. The entire tax was collected. They never harassed anybody. Staged sit-ins, beat drums outside the homes of reluctant tax-payers and achieved exceptional results. Employment to hijras and money to the exchequer. There are many in India who are offering mystical services. They cast their spells tax free. The loss to the treasury is Rs millions. Theare are many others who do such services, and whose income is in five digits- kuttichattan seva, tarot, astrologers, ink astrology, star gazing, fortune telling. There are mediums who charge Rs 15000-20,000 for a sitting to talk to the dead. There are palm leaf manuscripts called nadi astrology where they will read your life with 100% precision and accuracy at Vaideeswran Koil. All of them feel that by paying taxes what they get in return. Any quid pro quo? Striptease dancing, is an art form and a form of theatre, hence it is not Service said a foreign Court. What about reality shows shown in television? Your predecessor came out with innovative idea to increase the Post card rate to 60 paise for competitive Post cards. Chinese authorities thought about an innovative method to collect taxes. Children of Parents who paid the highest taxes got bonus marks in the competitive exams and school public exams. In Philippines, it is a raffle. You send a valid tax receipt, it becomes an entry in the lottery. If your receipt is one of the 5 lucky ones to be picked up, you will become an instant millionaire. If you pay taxes, you get preference in admission. How many people will get into Tax net without Govt of India spending Rs 1/-. What about our Yoga Guru Ramdas who owns an island. He is the King of the Place, and his island a soverign state where Indian government cannot put its pie on. Any island outside the international waters is not the property of GoI nor does it have jurisdiction. Tax heavens need not be Banks. It can be such islands outside the international water limit. There are dogs, pets, and other animals, which is bequeathed wealth. But the ubiquitous taxmen touch it? Any list available? There are atleast Persons of Indian origin and expatriates in various parts of the world. In Africa (28 lakhs Indians), Middle East (42 lakhs), Europe (17.69 lakhs), North America (51 lakhs), Africa (5.10 lakhs), etc. 40% of population in UAE is of Indian descent. The emigration rate of growth is estimated at 0.8% by UNDP. If each person is asked to pay $ 100 and given an identity card for preferential services, it would earn billions of Dollars. Instead of the easy way of collecting higher revenue of Service Tax, petrol hike, interest rate hike, which look pedestrian, the Finance Ministry should go for innovative forms of taxation which will hurt nobody. There are small and marginal businessmen, traders, micro units, who fall within the taxable bracket but do not take the trouble to pay because of lack of escort service. Why does not Income Tax department recruit 1000 volunteers all over India, assign them territories, and give target to them, to introduce 1,00,000 new tax payers every month. To enlarge the tax base by 12 lakhs per annum. Every canvasser will get a commission and rewards for performance. Tax audit and investigation into tax not paid but hidden should simultaneously go with prudent tax net widening. This can be done quietly with rewarding results. Finance Ministry should become innovative, pro active and project a human face. ********

India needs to edit its Economic philosophy & thought

India is dithering. India’s dream growth is a saga of the Past. We are the fastest emerging economy of the World is a myth rather than a reality. Most of the people who follow the economic situation in the Country are very well aware that the Government, due to alarming expenditure and reduced income, may have to resort to borrowing which will result in fiscal deficit going up. This has been voiced by Shri C Rangarajan, PM’s Economic advisor.

The over-burdened interest rates which have halted manufacturing activity because of high borrowing; its costs both in the government and private sector will go up, banks which are dealing bond portfolios will suffer because of higher yields, and banks will be constrained to release more liquidity into the system which will stoke inflation. Government's disinvestment programme (Rs 40,000 Cr) is blank. Small savings against estimated Rs 24,000 Cr sees dip by Rs 35,000 Cr, and the diff in borrowing estimated at Rs 1.67 lakhs in the budget will go up to Rs 2.2 lakh.

In order to placate the Corporate lobby, government has eased the External Commercial Borrowing limits and enhanced it to US $ 30 billion against $ 20 billion, while in the first 6 months, Corporates borrowed $ 20 billion which was pushed into the Indian liquidity for dealing in Rupee transactions. During March 2011 to May 2011, the Government withdrew US $ 4.2 billion which reduced India's exposure in US Treasury bonds to $ 37.8 billion (from $ 41 billion). Where did it go?

The fiscal deficit is predicted to be 5.5% by experts, but a conservative estimate puts it at 7-7.2%. In the first five months’ of the current fiscal, the fiscal deficit has overshot by 66.3% making it vulnerable to cross the budgeted 4.2%. Software industry, whose dependence on the American market is formidable, is in a shock. The promoters of India’s top software company have retired or resigned to move to greener pastures. Why? Only book orders continue to be executed with no firm new orders being registered. The same thing is expected of new economy sectors. The export blitz reported was US $ 252 billion in 2010-11 and the Commerce Ministry is hopeful of touching $ 450 billion by 2013-14 given the grim conditions of world order. The Foreign Exchange Reserves and External debt in Q1 showed 100:79.6 with external debt at 317 billion and FER being $ 312.707 as on Sept 23, 2011. Short term debt, external commercial borrowing and surge in import could expand the short fall unwieldy.

There was a North-South divide. As trade flows in the developing countries have emerged to grow at a faster pace, south- south trade equations have undergone vast changes in the external and domestic landscape. According to a transcript, the Indian domestic market has been vastly under the grip of China, as its bi-lateral trade as well as through dumping it has increased its presence considerably in the Indian peninsula. China and India are likely to be economic movers, it has been claimed, but instead it seems BRCC (Brazil, Russia, China and China) instead of the oft-quoted BRIC (Brazil, Russia, India and China). Domestic market is heavily dependent on unscrupulous imports (including in food) and Indian domestic market seems to be driven and covered well by the Chinese Dragon while India’s nimble elephant slowly limbs.

Has India’s dream growth ended as predicted by noted economist Shri Jha in his column in some newspapers? Question becomes strident as economy is sliding towards its worst curve. Awkward BoP position would deface the effaced growth which from double digits is slipping to 7.5%. The Path drivers and Path finders are at the cross roads leading them to no highway except to the alleys. Long term vision has become bleak while long term drive seems to be unexpectedly slow and off the mark.

Reserve Bank of India and the Planning Commission has no clue to rid headline inflation which is about to cross double-digits. Food inflation is on the threshold of double digits. Manufacturing output is very low, as Credit has become costly, inputs unavailable with idle capacity hovering around 55%. Government and the Economic divisions which drive Indian economy seem to be insensitive to people’s problems. Otherwise planning commission would not fix Rs 32/day as bench-mark to determine Poverty. The Opposition parties seem to be more political and instead should concentrate on evolution of an economic alternative that will fix the screws of the Indian economy instead of politicking 100% of their time. The ruling party has become a theorizing party, with the Great past as its halo, instead of cleaning up the mess in the present and planning for the future. The Opposition seems no better. Economic Boom, Zoom and Doom can trigger a Great Depression from which India might not be able to come out and leverage as the other developing countries can strike us hard with our poor population growing menacingly without any contraction. We have to sort out the rudimentary, basic, structural economic issues more prudently. We need to set a target for growth and we need to achieve them. After spending Crores of Rupees, if we devise explanations to justify the shortfalls and pitfalls, India just cannot afford such a situation.

India had deep rooted scientific past and sensible economic theories which had made it a most sought out country, going by its trade and economic past. Space-time continuum was enunciated by Albert Einstein in 1905 while some sacred religious texts in Sanskrit talked about the same theory two hundred years’ ago! We have enough literature on modern Economics given to us by the great sages of India which can be followed instead of abstract copying of Western theories of Economies.