By Ramesh Kanitkar
If gross domestic political verbiage could be monetised or converted into action, India’s GDP growth rate would be in double digits. Black Friday is one more reminder of too much talk, too little action — a crisis foretold, most recently by the Kelkar Committee in September 2012. What happened on Friday was caused by what did not happen for a decade. Namely — structural reforms. That serial sops, doles and populist parades can sustain regardless of the costs and consequences to growth is a grand political delusion. It is this preoccupation with political viability — as much of the opposition as government — that has crippled the sustainability of economic growth.
Whether the political class acknowledges it or not, India is at the brink of an economic emergency. Crisis when written in Chinese consists of two characters — one is danger and the other, opportunity. The flip side of a crisis is opportunity. India deserves early elections to restore legitimacy and purpose to the institution of government. It is also clear that the economy cannot wait. India has options but not the luxury of time. The government and the Opposition need to come together to revive the economy, to honour their pledge to represent public interest.
The falling value of the rupee is the most visible sign of distress to the man on the street. To defend the rupee, the government must defend the economy.
There is a clear disjunct between what finance minister says and what he does. While P. Chidambaram keeps on chanting the mantra, all is well there is no need for panic; his ministry furiously rolls back reforms to recreate conditions in the pre- liberalisation period. Of course, nobody is fooled by the ministerial double speak. Had there been an honest admission of a crisis and an open debate on the best steps to combat it, maybe there would not have been such widespread scepticism about the new impositions on the tax payers. But it is the sheer hypocrisy which has made these harsh steps all the more unpalatable. Again, were there a minuscule chance of the tinkering with the tax code succeeding to ward off the crisis, these would have found a grudging acceptance.
However, since all of them have the potential to hurt a small section of tax payers without in anyway attacking the problem of high current account deficit, these have attracted sharp criticism. The problem of structural deficiencies cannot be solved by increasing customs duties on flat televisions. This will only encourage smuggling.
Following the imposition of 10 per cent duty on gold imports, smuggling of gold has picked up. Also, the slashing of the cap on annual outward remittance from the earlier two lakh dollars to 75 thousand dollars is unlikely to help much. The latest measures on the anvil aim at raising the income tax levy on high net individuals.
A fourth slab is proposed to be introduced to raise the maximum rate at 35 per cent for those earning above Rs. 10 crore. This slab was abolished in 1996- 97. The highest rate even for super rich individuals was capped at 30 per cent. Also, super rich might be asked to pay a special dividend tax and wealth tax both were abolished several years ago.
Individuals earning dividend above Rs. one crore per annum might have to shell out tax at 10 per cent. Individuals owning more than one house and keeping it vacant might have to pay tax at its ratable value depending on the location. More such measures aimed at mopping up fresh revenue are reportedly on the anvil. Whether these are implemented immediately or wiser counsels prevail in the finance ministry will be known in the next couple of days. But the fact that they are under considerations speaks of the sheer desperation that informs the current policy making in the government. Having slept through for over four years, now the government is virtually catching at straws to prevent the economy from tanking. Such tinkering is bound to skim the surface of the problem. Ad nauseam it has been stated that the crisis is much deeper to lend itself to such niggardly but nonetheless painful steps. Whether it is the unattractiveness of household savings, or the failure of the coal sector monopoly to supply coal to thermal plants, or the crisis in the manufacturing sector, the failure of policy makers is at the heart of the current crisis.
The UPA government patted itself on its back for surviving through the post- Lehman financial crisis in 2008. Therefore, it does not lie in its mouth to now hold global factors responsible for a mess which is definitely of its own making. Investor confidence is shattered.
Psychologically, the logjam in Parliament too impacts the economic mood. So does the insistence on pushing through the Food Security Bill whose real benefits are in indirect proportion to the high decibel propaganda dished out by the ruling party megaphones.
It is not that the UPA government is set to supply food grains over and above 25 or 35 kilo per month being supplied by various state governments. No. All that the bill seems to do is to dress up the existing schemes and club them all together under a single rubric with an eye on the voters. This is deception. Yes, there might be a small increase in the number of beneficiaries but overall it is the same old scheme already being successfully implemented in the states which is being presented as a brand new act of bounty by the high priestess of 10-Janpath. Hoodwinking people to win the coming polls is the objective. Unfortunately, high octane propaganda about the food security scheme has further sapped investor confidence.
Even Chidambaram cannot try and reassure the people that there will be no appreciable rise in food subsidy as a result of the so- called game changer of a food security scheme because it would detract from its hoodwink value. In sum, an early election or an immediate recourse to an IMF loan alone can boost the economic sentiment. Tinkering with customs and income tax rates will rile a few people, but it would not help prevent the free fall of the currency or stem the problem of trade imbalance. INAV