Twitter
Advertisement

Will the real Manmohan please stand up?

The India story is successful because of its people and because of a private sector that has pulled up its socks to compete globally.

Latest News
article-main
FacebookTwitterWhatsappLinkedin

No, our prime minister is neither slim nor shady, but would the real Manmohan please stand up?

In 1991 Manmohan Singh, as finance minister, was the architect of economic reforms that helped India transform itself from a protected (and bankrupt) economy that was going nowhere to a globalised one that is vibrant and helping pull its people out of the quagmire of poverty.

Perhaps the reason was because he was politically shielded by the sphinx like Narasimha Rao as prime minister. Now that Manmohan is the prime minister, if he is really an economic reformer interested in bettering the lot of his people, he should provide the same shield to the finance minister and his team, to continue with reforms.

This assumes great importance for the economy and for stock markets. India’s GDP for 2002-03 (on the RBI site subsequent years are mere estimates! A sad commentary on our information-gathering ability) was Rs 24,633 trillion. Savings in that year were at Rs 6,423 trillion, or 26% of GDP.

China, in comparison, saves 37.5% of its GDP. Now, interestingly, of this 26%, the household sector (you and I) save 90%, (40% in financial assets and 50 in physical assets), the private sector chips in with 15% and the public sector a negative 5%. If the real Manmohan were to stand up politically and get out of a sector that loses money, the savings rate would go up.

Not only does the investment in the public sector earn it negative returns, but throughout history, governments have borrowed to finance it.

The cost of servicing this debt eats up more tax revenue than the spend on defence or on subsidies or on education or health.

India requires some $150 billion of investment in infrastructure, but has no money because it is mis-spent. As per a Deloitte research on China and India, China spent, in 2002, $ 128 billion on power and transport; India $18 billion. China has 1.4 million km of highways, India has 0.2 million.  Unless the savings rate goes up, and unless the government controls its expenditure, where would resources come from to fund infrastructure? Will the real Manmohan please stand up?

There is such an enormous and senseless wastage of resources. A survey in The Economist mentioned that a truck leaving Kolkata arrives in Mumbai on the eighth day, travelling at an average speed of 11 km/hour. This is because of time spent at check posts and octroi ‘nakas’ and restrictions on travel during daytime.

No wonder, our fuel import bill is so high, contributing to a very high current account deficit. Who pays for it? The household sector, which has contributed most, despite all these loads, to national savings. It needs strong political will to stop this nonsense of octroi and get all states to move over to a VAT system, with no stoppage of flow of goods. Please stand up, sir.

The consequences of not being able to stand up politically are dangerous. Starved of resources, the finance minister tells his IT minions to innovate and find new ways to squeeze out tax revenue. In the last budget, while introducing the securities turnover tax (STT), he made this new tax acceptable by giving tax concessions on equity investment.

Short-term gains (less than one year) was taxed at 10%, anything held longer was tax-free. Now the IT officials, prodded for revenue, are artificially and arbitrarily (for obvious reasons) making a distinction between an ‘investor’ who qualifies for the low rate and a ‘trader’ who doesn’t. This is reprehensible and repugnant and the finance minister, if he were to be honest to his word, must stop it.

This is because equity is the best form of funding. When India was protectionist, it was the government that borrowed, both domestically and abroad, and lent to the private sector through six all-India financial institutions. Borrowing requires servicing and redemption. Equity doesn’t. Now Indian corporates are raising money they need for investment through a variety of instruments, including GDRs/ADRs and FCCBs.

If investment in equities is encouraged, then domestically we can save 4 or 5 times the amount foreign investors bring in. That is why the myopic attitude of IT officials in trying to distinguish investors and traders is foolish. Will the real Chidambaram please stand up?

The market bounced sharply, with the BSE Sensex adding 616 points to close at 10401. It ought to make a sideways movement over the next couple of weeks, playing in a band of 400 points above and below Friday closing.

The India story is successful because of its people and because of a private sector that has pulled up its socks and is able to compete globally. Now, if the government and the public sector also contribute, the Indian bull will run faster than a cheetah.

But for that, the real Manmohan would have to stand up.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement