Economic Highlights

New Delhi, 14 April 2012

AI, Economic Woes

INDIA AWAITS RIGHT MOVES

By Shivaji Sarkar

The Prime Minister and Finance Minister have sounded the alarm bells. They needed to. The economy is entering one of its worst phases with a mere 1.1 per cent growth, the demand evaporating and industrial production not matching statistical jugglery. At such trying times, it’s difficult to fathom why the Government has decided to bail out the failing Air India with Rs 30,000-crore package and burdening the banks with an additional Rs 21,348 crore long-tenure debt.

Such decisions would only lead to further weighing down the Government with its increasing debt burden. This apart, the airline’s losses are bound to mount as the bureaucrats responsible for leading the Air India to its morass do not have the capability to salvage it. The nation would be poorer by over Rs 50,000 crore. Odd as it may sound, even as this would not do any good to the national carrier, there would be more such packages next year.

It is time, both the Prime Minister Manmohan Singh and FM Pranab Mukherjee opted for hard decisions. They should have taken the toughest decision to get rid of the sick Air India and recover the losses from the top bureaucrats, including former CMD Arvind Jadhav and former Special Secretary and Financial Advisor in the Ministry of Civil Aviation Raghu Menon, who reportedly led the downhill journey of Air India. Sadly, the Government in its wisdom has been protecting them.

However, it is not too late to revise the pronouncement and take the sternest action against all those officials who have been responsible for quixotic decisions that have bled the profit-making airlines. Further, it is also time for leasing out or selling Air India to anyone who wants to run it. Retaining its control by siphoning public money is the most imprudent decision.

The time has come for also taking another critical decision. The management of commercial public sector organisations should be taken away from bureaucrats and instead be handed over to the professionals to manage the PSUs and all other autonomous bodies. If the economy is suffering it is because the professionals and politicians have been kept at bay and that there has been too much of centralisation.

Moreover, official policies are spreading panic among investors, robbing the average citizens of their purchasing capacity and the market of its confidence. The enabling atmosphere is clearly missing. The FM’s obsession for netting more taxes has squeezed the business out. More he tries to increase the taxes, more the industry, the manufacturing sector and now even services are being edged out of business.

The FIIs have become too wary to put money even in the stock markets as their short term investments are being taxed. It has slowly started telling on the country’s foreign exchange reserves and it is weakening the rupee.

The FM’s policy at pocketing tax from all inconceivable sources is leading to the flight of capital on the one hand and on the other those who have the money prefer to sit on it rather than invest. Sadly, the bureaucrat-driven Finance Ministry is totally cut off with the reality.

Hard measures at getting on the taxpayer have virtually taken the Government nowhere. Its tax realisations are gradually coming down, which might reach a critical stage by March 2013.

The Government coffers cannot increase unless the economy turns for the better. However, the present indicators belie that possibility. Business is suffering on many counts. Inflation has eaten into its sale and profits. Coupled with high interest rates and energy costs it has increased the cost input.

Harsh measures of sealing bank accounts for failure to pay taxes – as in the case of Jet Airways and Kingfisher - are increasing the woes of the Industry. If the businesses are forced to close down due to their inability to pay taxes and individuals are made to pay more taxes than they can afford to then it would not help revival of the economy or accrual of more tax revenue. The January 2012 revised figures at 1.1 per cent, down from 6.8 per cent announced earlier, and February figures, if correct, at 4.1 per cent dash recovery hopes.

Can the crisis be blamed on the global slowdown – China, Europe and US? Yes, but partially. However, it also demonstrates that the political process, which is supposed to feel the real pulse that the bureaucratic methods cannot, has frozen. Had that been the situation, the country would have realised its innate domestic strength.

If China is slowing down, it is because of its dependence on an export-led economy. India is fortunate that its export-led global integration is limited. However, the country has failed to look at the domestic market. It has its strength and cannot only sustain the economy but can also lead it to keep ahead of the global pace.

The problem is in shackling that path with too many rules. The bureaucratic sledgehammer puts a spanner at every entrepreneurial move. The year 1991 brought hopes of freeing the country of bureaucratic rule-based framework and the ‘inspector raj’ (rule). But not only has this not happened the stranglehold has rather increased.

The country needs freedom from this stranglehold. Singh and Mukherjee need to start the process. It requires simplification of rules at all levels. The FM with his cute political sense should start a process of dialogue with the industry, farmers and citizens to ensure that this process is accelerated.

And, if Mukherjee wants more revenue, he has to grant freedom to the populace to decide its own course as also what can be their tax contribution. The taxman should be a friend and not an extortionist, executioner or policeman. He needs to be re-trained so that he behaves like one. The FM also must cut down the number of taxmen so he can save on his own expenses and also reduce the harassment of the common man.

Moreover, along with this the quality of statistical accuracy must improve. India, known for its statistical accuracy, is regrettably making major goof ups. In December 2011, it erred on the export figures, which turned out to be seven per cent less than projected and the growth figures are now becoming suspect.

This shakes the confidence of all not in the country alone but outside too. Instead of ruing and announcing now and then about hard measures, the country has to initiate the needed steps so that the domestic strength could become the driver of the economy. The problem is nobody is thinking in those terms, nor anybody is stopping siphoning of funds through steps such as the Air India “stimulus”. Clearly, growth is not difficult. India awaits the right people-friendly moves.---INFA

(Copyright, India News and Feature Alliance)