The Indian economy is through a transitory stage. It wants to free itself of the Manmohanomics, did some critical experimentations leading too many controls that is anathema for a party that was demanding liberalisation long before it was ever heard in late 1960s.
The process has its obvious problems. Unwittingly the government itself has gone into doing many things that is now being touted as efforts to control – be it bank procedures and charges, fuel prices, rail fares, telephone connections or aadhar linking. Ideologically for propagator of a free market this cannot be its intent.
The leftists had always propagated such controls. They controlled even the movements of citizens leading to the collapse of Soviet Union and the shattering the dreams of a communist world.
Is the government in a trap? If so, who laid it? But it appears that somewhere it has gone into where it should not be. It appears good that the government in all seriousness has shown the will to get out of it with immediately huddling into confabulations, looking for avenues and even a relook at the GST.
The uneasiness was evident even at the BJP national executive meeting held in New Delhi on September 25-26. The government exemplified that it was willing to listen and redesign economy through the Bibek Debroy committee.
The response should instill confidence. But the figures coming from the government sources or RBI or the stock market are yet to show the positivity, increase in private investment or credit growth or jobs.
The RBI also lowered annual growth to 6.7 percent. Asian Development Bank lowers growth projections to 7 percent. The World Bank is more optimistic and says that the present slowdown is an aberration. India’s Gross Domestic Product (GDP) grew 5.7 per cent on a year-on-year basis during the April-June period (Q1). The GDP growth rate for the same quarter last year was 7.9 per cent. During the previous quarter (January-March) of this year, GDP grew by 6.1 per cent.
The RBI estimate is near reality. The government says not to despair. An Indian is a born optimist and even without World Bank president Jim Yong Kim’s recent press statements they have the hope and know destiny would take them to the end.
These call for a serious retrospection beyond GST, which would see more changes than those decided at the 22nd GST Council meet on October 6. It makes many small changes including putting jewelers, assuring exporters fast refund and relief to small and medium entrepreneurs (SME).
But it evaded crucial decision on petrol prices. If it is included in GST petrol price according to estimates could come down to Rs 40 a litre from over Rs 71. This could have been a great relief for the economy heading for inflation.
Despite the official price index showing a gradual spurt, prices in the market have not come down, particularly of food, vegetables and textiles. The GST despite latest exercise has added to the prices and bank charges, which are at a high and is stated to hit growth.
The RBI for good has not lowered interest rates. This is affecting the poor depositors. Their interest hedging is coming down. This needs to be checked along with tax on savings. This step is also not helping farmers and rural depositors. High bank charges and taxes on deposits may move depositors away from the PSU banks. It is apprehended that it might also promote parallel unofficial banking and hawala transactions even within the country.
Prudent tax laws are needed for promoting growth. The concern of higher revenue is fine but taxes, income and indirect taxes have reached oppressive level and needs drastic simplification.
Somehow the government does not consider high road, municipal, panchayat tolls, road taxes, parking charges, metro, railway fares and other charges as taxes.
While reviewing a consolidated approach is needed. Each of these reduces purchasing capacity and becomes inflationary, impeding growth. An average Indian, even a beggar, pays over 40 percent of his income as taxes and a taxpayer over 70 percent. It means forgoing three to five months’ earnings as taxes.
Higher the combined taxes, tolls and fees, lower is seen to be growth. India needs less governmentisation, trust in its people, including traders, in cash transactions and the approach to financialise or tax every aspect of life needs to be given up.
A child who gets the liberty to act grows up as a responsible person than the one who is put on virtual leash by his parents. The countrymen are also like that. Every aspect of life need neither be controlled nor interfered. Many great scientists, littérateurs, or businessmen have been school drop-outs. They could act freely from schools’ controls and thrived. The nation is also treated to be like that.
The West continues to be in crisis as it has tried to shackle the economies with financialisation. India has survived some of the worst crisis like fall of the Soviet Union or the great 1990 forex crisis because it had mixed economy that was not dependent on the official system.
Post 2008 meltdown its unnecessary incentivisation of big houses and forcing banks to give liberal loans has led to the present NPA crisis. Vijay Mallya is the creation of such ill-conceived official fiats. A former finance minister’s son is said also to have been its beneficiary in a different way. This possibly would not have happened or Air India crashed had the government kept aloof.
This is the learning curve for the governments. In many cases despite consensus at G-7 and G 20 meets, India needs to separate itself from the paths suggested by it. The G 20 is for controls. India has thrived through centuries when it had the least controls on activities of the people.
The forced indigo cultivation or permanent settlement by the British for higher revenue realization had led to ruination of the indigenous economy as also boosting of the British and western economies. India needs to look at G 20 prescription on taxes and financialisation with apprehension and caution. It has not been good for G 7 itself.
For growth India needs to look at its own wisdom and listen to Mahatma Gandhi and Deendayal Upadhyay. Be in G-20 but chart out separate course. India will grow to trounce all.