In an hour-long speech dominated by plainspeak backed by hard facts, a member of the Prime Minister’s Economic Advisory Council (PMEAC) criticised the Central government for its flawed approach to economic policies and the private sector for its failure to speak against such approach, apart from taking a dig at economists as well.
He started off by putting the recent reforms in perspective. “These reforms only have a symbolic value than real value. They did of course help in bringing in foreign institutional investors (FIIs) that stabilized the rupee and enabled to keep a check on inflation,” said M Govinda Rao, at a seminar on “Economic Reforms: Challenges and Opportunities for
India Inc.” organized by the Bangalore Chamber of Industry & Commerce on Friday. Govinda Rao is also Director of the National Institute of Public Finance and Policy, New Delhi.
He flayed the approach to reforms and said, “Reforms in India have been gradualist and more like a band-aid, there hasn’t been systematic reforms. In reforms, you need to predict how economic agents will behave and change the course.”
He traced the genesis of burgeoning fiscal deficit to the Union Budget of 2008 and the subsequent policies that led to the deficit increasing from about 2.5 per cent of GDP in 2008 to worrisome levels (5.9 per cent in 2011-12). He doubted the Centre’s ability to contain it at the targeted 5.1 per cent this fiscal.
He said that the Centre going on a borrowing and spending spree has led to a situation that the per capita debt today stands at about Rs 48,000, which does not augur well for India in the long run. “We should remember that today’s debts are tomorrow’s taxes,” cautioning that at some stage, the government will have to raise taxes to bankroll its massive spending programmes.
He gave a different spin to the very concept of inclusive growth. “Inclusive growth does not merely imply redistribution, it requires participation of people. We need policies of empowerment, not entitlement,” he said, referring to MNREGS. He was equally sharp in his criticism of Goods and Services Tax (GST), often referred to as a major shift in India’s taxation regime. “I don’t agree with (economist) Vijay Kelkar that GST is a game changer and it is not likely to happen in a hurry. It will take time.”
Regulatory authorities going back on assurances also came in for sharp criticism. “Policy reversal is worse than policy paralysis,” he said with reference to industries being given environmental clearances initially, only to be reversed.
He said the business community in India failed to raise its voice on many such macro economic issues. “They (businessmen) want to be on the right side of the government, not even on the right side of the law.”
Later, he told reporters that the Reserve Bank of India (RBI) could show a “signal” by reducing policy rate by 25 basis points. He also disagreed with the recommendations of Shome panel to defer GAAR by three years. “GAAR is an essential part of taxation, we should get ready.”
Earlier, the CFO of Aditya Birla Group said pre-conditions to FDI in retail would prove dampeners, when the industry operates on thin margins. The Deputy Managing Director of Toyota Kirloskar Motor said foreign investors will come to India only if they see “reasonable chance to make reasonable money.”