Opportunity for Pra’Knob’ to open up Economy
February 18, 2010 1 Comment
In the aftermath of 26/11, Shivraj Patil lost his job presumably for spending too much time in the shower in a bid to “get ready” before facing the media.
So Enter Chidambaram into the Home Ministry vacating the Finance Ministry for the dada from Bengal, Pranab Mukherjee.
Probably because Pranab came from Bengal which has the worst track record of progress, his entry into the Finance Ministry was welcomed by Global Recession. Pranab’s first task was to ‘rev up’ the consumption engine and dutifully he announced a slew of indirect tax concessions aimed at reducing the prices.
India remained largely insulated from the impact of recession relatively. Markets had a huge meltdown caused by the FIIs pulling out. IT Service organizations had to tighten their purse strings and freeze salaries. Real estate also suffered as people started postponing their plans of acquiring a permanent address.
Despite this, the impact of recession was far less on India and China mainly because the financial systems were intact. Indian Banks generally very conservative didn’t venture into fanciful financial products and had a very low risk profile.
The euphoria of having “missed the recession” didn’t last very long. Driven by a failing monsoon coupled with poor decisions meant that the food cost started spiraling upwards. In India, the problem of food security has always been about distribution.
India produces enough food to feed the mouths of all it’s citizens, but unfortunately the distribution channel is so poor that there are starvation deaths even as grains are rotting in the warehouses. The issue of food inflation, expectedly and sadly, has acquired a political colour. The toothless left has been voicing it’s protest while the BJP is caught between taking the Govt on Food, MNIK and Pakistan.
The Union Budget for 2010-11 comes at a time when the Government is short of admitting that it is incapable of controlling the food inflation.
In my view, the following options must be given a careful consideration by the Finance Minister.
a) FM should consider providing some relief to the middle class reeling under the price rise. Hence a reduction in the tax rate is fully justified.
b) Corporate Tax rates have been unchanged for several budgets now. A reduction in Corporate tax rate is also appropriate to encourage corporates to push for higher employment generation.
c) Given the grave security threat that the country as a whole is facing, 100% tax exemption may be given to all security related expenditure of firms, corporates and institutions. This includes the security services and equipment.
d) Tax incentives must be considered for cold chains, warehouses for food storage in a bid to improve the distribution network.
e) The success of NREGA has opened up new ways of engaging the rural masses for nation building. FM should consider increasing the allocation and also put in mechanism to ensure that the allocation is not swindled by middlemen.
f) FM should setup a mechanism to ensure that the Central allocations are not used by State Governments to fund their populist schemes like TV distribution in TN etc.
g) Roll back of the Indirect tax incentives looks very obvious if the Fiscal deficit has to be reigned in.
h) Disinvestment is another big focus area and the FM must ignore the usual leftist propaganda and go ahead with an aggressive disinvestment target. The Government is better off focusing on governance than owning companies
i) 3G Auction must be held immediately to raise much needed cash.
j) FM must give serious thought to ‘supply side initiatives’ rather than trying to control prices only through monetary measures.
It is widely believed that P Chidambaram is a reluctant Home Minister. Even he may not envy Pranab’s predicament as he opens his Budget speech on the 26th of February.
The nation awaits with bated breath on what is in store in the Annual Finance Statement. Pranab can write his name into history as the Indian Economy looks poised for greater glory in the next decade.
It is a momentous opportunity for Pranab to open the doors of the Indian economy to higher GDP growth. Some hard decisions and biting the bullet is the need of the hour.
Will he or wont he ?