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EDITORIAL

Editorial-HPK

  • Dear Readers,

The Indian economy being the third largest economy of Asia, is now on the world radar; especially on how the Modi government will effectively, aggressively and speedily implement policy reforms. Most sectors of the economy have been down in 2015-2016 compared to 2014 – 2015. Analysts say that there will be little improvement in manufacturing. But, in view of the global economy, there will be problems of over capacity and unserviceable debts. India has large reservoirs of coal, which can meet the ever increasing demand of the power sector. It is pity that India is importing almost 35% of its coal requirement. What a colossal loss of already scarce foreign exchange? Oil and gas reservoirs need to be harnessed. The USA has harnessed shale, which has reduced its import dependence to a great extent. However, it needs to counteract its harmful environmental impact.

The government has embarked on a plan to buy back of stocks of some Navratnas of some highly profit making companies and have large reserves to have liquidity for meeting deficit financing. This large reserve should be used in capital investment and to generate wealth and employment. Private capital investment is almost negligible. Let good stocks of PSU be in the market to promote retail capital market domestically and globally.

The Finance Minister Arun Jaitley will not have much to do but increase indirect tax to punch holes into the pockets of the public, may be more of the wealthy. He has to balance inflation, fiscal deficit, current account deficit, subsidy, implementation of the pay commission’s recommendations, sick infrastructure, NPA (non performing assets) of banks, imports – rather dumping of low cost price products causing sickness and shutdown of manufacturing units, negligible private investment, and falling exports etc.

The government might be taking a final decision to stick to fiscal deficit of 3.5% of GDP for 2016-2017 given a revised one of 3.9% of GDP for 2015-2016.The fiscal consolidation roadmap may be delayed by a year on the face of additional spending burden. The RBI Governor Dr. Raghuram Rajan has warned the government against a spending spree to boost economic growth, citing the example of Brazil. But many economists strongly recommend capital expenditure and not spending on social comfort benefits. The government can increase revenue by generating these from capital investments and harnessing the natural resources.

At last, the Modi government has woken up from a long slumber despite the thunderbolt of steel industries having been burdened with heavy losses and crushing debts that were unwisely accumulated due to greed for expansion of capacity not only in India but all over the world. The government had earlier taken a very small step of increasing import duty by 20% on some items of steel. Fixing minimum import price on 173 steel products is novel admirable act, which will give relief to steel industries to get little more price over the cost of production and may help to serve part of debts. Dumping import duty should always be levied in all items of import. China has 50% of global steel capacity and is now thinking of freezing capacity. MIP will cover 80% of steel production of JSW (Jindal Steel). The MIP doesn’t apply to scrap. SAIL faces net loss of about ` 1600 crore in 2015-2016. When the world and India has large unutilized capacity of steel production, SAIL has embarked on capital expenditure of about `10,000 crore in expansion of capacity and not for balancing equipments. Capital should be used for modernization of mines of iron ore, coal and other raw materials and to stop import of these items. Arcelor Mittal has scrapped the steel project of ` 30,000 crore in Karnataka.

A pressing priority of Jaitley will be revival of infrastructure. The world is burdened with overcapacity of most manufacturers. In global trade, survival of the fittest is the rule of the day. It is not expected that manufacturing will help the growth and create employment for the increasing population. Natural resources like agriculture, horticulture, pisciculture, etc. will be the future area to save the population and its expectations. India still imports large quantities of pulses and oil seeds at the cost of depleting forex reserve. The growth rate in agri-sector is 1.1%. It is falling. The 12th five year plan (2012-2017) targets at least 4% of agricultural GDP growth. Sunil Kanoria, President of Assocham, has recommended for setting up Agri Equipment banks in PPP (public-private partnership) mode and/or allowing private sector entry with some structural benefits. The government’s expenditure on subsidy should not be consumption based only but creating assets for generation of wealth and employment. For cattle pastures, land should be provided in every village. Cattle rearing and poultry farming in forest areas will be more enterprising work in cosmic cooperative spirit and successful. This will enrich forests, which are neglected. This needs to be contemplated by the government, the courts, all political parties and wise people who love the nation.

Government must not be driven by social-political oriented populist measures. Be bold in financial control. Restrain funds to states who are going to demand more as they are not plugging holes of leakage, and curbing wastes. Spending on education, skilled development and healthcare is not monitored with the spirit of serving Nation. The government must help private sector by reducing the high rate of corporate taxes. Abolish MAP tax. Let the fund be ploughed back for modernization, working capital and new investment. In total, tax shouldn’t be more than 20%. After tax, net profit should be left equal to 9% on Capital and Reserves. Introduce GST through ordinance. All will fall in line. Start-ups are facing many problems. They need a pragmatic approach in the Budget. Give tax relief for 10 years. NOMAT to them to offset of accumulated losses.

Stock prices have fallen drastically. This has sent a chill down the spines of analysists, stock brokers and retailers. FIIS pulled out USA $2 billion this year, highest since 2008 as they have redemption pressures from global equity funds. FIIS flow in Indian market will be low. Volatility in the market will continue. Mid cap shares, which are not over valued, will attract investors. India is the worst emerging equity market after China in dollar terms as manufacturing sector is very weak. Sovereign funds have been reducing their investments in Indian currency in the stock market.

Taxation laws and rules need to be simplified. In the name of simplification, these are now more complicated. Just to show performance and appearing to be saint, but in reality rules are in disguise. Unreasonable tax assessments are made causing great hardships with ulterior motives. During appeals, higher officers do not dare to give relief in fear of being coloured otherwise. Assessment officers seize bank accounts and other inventories and properties with ulterior motives. Manufacturing units are thus shut down. Cheques are dishonoured. Wages are not paid. Operations are stopped. Banks suffer more NPAs. Relief process is extremely long. Statutory systems should be made to give relief within five days of filing petitions against such harsh assessments that arise from ulterior motives for reasons known to all.

Income generated for the benefit of public by a charitable trust shouldn’t be taxed. Give incentives for investment in agriculture, horticulture, pisciculture, allied activities and for rural upliftment.

Love Nation, Build Nation for growth to serve the people.

hpk
Dr H P Kanoria

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