Economist Dr Subramanian Swamy, whose Janata Party merged with the Bharatiya Janata Party in August, has issued the following press statement on the Indian economy and demanded the implementation of a four-point agenda to save it.
Here is what Dr Swamy had to say:
By all economic criteria, the Indian economy is today sick and in a tail spin heading for a crash unless effective steps are taken soon to reverse the trends by a new economic reform policy.
Some of these criteria are:
Foreign exchange reserves divided by short-term foreign debt is at a very low (1990) level.
Balance of payments' current account deficit as a ratio of GDP is highest since 1990, at 4.0%.
Total fiscal deficit in the Central and State Budgets now exceeds the danger mark of 12% of GDP, thereby committing a crime under the Fiscal Management Act passed by Parliament in 2005.
Reverse short-term capital outflow by panic cashing of Participatory Notes, hawala operations, and rigged short-selling of the rupee in Dubai and Singapore, has accelerated destabilizing the rupee/$ rate, which as a consequence has fallen by record amount.
India’s household savings rate, which was the highest in the world in 2004 has fallen, and is also shifting to hoarded non-financial assets, which is causing a huge fall in the growth rate of GDP, due to decline in investment and in employment.
These trends are aggravated by the sharp rise in corruption and the reckless spending spree through stupid leaking schemes such as NREGA and the Food Security Act during the UPA tenure. The Indian economy is today in a financial ICU and on a ventilator.
Hence unless the economic situation is rectified by new reform policies, disaster and default of debt payments await the Indian people.
The announcement yesterday by RBI Governor of an increase in the REPO rate shows his short-sightedness and foreign mentality. His economics has been known to be the same as that caused the US Depression of the 1920s, namely following a conservative fiscal policy.
Just when investment and capital market needed an injection of adrenalin, Dr Rajan asphyxiated the investor. By mid-2014, the Union Government will be on the verge default of payments for past obligations.
The NDA government in 2014 will have to usher some radical reforms to remove the dark clouds of despondency that has descended on the nation to revive the economy and put it back on a growth path of more than an annual growth rate of 10% per year.
My suggestions for this would be as follows:
(a) Make income tax-deductible all recognisable forms of financial savings such as bank term deposits, share certificates etc.
This will boost the rate of savings (If direct income tax is abolished, it will mean minimal paper work for the people).
(b) Issue Ordinance nationalization of all bank accounts of Indian citizens in 70 countries that permit secret banking. This will net Rs 100,000 lakh crores or $ 1.6 trillion for government revenue.
(c) Confiscate and Abolish Participatory Notes, arrest under PMLA the prominent hawala operators, require special passport clearance of Indian citizens for travel to UAE, Singapore and Macao.
This will bring the rupee/$ rate down to Rs.40 within two weeks. NDA’s goal should be to make Rs 10.00 =$ 1.00.
Image: Activists from BJP hold garlands of onions and green chillies around a portrait of Congress President Sonia Gandhi during a protest against price hike ' Photograph: Jitendra Prakash/Reuters