Wednesday, June 27, 2012





Dr. Manmohan Singh has the reputation of being the Best Finance Minister of India. His earlier tenure was a Grand Success as Finance Minister.

In 1991, Sri P.V.Narasimha Rao, India's Prime Minister at the time, chose Dr.Singh to be his Finance Minister. Back then, India's fiscal deficit was around 8.5 % of  GDP; its Balance of Payments deficit was huge and current account deficit was around 3.5 % of GDP. India's foreign reserves were very low at around US $ 1 billion - just enough to pay for a few weeks of imports. Compared to that situation, today, the RBI and the Government are in a hugely comfortable situation.

The then Prime Minister, Sri P.V.Narasimha Rao was not only an astute Politician but himself a visionary. Except that- he was not a charismatic PM like Rajiv Gandhi. The PM and the FM worked towards making India a vibrant, resilient economy - and they succeeded to a large extent in doing that through imaginative, bold, Policy Framework.

That was then. In due course, Dr. Singh became Prime Minister in UPA I. Again, the financial performance of his Government was very Good. The country moved forward in many ways. GDP growth was impressive.

But, come UPA II, somehow, things slipped. Dr. Singh was mauled by a sort of queer Coalition Politics – in which, Dr.Singh could neither go forward nor backward – but just remain a helpless spectator of the way things slipped out of hand.

First, the Inflation went totally out of hand. Both food inflation and manufactured articles Inflation went out of hand – but major factor for worry was food Inflation.

RBI was using its only weapon, MONETARY POLICY, religiously, in the hope that it will bring down Inflation. And, it never worked. 

More and more monthly dosages of Interest rate hikes followed – but to no effect. But, the High Interest rate regime was having its effect on Growth of manufacturing sector. Even with the imperfect statistics of the ISO, it was becoming evident that Growth in manufacturing sector was suffering seriously. Specifically, Growth in the capital Goods sector was declining seriously. 

The reason was obvious. If Interest Rates, which is the main contributor to the COST OF CAPITAL is too high and the RETURN ON CAPITAL is not high enough to enthuse the entrepreneur to undertake capital building activity, Growth in capital Goods sector is bound to come down. This will have both present and futuristic effect on overall Growth.

But then, RBI is unwilling to bring down the INTEREST RATES. RBI has made a telling point of course. Government is not acting on INFLATION. Neither the Food and Agri Ministry at Centre nor those in states ever made any serious efforts to control FOOD INFLATION through fiscal and administrative measures. 

They should have convened periodical meetings at Minister and secretary levels – to review the Inflation, its causes and possible remedial measures, both fiscal and administrative. This is not happening. On the other hand, everybody is looking to RAIN GOD for solution. This, evidently, is not PLANNING.

In respect of Manufactured articles – the situation is slightly less worse. Consider that IRON ORE  is available in plenty in India – but, it is not available for steel-making in India. Steel manufacturers are forced to import Iron Ore. First it makes our Trade balance worse. Second, it puts pressure on Rupee value, which is going down against dollar every day. 

Ditto for Coal. 

And, Policy measures which are TAKEN – are complicating matters much more than measures not taken. The retrospective change in tax laws, as in case of Vodafone, has sent out negative signals to Foreign Investors. The inability of L.N.Mittal to start a huge steel Plant in Odisha is another. The spat with CAIRN INDIA is yet another.
When a Foreign Investor comes to invest in India, with huge Investment Plans, especially if he is of Indian origin, all decks should be cleared on a FAST TRACK BASIS. India must be known for such fast track clearances for FDI. But, we are gaining the opposite reputation. And, there are accusations that obstructions pour in especially if the Investment comes into states ruled by Non-UPA Governments. 

So, these are some of the disturbing aspects, which are holding down the economy. Today, licences may have been done away with in many areas. But, their place has been taken by CLEARANCES.

Each clearance takes years! There is a huge need to disband most of the clearances and FAST TRACK the justified clearances like environmental clearance. We must look at what countries like US, UK and Germany are doing in such matters. Even China.

For instance, if Reliance or CAIRN or ONGC want to enhance production or dig new wells in Blocks already allocated to them, there should be no need for clearances. Periodical REPORTS must be enough. These companies may need clearances – only if they want to produce LESS!

Why is RUPEE VALUE coming down? Because, people of other countries find Rupee not getting them anything valuable from India. As simple as that. This is the plain, long term reason, why rupee is less valuable and is slipping down in value further. India must promote High Quality goods manufacture even at cottage Industry level. 

Innovation must be given pride of place. Innovation must be seen everywhere. You do not find a single TV Channel, which promotes innovation and suggests methods of making things better. You do not have a single organization – exclusively devoted to making THINGS BETTER – than say, the Chinese and Koreans – and teaching such things in schools, colleges, Industries and so on.

 It is fine to attempt entrance Exam reform into IITs. But, are there IDEAS also,  to make IITs more innovative, more research oriented, and rolling out engineering products which India can be proud of. There is no doubt about their capability. But, their spending on R&D is abysmally LOW. The spending of other Engineering Colleges on  R&D is close to NIL. So is the spending of all Governments – centre and states – in India.

These are the problems that are holding the Economy down.

Now, the turn of events in the Presidential Elections has again brought the Prime Minister Dr. Manmohan Singh into the Finance Minister’s Chair. This is a hugely welcome development.

He was and perhaps, is the Best Finance Minister of India. Now, he is also the Prime Minister. 

He will start performing from Day one. He has started identifying the Problems and solutions already.

Reforms will flow in quickly. I would not call them reforms. They are the needed measures. We may differ from him on a few. But, overall, the direction will be straight forward and intentions will be very clear. No Politics will play in development, if Dr. Singh has his way.

In addition to his individual performance as Finance Minister, one looks forward to him to lead his Food and Agri Ministry, Industry Ministry, commerce Ministry – in fact, all economic Ministries – more aggressively than before and ensure that appropriate Policy Actions come from them too, quickly. 

He must also carry the RBI with him – and convince them TO BAT FOR GROWTH – by reducing the Interest Rates sufficiently – not just in token. But simultaneously, he must get his Food and Agri Ministry to convene at least one Meeting at Minister/secretary level with all states – to manifestly tackle the FOOD INFLATION PROBLEM.

Good Luck, Prime Finance Minister!

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