New Delhi, July 19 (ANI): In a globalised world, currency volatility should not be a worrying factor? India's economy made a remarkable recovery in the nineties in the face of almost going bust when the country was forced to mortgage part of its gold reserves. Massive economic scams, some terrible amendments to the Income Tax Act and FEMA in the last eight years seem to have brought on a fresh specter of crisis -either the economy is facing serious illness or has symptoms of one. The current volatility of the rupee is first sign of the impending crisis if one is prepared to face it.
Inflation has already reduced the spending power of India's new middle class. It was this vast market of the middle class that attracted foreign investors. That story is now going sour. With a fall in demand for goods and services, there is a resultant fall in employment of educated and qualified young people. This situation gets far more accentuated in the small towns and countryside of India where education and training levels are poor.
In the midst of this crisis, the government continues merrily to launch populist schemes even though it knows that the country cannot afford them. To find money for grandiose schemes, the country is left with no alternative but to increase the deficit in its budgets. That only means printing more currency. As you print more currency without real backing, it hurts the value of the rupee. Today, that value is at an all time low. Therefore, let us stop blaming international reasons for the fall in the rupee's value.
The rupee has fallen because of the follies of Indian economic policies. Strange as it may be, in this bleak scenario there is a minuscule minority flushed with unlimited funds to spend. A visit to any five star hotel, or exclusive club where the rich and famous relax, does not show if there is any economic crisis in India. For these places thrive on the parallel cash and corrupt economy of India. There is no threat to this economy for so long as India's political system itself depends on the cash for its survival. There is thus a tacit acceptance of corruption and parallel economy at the cost of the nation and its people. It is this black economy that is a major cause of India's economic problems.
India's Finance Minister and other leaders of economy have to run to developing countries to seek investment in India? The world at large is no longer sure of the India story in the face of utter mismanagement of the country's economy-its failure to tackle corruption and law and order situation at large. A successful foreign investor is shocked when faced with corruption from the Income Tax Department. That department should really be renamed as the tax extortion department. When face to face with the demands from the corrupt of the department - even as well audited honest accounts are submitted, the foreign investor realises the folly of coming to India. If you don't pay the corrupt this "harassment bribe" then face an assessment order which may take you decades to sort out in India's archaic legal system.
If India expects that foreign direct investment can come to the rescue of its economy in the present scenario of "harassment bribes", poor governance etc., then she is living in a make believe world. The world is watching as to how Indians deal with the crisis that has enveloped its economy. They see us moving once again towards the "licence permit raj" era, even if we do not call it that. Gold smuggling is already back. One way or the other we are getting back to the old ways and blame the world for not understanding us!
The manner in which retrospective tax amendment to the Income Tax Act was pushed through the Parliament and made a law speaks volumes for the intentions of the authorities. The original Act itself says that the department can reopen cases of up to six year old, then why go back to some twenty , thirty or forty years unless the intention is to harass the tax payer. The tax payer is already harassed enough and the rulers refuse to accept this.
Take another tax, the service tax. This is one tax that has given unlimited powers to the implementing agency to harass the tax payer. Instead of the Income Tax department being made the implementing agency the government chose to make customs and Excise and Customs Department as the collectors of this tax. And what do they do? They send inspectors known as auditors who never give the tax payer a report of their audit. Harassment follows. No tax payer wishes to go into long legal fight against the government, and thus, this tax has become a source of discouraging any foreign investor from doing business in India. Indian business m pays the "harassment bribe".
If one were to study the collapse of Greek economy and the mess in which that country is today, India is already more than half way running towards that goal. Then how does the government expect foreign investors, who always do proper due diligence before investing, to come to India. The fact is that even Indian industrialists and business men are seeking opportunities abroad and are not investing in the country. That the harassment of taxpayer, indifference of the authorities, and corruption in political system has reached an all time unacceptable level is a matter of fact. This factor alone, apart from other disincentives, forces investors Indian or foreign, from investing in India.
Like in Greece, here in India too, politicians are fighting shy of dealing with the demon of corruption. There are one too many legislators in India's state Assemblies and National Parliament having a criminal background. Sometimes one feels that politicians are perpetuating poverty and illiteracy in India to use it to keep coming back to power by making false promises to the disadvantaged?
Like in Greece, India's Government offices are full of staff that should have been redundant. The size of India's government has gone well out of control. There are offices and departments that the British created during the World War 2 that still exist. What are various Departments of the Ministry of Information and Broadcasting like the Films Division, Song and Drama Division and so on doing in this day and age of television? These need to be disbanded without delay and the nation saved huge expense.
Greeks have suffered this set back to their economy because they ran a welfare state that they just could not afford. India's welfare schemes are no more than a dole for the poor. Instead of preparing them with skills and education for jobs these schemes make them dependent on this dole for their survival. This is NOT the way to eradicate poverty. These schemes have been thought out to win votes and I doubt if they will garner those. India's poor are yearning for education and skills training.
The bigger tragedy in India is that the rulers and those in the opposition while sitting in the Parliament have evolved a special set of rules by which live and work. With rent free houses with free electricity and water, highly subsidized food in the Parliament House, a special cell to get their income tax cases resolved, travel free on railways and airlines apart from fat salaries and allowances, these law makers are totally cut off from India that lives by hard work, pays high prices and high taxes and on top of it suffers corruption. An Indian media survey recently found that in India its people are forced to pay out a staggering sum of Rs. 629675.00 crores per year or 6.3% of India's GDP on corruption.
The investors all over the world see these figures!At the root of economic crisis in India apart from corruption is the malaise of tax dodging in which perhaps the "netas" lead the way. It is a way of life for them as it is in Greece, for even an honest tax payer knows that the Income Tax department is not giving you a clean assessment order unless they receive their "fee" or the "harassment bribe" in cash.
If India's economy is to be revived and foreign investors given confidence to come back, the country needs to get to grips with all the basic malaise highlighted above. And to get the confidence in India being rebuilt, the government needs to tackle the serious problem of law and order as well. Foreign nationals as much as we Indians are not sure if their families are safe in India, now a land known for rapes and highway hold ups. Restoring law and order and ensuring safety of its people should be the first task of the government than squandering money on welfare schemes that hardly benefit any one.
The rising clout of China on the world stage and its flexing muscles against this country should have been enough for any responsible visionary leader to lead the country out of this mess. India is the world's youngest country with 65 percent of its population being below 35 year age, and yet, its Parliament is crowded with geriatrics. A majority of the so called young in that house belong to professional political families with little vision but well versed in the politics of fixing.
The World Bank survey has placed India as the most difficult place to do business. The country ranks at 132nd place of the 187 surveyed. Why? An Indian TV anchor when recently discussing the economic crisis described India as Bribe Republic? It is these perceptions of the country that the authorities should be concerned with and eradicate the causes that lead to them.
India's people are hard working. They are honest to the core. The young educated unemployed and the population at large is restive. They deserve a country secure, free of corruption and bribery. That is the only way that India's sick economy can be revived. It can be done if there is will to do it.
Prem Prakash is a senior journalist and Chairman of ANI Media (P) Ltd. (ANI)