Is our economy going in the right direction? The government says it is, but BJP leader and former Union Cabinet Minister for Commerce Subramanian Swamy differs.
In an editorial he wrote for The Hindu, Swamy claims that the Indian economy is headed for a crisis and a possible crash. He predicts that the ‘crash’ might hit in early 2016.
Swamy claims that there is a way to avoid what he calls the inevitable but points out that the Narendra Modi government does not has a contingency plan ready.
According to Swamy, the government must constitute a “Crisis Management Team (CMT) of politicians and economists who understand the general equilibrium calculus of an economy and the dynamics of Indian society”.
He alleges that the economists working in the government belong to the IMF/World Bank class – organisations that have failed in predicting global economic crashes on many occasions, including the 2008 global financial crisis.
Swamy also suggests that India must know which problem to focus on and prioritise for action.
He posed a series of questions, the answers to which, he writes, should force a policy reanalysis and rectification.
a) Despite crude oil prices having crashed and the dollar value of the rupee having dropped in a steep devaluation, why have both exports and imports, especially the former in 23 of the 30 commodity groups, declined steadily over the last 14 months?
b) Why have household savings, which were the bulk of national domestic investments, dropped from a high of 34 per cent of GDP in 2005 to 28 per cent of GDP in 2015?
c) Why have the Non-Performing Assets (NPAs) of the public sector banks risen so sharply, in fact at a rate much higher than the rate of the new advances made by these banks?
d) When the economy needs about a $1 trillion investment in infrastructure to render ‘Make in India’ a reality, why is the actual investment in just 75 projects in Financial Year 2015-16 valued at Rs.42,749 crore, less than the amount invested in 2005-06, which was Rs.44,511 crore?
e) Why has the manufacturing sector, which provides the bulk of employment to the skilled and semi-skilled labour force, grown at an abysmally low rates of between 2 per cent and 5 per cent?
f) Why, when India’s agricultural products are among the cheapest in the world despite a low yield per hectare, are we not able to double the production and export the products abroad?
Swamy dropped a bomb by alleging that the slowdown in the manufacturing sector is because of RBI Governor Raghuram Rajan.
“As a doctor, he has believed that the best way to bring down the temperature of a patient (i.e., inflation) is to kill him (investment starvation).”
By raising and keeping interest rates high and hence making the cost of capital prohibitive, he has killed the essential manufacturing investments in Small and Medium Enterprises (SMEs) and in export ventures, Swamy writes.
He urges the government to tap into Thorium, found along the eastern coast of the country, for electricity generation. He also emphasised upon the need to complete the river-interlinking project.
On the economic front, Swamy writes the government should abolish the personal income tax, lower cost of capital, and abolishing Participatory Notes to help bring back black money among others.
Above all, Swamy wrote that India can make rapid economic progress to become a developed country only through a globally competitive economy, but warned that such a progress would require a politically peaceful, secure environment in the country.
Noting that Indians are loyal to their families but apathetic to the community where they live, Swamy suggested development of a strong and coherent concept of national identity based on a correct interpretation of Indian history.