{"id":34698,"date":"2018-10-31T12:56:05","date_gmt":"2018-10-31T07:26:05","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=34698"},"modified":"2018-10-31T12:56:05","modified_gmt":"2018-10-31T07:26:05","slug":"its-time-for-bold-economic-thinking","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/its-time-for-bold-economic-thinking\/","title":{"rendered":"It\u2019s time for bold economic thinking:\u00a0"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/todays-paper\/tp-business\/mr-pm-its-time-for-bold-economic-thinking\/article19825296.ece\"><span style=\"font-weight: 400;\">It\u2019s time for bold economic thinking<\/span><\/a><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<p><b>Context<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Despite India\u2019s rapid economic growth and forex reserves more than $400 billion, the state of the economy has been described to be \u2018sinking\u2019<\/span><\/li>\n<\/ul>\n<p><b>What is the present economic scenario?<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">India\u2019s oil imports in FY13 was $164 billion and by FY17 it was only $83 billion, lowering the current account deficit as a percentage of GDP from 4.8% in FY13 to just 1.1% in FY17. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">The stock market is at an all-time high in anticipation of a surge in earnings which is yet to materialize. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">The RBI, in its latest monetary policy report, lowered the projected growth rate for FY18 from 7.3% to 6.7% <\/span><\/li>\n<li><span style=\"font-weight: 400;\">Both the demonetization episode of 2016 and the introduction of GST in July have imposed short-term costs in the form of lowering of growth rate in the current fiscal.<\/span><\/li>\n<\/ul>\n<p><b>How well has the government reforms worked so far?<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The current government has shown limited appetite for serious financial sector reform.<\/span><\/li>\n<\/ul>\n<p><b>Bad loan problems<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">It has been long on rhetoric such as \u2018Indra Dhanush\u2019 and has evinced little resolve to deal with the massive non-performing loans problem.<\/span><\/li>\n<\/ul>\n<p><strong>The recent RBI move to refer large stressed accounts to the National Company Law Tribunal to deal with the Insolvency and Bankruptcy Code which will likely lead to two consequences: <\/strong><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The resolution will take a very long time<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The recoveries will be much lower than what would have been possible by way of one-time payments <\/span><\/li>\n<\/ul>\n<p><b>Low investment confidence<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The lack of speedy resolution of the stress in PSU banks and corporate balance sheets has eroded business confidence leading to lower investment and poor job creation.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The government announcement of a stimulus package may deal with the problem cosmetically rather than address it at its root. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">The aim to ring-fence boards and executive of PSU banks from probes by the three Cs, CBI, CVC and CAG, will impose a cost on the economy by delaying resolution of distressed loans and causing more losses to PSU banks.<\/span><\/li>\n<\/ul>\n<p><b>Tax laws<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The regime for direct and indirect tax compliance in India is undergoing a fundamental shift for the better in a way that has not happened before. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">This is certainly going to expand the \u2018production possibility frontier\u2019 of the economy.<\/span><\/li>\n<\/ul>\n<p><b>High savings culture<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The high savings in India are currently not directed to productive, long-term investments as corporates have still not been able to repair their balance sheets.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The AC Nielsen Consumer confidence index for India in Q2 2017 was 128, declining 7 percentage points compared with Q42016, while global consumer confidence rose 3 percentage points during this time interval. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">Despite the fall, Indian consumers are still the second most optimistic among the 63 countries surveyed by AC Nielsen.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\"><strong>What needs to be done now to get back on the high growth track?<\/strong> <\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><b>Five-step plan against undisclosed funds<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The current crisis to introduce an amnesty scheme, a la Indonesia, to allow tax payers to voluntarily disclose hitherto undisclosed income kept domestically and abroad can be used.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The Indian government should announce a one-time program temporarily by when anyone can disclose previously undisclosed income held within the country and abroad, for which they will pay a small, one-time fine of 4%, while 50% of the domestic holdings<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The amounts thus invested will be locked for seven years with a compound interest of 4% per annum. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">Post redemption, the amounts and the interest thereon can be used freely for any lawful purposes in India.<\/span><\/li>\n<\/ul>\n<p><b>Curbing black money<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Criminal prosecution should be instituted against Indian residents holding large sums of undisclosed income. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">By highlighting the automatic exchange of financial account data with nations such as Singapore and Switzerland, it can ensure that the scheme is taken seriously.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The work done so far by the SIT on money stashed abroad and the information obtained through Panama leaks could be a good input to test and start the scheme. <\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><b><\/b><\/p>\n<p><b>Focusing on bad loans<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Ensure that the full extent of the NPA problem is recognized latest by December 31 and that banks make necessary provisions in this regard.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The consequent shortfall in equity capital adequacy for PSU banks should be met through recapitalization by March 31.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The boards of PSU banks should be recast by bringing in persons with demonstrated professional experience and achievement. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">The selection of CEOs of PSU banks and determination of their tenure and compensation package should henceforth be the exclusive domain of their boards.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Boards should be fully empowered decide on loan resolution by way of real restructuring, with or without haircut, and one-time payment. <\/span><\/li>\n<li><span style=\"font-weight: 400;\">Clear guidelines should be established for such screening and vetting.<\/span><\/li>\n<\/ul>\n<p><b>Infrastructure investments<\/b><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">The money needs to be channelized in order to accelerate infrastructure investments, especially in agricultural storage\/ support infrastructure, in post-harvest processing, water efficiency technologies, extension services etc. to make agriculture more productive.<\/span><\/li>\n<\/ul>\n<p><b>Facilitate new export engines<\/b><\/p>\n<ul>\n<li>\u00a0<span style=\"font-weight: 400;\">Facilitate new export engines with \u2018Make in India\u2019 and \u2018Serve in India\u2019 initiatives on defense exports and medical tourism. <\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s time for bold economic thinking:\u00a0 Context Despite India\u2019s rapid economic growth and forex reserves more than $400 billion, the state of the economy has been described to be \u2018sinking\u2019 What is the present economic scenario? India\u2019s oil imports in FY13 was $164 billion and by FY17 it was only $83 billion, lowering the current&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/its-time-for-bold-economic-thinking\/\">Continue reading <span class=\"screen-reader-text\">It\u2019s time for bold economic thinking:\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-34698","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704614081},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/34698","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=34698"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/34698\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=34698"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=34698"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=34698"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}