The recent slowdown allows a major re-think in our macroeconomic policies, says a contemplative Sanath Ramakrishna, who heads the South India Tax and Regulatory Services Practice of Grant Thornton India with specialisation in International Tax. “Economic developmental programme through a humanistic approach would be a lasting contribution to propel the country into a position of economic supremacy,” he adds, during a recent pre-Budget email interaction with Business Line.
As India integrates into the global economy, there are no more ‘unthinkables’ on economic reform and no more sacred cows to protect, avers Ramakrishna. “There are large advantages that can accrue to India if its foreign policies of having a strategic nuclear alliance with the developed countries are consolidated with an equally bold economic policy. The asymmetry is huge.” A bold economic policy can mean the negation of effects of the downturn and India becoming an economic superpower – a place it truly deserves, he reasons.
Excerpts from the interview.
On Budget compulsions.
Given the strong political stability, the Finance Minister is under no compulsion to present a populist budget or view sensitive economic issues from the angle of possible electoral repercussions. It need not be another pedestrian exercise. A limp and/ or a business-as-usual approach will mean continued apprehension amongst foreign investors and Indian businesses not being able to capitalise its global presence – a loss-loss scenario.
On the growth potential.
Any country that desires, and designs, to grow domestically and compete internationally needs to increase its production capacity in new technology goods. A country that can export new technology goods can easily raise its market share in the world trade. Economic reform policies should be consistent with these objectives. The timing cannot be more conducive than now; for, the Indian Economy is growing at 7 per cent while the American and European markets are still struggling to recover from the longest ever recession.
Better policy will ensure macroeconomic stability and rapid growth. This is an opportunity to yank the economy out of an industrial and exports slowdown. Since the external environment is “less friendly”, it is urgent to implement policy decisions aimed at rapid and sustainable growth.
The downturn, in the short run, could be neutralised through large public investment in areas such as infrastructure. The government also needs to focus on internal liberalisation encompassing agriculture, the capital markets and the social sectors. Concerted efforts both by the government and industry should be made to establish economic strength of the country.
On economic policy.
The economic policy should propagate full internal liberalisation; domestic companies should be able to set up production capacities as per their own plans. There should be no entry barrier. This would create competition between the domestic companies, and would ensure that the customer gets value for money. By not limiting the size of the plant, world-class and world-scale capacities would come up. What better way to handle galloping consumer prices than by increasing production capacities for domestic consumption.
On focus areas for revival.
The revival of the economy should be sustained through pump-priming. Unlike as in the past, when pump-priming the economy, the additional expenditure should be used to keep down agricultural prices. In the short-run this may need to be done with increased food subsidies.
Simultaneously state investment in agriculture should be raised. This would help increase the availability of food in the medium term. A sustained period of relatively low food prices will keep down overall inflation and leave a greater share of personal income to demand industrial products.
A substantial increase in domestic demand will attract increased production and economic activity pushing up the GDP growth further. Support to Indian industry could then be provided by helping them reduce their costs of production, rather than protecting their higher prices.
The combination of sustained low inflation and exposure to foreign products will make Indian products more competitive. This would improve the chances of reviving export growth. In other words, an efficiently designed exercise in pump-priming can provide an impetus to domestic demand, exports and foreign investment.
The resultant higher growth will provide a higher revenue base for the government. Both industry and the government would have to go through the painstaking job of identifying and removing the elements that raise their costs.
On restructuring that is required.
If the potential is to be fully tapped the corporate sector and the statutory agencies in India must undergo major restructuring. Guidelines that simplify and streamline the long drawn out and unnecessarily complex procedures in our corporate and tax laws have to be developed.
The focus of attention has to shift from mere legal compliance to concentration on the commercial and economic procedural aspects of business. Apart from introducing far-reaching reforms through amendments to the Statute, the government should implement its intention to re-codify certain statues – Corporate Laws, Direct Tax Code, Goods & Services Tax etc. with a more pragmatic approach.
A country of India’s size, ability, people and talent has to go truly independent which can come only from growing economic muscle. Over the last 5 to 6 years the Indian economy has demonstrated enviable resilience and buoyancy as a result of wide ranging economic reforms and closer integration with the world economy.
On the whole, those dimensions of the economy have performed best where reform efforts have been most thorough and far-reaching. We must learn from this experience as we look ahead to meet the challenges of the future.