The slew of policy announcements in recent weeks have been implemented more by “stealth than by design,” said a senior economist on Friday. Speaking at a seminar on economic reforms, organised by the Bangalore Chamber of Industry and Commerce, M. Govinda Rao, Member of the Prime Minister’s Economic Advisory Council, said the recent measures, especially those related to relaxation of controls on foreign direct investment (FDI), “are more symbolic than real.” Dr. Rao, who is also Director, National Institute of Public Finance and Policy, said Indian industry, which had been gloating on the country’s “economic fundamentals” just a few months ago, no longer talks about them. “The serious deceleration of growth, coupled with high inflation, is only part of the problem,” he said. The decline in value of the rupee, the “fast depletion” of foreign exchange reserves, and the widening current account and fiscal deficits were an indication of a deeper malaise, he argued. He blamed sections of industry that acted as “vested interests” in their approach to the reform agenda. “Industry has failed to adopt a systematic approach to reforms,” he said.
“Where is the money for private investment,” asked Dr. Rao, referring to the decline in household savings as well as savings by foreign entities in India. The current account deficit is about 4 per cent of gross domestic product, about the same level as in 1991, when the country faced a major crisis. “The only consolation is that we now have foreign exchange reserves of over $200 billion, but that can vanish in no time,” he observed. The “massive” gold imports, he said was because of the negative real returns on financial savings by households.
Dr. Rao said the “so-called” public private partnerships (PPP), which are meant to ensure that risks are shared, have failed to take off because the private companies are “unwilling to take risks.”
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Disagreeing with the recent report of the Parthasarathi Shome committee on General Anti-Avoidance Rules (GAAR), Dr. Rao said “Retrospective changes in tax laws are not right, but to say that we will permit tax evasion and the use of tax havens is just not right.”