By Gopal K Agarwal,

Few years back, globalisation was the buzzword around the world. It assumed everywhere that with globalisation, economic development will come automatically. All countries were looking toward means of integrating their domestic economy to the world economy, basically US and European Economies.

How could India be left behind, we also that the world economies have to be integrated. We have to globalize. With the fall of communism, the path became more imретаtive. There was no alternative.

Although in hushed tone, we did talk of alternative ways, but it was not defined. The path was not clear; it was only conceptually delved upon. We were all confused. We formed the opinion that the lofty ideals of Swaraj and Swadeshi had more of a social relevance than economic foundations 

We are at a crossroads now. With failure of capitalism and current global financial crisis, we need to go in details the pitfalls of American Economic Model and how to engage our economy from the current global crisis.

The fundamental difference between US and other economies that the western economy works on consumerism, they are based on high consumption rate and successively increasing it to the tune of even financing it through debts. Currently US have a net debt of five trillion dollars. 

What US is doing is buying Produce from other countries by paying dollars, and this payment of dollars is being met through indiscriminate printing of currency. They have built a system of economic structure through mega institutions like World Bank, IMF, etc. Through this structure, the reserves of other countries are being kept in dollars and invested in US Treasury Bills. The currency, which was issued by US to buy produce from other countries, comes back to US as investments in its treasury bills.

Further, US successively resorting to deficit financing. It has huge budgetary deficit. Annual US budgetary deficit me from 162 billion dollars in 2007 to 455 billion dollars in 2008. On one hand, it’s economists’ adrese other countries to abstain from deficit financing, but it itself is nothing to deficit financing, we need to analyze the purpose behind. Then successively devalues its currency. Thi devaluation helps US to being down value of investments of other countries.

World is supplying produce to US in dollars and then investing its surplus in dollars. The money received by US being loaned to its population with nut proper credibility assessment, which is now being called Subprime lending, in lending without proper security assessment. Which was bound to fail and has failed. This indiscriminate lending itself was helping US to leverage its capital and create asset bubble, which has now buried, and the world has lost trillion and trillions of dollars in capital.

Further US has loose regulasury pro visions with regard to bankruptcy laws and leveraging h has accounting pro cedures and financial instrumens like Over the Counter (OTC) products, which helps it to camondlage the identity of lender and borrower, and helps in asod ing provisions and doclosures of mark to market losses, till the time it chooses to do so.

On the other hand, India is a savings economy. We save more than 35% of our GDP. We have huge domestic market and a very large population. Sixty-five percent of our population is young and working Non-payment of debt is a stigma our country and we have stringent anti-bankruptcy laws.

Fall of America is very certain. Dollar is very weak, but it is holding back only due to its being owned and bought by other countries.

We need to understand Americisuruation and its fall and to take correc ove measures, however difficult and hard they may be Because the konger we wait the situation will be further worsened.

Need of the hout in to desengage our economy from global economy Preserve out domestic market at all cost, take up massive infrastructure development projects, reduce merest rates, reducc indirect taxes, which form a very high consponent.

(The writer is National Convener, BJP Economic cell.)

By Gopal K Agarwal,

Elections have been declared. They will take place between  April 16 and May 13, 2009. As the elections are approaching, there is a frenetic reaching out to all the political spectrum. Many announcements and foundation-laying ceremonies are taking place across the country and across the party lines. Huge promises and schemes are being dolled out but they have neither been properly budgeted nor there is any hope of concrete action being taken on these announcements, Showbiz, is being carried out recently by the UPA government under the Bharat Nirman Programme All these announcements and the schemes of the government are going to put heavy pressure on the resources of the country. The government’s recent measures include excise duty and service tax cuts. Then comes dearness allowance, hike for Central government employees and pensioners, and a scheme to build affordable housing while boosting other infrastructure projects. With the argument of global slowdown, the UPA is content that boosting consumption and investment is a bigger priority today than belt-tightening. The heavy fiscal deficit being resorted to by this government will put heavy strain on the incoming government.

The second important impасt on the economy will be the cost of the election process. It is estimated that the elections will cost to the tune of Rs 10,000 crore to the country, which is more than the estimated expenditure of Rs 8,000 crore on US elections. With the Election Commission being strict on the expenditure limits for the candidates and the parties, lot of unaccounted money will find its way in this channel. This situation will also definitely effect the economy in a big way.

The impending economic gloom throughout the world is definitely having major effect on our country. Our economy is in recession, and there is complete slowdown. The Gross Domestic Product (GDP) growth rate in the third quarter of 2008/09 was declared to be 5.3, year on year (yoy) basis, which is a sizeable drop in relation to 7.6, year on year (yoy) basis in the 2^nd quarter of this fiscal year. The stimulus package which was needed so badly to revive the economy. It is nowhere coming in the near future. There was an opportunity for the government to take action at the time of presentation of the Budget, but the government shunned its responsibility by terming it as an interim budget. Shri Arun Shourie wrote in his article in The Indian Express, “Extraordinary economic circumstances merit extraordinary measures, declares the finance minister in his new Budget, the last one of the government. Now is the time to take such measures.” And then proceeds not to take them at all!.

There are job losses across the country, by falling production indices and mounting defaults. All this is putting pressure on our banks and the financial systems. The corporate sector is in doldrums, which is evident in episodes like Satyam and Maytas. This government has all along refused to recognise the seriousness of the crisis in which its mismanagement has pushed the country’s economy. All its previous actions have brought little results. The prime minister had announced a special package for making Mumbai into an international financial hub. But Mumbai remains as it has ever been. The prime minister had pledged Rs 1,000 crore for this purpose, but till July 2007, as per Shri Kireet Somaiya MP, only Rs 16 crore and 16 lakh had been released. We see exactly the same sequence in regard to the promise that was made in the aftermath of the devastating flood in Mumbai. Not even a special package announced to reconstruct the Dharavi slum has resulted in a single shed of the promised reconstruction and development to come up.

And this outcome is typical across a range of projects. Shri Chidambaram had said that outcome is important; we will come out with Outcome Budget, nothing of the sort happened. He proudly announced that subsidies need to be sharply targeted, but the subsidy Bill has been mounting, without being focused towards the lower echelons of the country. The Prime Minister’s National Highways project of the NDA government, which had given tremendous boost to the economy, has been brought to a gruesome halt. The Fiscal Responsibility Bill (FRB) has been thrown to the dustbin.

As per the Kotak Equities research team, the alarming level of deficit in the late 1980s contributed to the complete breakdown of our economy in 1991. During that period, the gross fiscal deficit was on the average 7.7 per cent of GDP. Now the gross fiscal deficit of the Centre is 6.4 per cent of the GDP and if the off-budget items are included, it becomes 8.1 per cent; and if the state’s deficit is included, it becomes over 10.7 per cent.

The Fll’s are selling heavily in the capital market, which is evident in their daily sales figures as given by SEBI. The dollar is appreciating to a new high each day. On the other hand, the government, in its anxiety to prevent public unrest at the time of elections, is trying to stop the stock market from plummeting further by asking Indian institutions to buy in the market. All these points out to what the future holds for us. This is in a way, providing an exit route to the foreign institutions, and is highly questionable.

The elections also do not give hope of a clear and strong mandate to any one national party. regional parties will be in a deciding position. The situation is quite different than earlier elections when national parties got more than 75 per cent votes and regional parties got less than 25 per cent votes and were limited in number. If in the current scenario public gives a fragmented mandate, India will be in a difficult situation. Our neighbouring countries are in complete disarray,whether it is Pakistan, Bangladesh, Nepal, or Sri Lanka. If there is no strong-willed government at the Centre, our security situation is bound to worsen.

It always sounds good to be optimistic, but unless the people of the country rise to the occasion and analyse the ground level realities without getting carried away by media blitz, and cast there votes, there is a dark period ahead. I hope everybody is listening

The Fll’s are selling heavily in the capital market, which is evident in their daily sales figures as given by SEBI. The dollar is appreciating to a new high each day. On the other hand the government in its anxiety to prevent public unrest at the time of elections, is trying to stop the stock market to plummet further by asking Indian institutions to buy in the market.

The writer can be contacted an gopalagarwal@hotmail.com)

By Gopal K Agarwal,

IN my childhood I read “India is a rich country inhabited by the poor. This statement always pricked my consciousness, and when I read India’s Planned Poverty by Shri Daya Krishna, I was filled with self-pity. My conclusion is that corruption is the root cause of India’s poverty.

The recent discussion on bringing back the Indians’ black money stashed away in Swiss banks will give right stimulus and direction to the debate. Any commitment on the issue by political parties will be a clear message to the masses about their resolve to fight this menace. BJP’s prime ministerial candidate Shri LK Advani’s vow to bring back this money to the country is a welcome move.

In 2006, the revealed Global Financial Integrity Studies, developing countries lost an estimated Rs 43 lakh crore to Rs 51 lakh crore in illicit financial outflows. Even at the lower end of the range of estimates, the volume of illicit financial flows coming out of developing countries increased at a compound rate of 18.2 per cent over the five-year period, analysed by the study. On an average, during the five year period of this study,

Asia accounts for approximately 50 per cent of overall illicit financial flows from all developing countries.

Our people stashed away the money in these tax havens over the last 60 years. What is to be noted here is the fact that most of the wealth of Indians parked in these tax havens is illegitimate money acquired through corrupt means Naturally, the secrecy associated with the bank accounts in such places is central to the issue and not their low tax rates as the term ‘tax havens’ suggests.

Along with this phenomenon. If we put together some other related past events that took place in the country, we will come to know the modus operandi of the people involved and understand how the country was taken for a ride during the current regime. A route was needed to bring this money back through subverting the domestic laws and tax evasion. A unique operation was planned in the form of security transaction tax (STT) in place of capital gains tax.

This black money parked in foreign tax havens was routed through participatory notes and FIIs in Indian capital market. The Indian market got highly buoyed and saw unprecedented rise due to large sum of money chasing equity. The Indian counterparts of these very entities sold their holdings at a very high premium and thereby made huge capital gains on Indian bourses. With the removal of capital gains tax and introduction of STT. this group was able to bring back large amount of black money stashed outside the country and converted it into white without paying capital gains tax and paying little to the government in the form of securities transaction tax. The STT was introduced in the country, although it is detrimental to the Indian capital market. It has completely killed the liquidity and is instrumental in the extreme volatility in the market. All market participants had openly opposed it including National Stock Exchange of India and market regulator, SEBI.

Still we have lot of money stashed away, in foreign countries. We need to bring it back as is being done by crisis-laden Western powers, led by the United States. These countries have embarked upon a mission to force Swiss banks and other offshore tax havens to put an end to banking secrecy and bring back their tax-evading citizens’ hidden wealth. Swiss Banking Association report, 2006 gives details of the bank deposits in the territory of Switzerland by nationals of following top five countries: India $1,456 billion, Russia $470 billion, UK $390 billion. Ukraine 100 billion and China $96 billion. India with $1456 billion has more money in Swiss banks than rest of the world combined. This bank deposit is about 13 times larger than the country’s foreign debt. With this amount, 45 crore poor people can get Rs 1,00,000 each. This huge amount has been amassed from the people of India by exploiting and betraying them. Once this huge amount of black money comes back to India, the entire foreign debt can be repaid, and still we will have surplus amount, almost 12 times larger. If this surplus amount is invested in earning interest, the amount of interest will be more than the annual budget of the central government. Backwardness in our infrastructure, agriculture and other sectors can all be corrected using this money.

Gopal Krishna Agarwal is the National spokesperson of the Bhartiya Janata Party on economic affairs. 

Why drought-hit India needs good commodities market more than ever

THE Prime Minister’s speech on Independence Day recognised that the drought will impact agricultural production. He reiterated that nobody “should go hungry” because of this. But also of concern is the terrible effect that volatility in food prices has on some of the most vulnerable sections of our society.

The price of anything is determined is by demand and supply. If demand is “elastic” it adjusts to the level of supply, leading to rapid price stabilisation. But for agrcommodities, especially food products, elasticity of demand is very low- people have to eat. So relatively small changes in supply can lead to high volatility in food prices.

Another uniqueness of agricommodities in India supply can be artificially manipulated based on geographical area, which can lead to a big price difference in the prices of food items, and thus large arbitrage opportunities.

The classic example recently was the recent fracas over rice. When rice prices started firming interna- tionally, the government banned rice exports to prevent them from rising domestically. Naturally, they fell within India but internationally, they firmed up further, due to non supply of rice from a major source (India). This created an arti ficial, large price difference an arbitrage opportunity.

You could accumulate cheap rice domestically, and then tap contacts in Africa, which through diplomatic channels persuade our gov ernment to issue orders allowing exports to sub-Saharan countries on compassionate or diplomatic grounds. Then sales on the high seas could be used to divert these consignments to various European markets-thereby making huge profits for a selected few.

Similar mechanisms work in domestic markets which are geographically or otherwise dispersed. Then there are rampant, unorganised, and unregulated markets for “controlled” agro commodities in India. “Dabba trading”, or pit trading, also happens in parts, creating a complete chain of intermediaries from top to bottom which restricts when knowledge about prices and open interna- positions to a very few operators manned who could then use it to manipulate from late market prices. Finally, differential transaction charges levied by exchanges concentrate volumes with a few major operators; so most market participants choose an arti- to trade through them (or se dabba traders). This can also create  insider information about open positions. Put together, this helps explain why so many small investors lose money in the commodities -gov-market-and why, in spite of negative inflation, a recessionary economy, and drought that hasn’t hit fully supply yet, food prices in the country are unexpectedly high.

Price discovery for food products should be very transparent across geographical areas, should be without too many undisclosed intermediaries, and should be con- ducted in a well-regulated market. All price-sensitive information should be available in the public domain. Open positions in the market should also be generally known, as they are in well-constructed markets. Position holders should ideally be market intermediaries subject to some regulatory oversight.

The problem is that government times create artificial arbitrage of supply across different areas. This causes massive problems of the sort visible in the discussion about rice and adds to volatility. Fix this: free and fair movability graphical regions. (Sales tax dis- should be permissible across geo-parity should also to be removed. Different sales tax rates on food items in different states will just hold up the development of a healthy nationwide market

The Indian economy, as human enterprise and not value added, is dominated by agriculture. Around seventy percent of our population depends on this segment. A wholly transparent and well-regulated chain must be established between these producers and their consumers. What needs to be done for that? To start off with, well-developed transportation and warehousing facilities are a must. But who is going to invest in that? We are talking of massive infrastructure investment. Without a well-developed commodities market, it will be difficult to find and mobilise the required funds.

All the above objectives can be achieved if the market is brought under a powerful and transparent regulator-perhaps in the form of a Forward Market Commission (FMC). On lines similar to SEBI. Political interference could then be minimal. The regulator needs to be given real power, as well as a clear mandate to develop both the future as well as spot commodities market. The unorganised market should be encouraged to wither away; certainly, “dabba” trading should be scrutinised very carefully indeed for wrongdoing.

India is ready for this. Consumers and farmers are more than capable of taking advantage of a transparent, regulated and liquid market.

Food prices are still unexpectedly high. To fix that, all price-sensitive information should be available in the public domain. Open positions in the market should also be generally known, as they are in well-constructed markets; position-holders should ideally be market intermediaries subject to some regulatory oversight.

The writer is Alternate President of the Commodity Participants Association of India and associated with the BJP’s Chartered Accountant cell.

By Gopal K Agarwal,

GOVERNMENT has to focus on Fiscal responsibility.

1. Over the last few years there is complete indiscipline in the management of budgetary deficit on account of various schemes and not providing them in the budget:

Loan waiver to farmers. Social Security’s Scheme, MNREGS, with rampant corruption and complete disregard to labour and industrial policy.

2. Excess liquidity in the system as a result of: Deficit financing, Corruption and black money.

Causing dilemma to Policy Makers over the tradeoff between Inflation Economic growth.

3. Long overdue Pending Commodities market reforms: The whole Supply chain is in disarray. Large-scale Investment in storage and warehousing facility required through incentivizing Public Private Partnership (PPP) model, Agriculture Produce and Marketing Committee Act needs review, Immediate passing FCRA act in parliament to properly empower Forward Market Commission (FMC).

4. Some anomalies have come into Financial Markets that need immediate attention: Very High cost of transaction at domestic exchanges due to multiplicity of taxes leading to Fight of transaction to international market, Infrastructure investments for making Mumbai as a Global Financial Center, Autonomy of SEBI has to be kept intact and away from intervention of Ministry of finance, Complete removal of Securities Transaction Tax (STT), delinking it from Capital Gains Tax, which is the route being adopted to bring back money stashed in foreign countries by culprits through the Participatory Notes(PN) mechanism, Implementation of Uniform Stamp duty across all states and not link it to GST, which is facing stiff resistance from states.

5.Checking illegal flows and bringing transparency in International financial flows: Signing of Double Taxation Avoidance Agreements (DTAA) with all tax havens, Control over Transfer Pricing so as to check Under and Over invoicing of imports and exports, Put checks and balances in the General Anti Avoidance Rules (GAAR) Provisions, to keep check on draconian powers to Income tax department.

6. Disinvestment of Public Sector Units so that government concentrates on Governance instead of business and these units do not become dens of corruption for the people in power.

7. Issue of subsidy payment directly to the end user in the form of cash through Unique Identification Number (UID). Subsidy should be target driven and not product based.

8. Inclusive growth through structural reforms and not through social security measures. At present 37 per cent of GDP is being used for them and these are being misused to buy votes.

9. FDI in retail and other sectors is a very contentious issue and needs a detailed rethink. Secondly, at present we don’t need foreign exchange reserves to that extent, therefore we can hold ourselves in this matter and change our priorities looking into the requirement of domestic industry and trade.

10. Cooperative sector has contributed a lot to the overall development in the country and therefore has to be given special treatment. And the exceptions that have been withdrawn under Direct Tax Code (DTC) have to be restored, but only for smaller cooperative so that they do not become vehicle of business.

By Gopal Krishna Agarwal,

Inviting foreign direct investment is not the issue, but we need to look at the context of the entire move. FDI at this juncture does not fit the bill as India has a number of domestic issues to tackle. We need to look deeper to understand how and when the investments can really prove fruitful for agriculture and the manufacturing sector. The political and economic conditions of our country in the current scenario also need to be taken into consideration.

The government has launched a campaign to show us the merits of their move, but that’s not enough be- cause it requires proof, which they are yet to produce. When they talk about quality assurance in terms of consumer satisfaction, they also need to project the cost-benefit analysis. For us, isolated product avail- ability is not sufficient. At the end of it, people want to know how many products really benefit them.

The government quotes examples of countries like China and Indonesia, wherein despite no caps on FDIs, the local retailers are flourishing But a reality check shows that China has become the hands of foreigners. The locals may be paid well, but their ownership has been bartered for the price they are paid. The owners have become em- ployees in the hands of foreigners. Do we want the same to happen to India?

Then, what about procurement? The government needs to give a clear picture of where are these firms going to procure the raw material from. Agricultural procurements in the US and Europe are procured at subsidies, and as for China, it procures subsidised raw material for its manufacturing. So that is one point where we need clarity.

There are many more such questions, which have raised doubts in the minds of all. How many companies does India open its market to If it is just the major ones such as Wal-Mart, Carrefour and Tes- co, then it is surely going to kill the market by shutting all doors to competition. And it would be significant to point out the Competition Commission of India is not as functional as it should be. That’s the context being spoken about.

It is our domestic problems which provide a background to the opposition to foreign investments Reports say the net foreign exchange for India is negative. Thus, the government needs to explain how we can turn it around for our benefit and make it positive.

The Indian real estate boom, with its rampant corruption, is not hidden from anyone. So how does the government plan to solve the problem of exorbitant property prices, which scares the domestic investors away? As has been said earlier, India needs to look within and fix its problems first instead of looking out for foreign help.

Chinese owners have become employees nothing but a puppet in in the hands of foreigners. Do we want the same to happen to India?