By Gopal K Agarwal,

During the 18th century, imperialism had a physical form. Countries which had military power colo- nased other countries and exploited their resources. Today developed countries exercise control over poorer ones in a more subtle way. International financial institutions act as tools in the overall game plan. The situation is, however, fast changing.

If the WTO is to be true in its objective of opening and liberalising international trade with free market access and without domestic and export subsidy, India would stand to gain. We have to keep in mind that the WTO is about negotiations in international trade. It is not a unilateral charter of demands; it is not our wish list. In any trade negotiations we have to proceed from the present stage keeping in mind our long-term objectives. To accomplish our goals, we should enter into strategic alliance with developing countries with similar concerns. Our emphasis should be on translating the spirit of the Doha Declaration in order to protect the interests of these countries.

We have to protect our agriculture, retail trade and small-scale sector from the onslaught of international manufacturers With growing food production and burgeoning food stocks in India, if we are forced to remove tariff barriers in the agricultural sector, it could create problems. Our negotiators should insist on a minimum import quota based on GDP as prescribed under the Agreement on Agriculture earlier.

The true benefit of the WTO will be achieved in the services sector. We have to push for the opening up of the services sector under Mode 3 and Mode 4- that is, there should be free mobility of manpower across countries. There should be complete reciprocity with developed nations in areas such as accoun- tancy, health services, legal services, tourism and travel services. Mutual recognition agreements should be put in place so that our professionals get recognition and opportunities abroad. In addition, India should negotiate to place agriculture workers on the Mode 4 list.

The basic problem with the WTO is that it is talking of liberal ising international trade through reduction in tariff and non-tariff barriers without emphasizing on reduction in trade-distorting subsidies by developed countries. Another major concern before the WTO is the misuse of TRIPS, or intellectual property rights. There are several cases where patent rights have been given to firms over existing traditional knowledge by the US Patent and Trademark office. This problem is exacerbated by the fact that many developing nations, including India, have not yet managed to document their traditional knowledge

In the area of public health, we should insist on major diseases being brought within the ambit of compulsory licensing. The US, thankfully, has dropped its demand that disease coverage be limited to HIV/AIDS, TB and malaria. This expansion is important from the point of view of India’s health needs as well as the development of our pharmaceutical sector and its exports to other developing countries

Recent attempts by developed countries to push additional agenda issues called Singapore issues such as a multilateral agreement on investment, competition policy, transparency in government procurement procedures, industrial tariff, trade and environment, and labour standards, too, should be resisted.

The notion that India stands to lose under the WTO regime stems from an underestimation of our abilities. We always talk of our glorious past; this is an opportune time to realize it. India today is not what it was some twenty, twenty-five years back- a weak nation at the mercy of superpowers, ruled by a diffident leadership. We should sit together, apply our minds, identify our strengths and weaknesses and negotiate accordingly. The WTO can be a catalyst in the process of reverse imperialism.

(The writer is member, Central Economic Cell, BJP)

By Gopal K Agarwal,

RACHEL Carson, in her R landmark landmark book Silent Spring, has stated that the power of an idea can be greater than political power. In the economic development of country, there are two factors at the creation of wealth and its distribution. Distribution is without doubt very important but unless we create wealth, distribution has no significance.

At present there are a lot of discussions on the direction India’s economy should take. We have so far failed to develop a model suited to our needs. The Nehruvian model emphasised development through centralised planning. The emphasis was on industrialisation, to the relative neglect of agriculture, This process was continued by subsequent Congress governments. There was an over-emphasis on socialism culminating in the 1969 bank nationalisation. This opposition to capital and private ownership led to situation where we started sharing and distributing poverty. The country has to provide work opportunities to everybody but not jobs. Providing job security may only breed lethargy and inefficiency. The government’s responsibility is not in the distribution of the acquired wealth of some individuals but equality of opportunities and distribution of resources.

Economic activities are generally classified into three categories: the primary, secondary and tertiary sectors. India’s developmental module should emphasise the primary and tertiary sectors. This is because 70 per cent of our population live in villages and depend on the primary sector. Agricultural produce accounts for a major portion of our GDP. The overall economic development depends on the purchasing power of our people, which in turn relates to agricultural production. In other words, the demand push developmental model depends on agricultural production. We know that the backbone of our economy is agriculture. The standard of living of people here has to be uplifted. It is agriculture alone which can provide employment to millions of rural youth and help arrest rural-urban migration.

At the national level, rural infrastructure has to be developed by the government, which includes a functioning road network, organised markets, cold storage and warehousing facilities, the availability of capital at low interest rates, and so on. The time has also come to end the subsidies on fertilisers and encourage organic farming practices. This may result in a reduction in yields but research has shown that over a period of four years yields from organic farming increases while that from the use of chemical fertilisers and pesticides decrease. This switch will save subsidies of approximately Rs 1,72,000 crore every year.

In the international arena, we need to protect our agriculture, retail trade and small-scale sector from the onslaught of international manufacturers. With growing food production, burgeoning food stocks, the poor storage facilities along with the demand for increasing minimum support prices, if we are also forced to remove tariff barriers in agriculture we could find ourselves in a spot. Our negotiators should, therefore, insist on a minimum import quota based on GDP as prescribed under the Agreement on Agriculture earlier. Reduction in tariff and non-tariff barriers has to be linked to reduction in trade-distorting subsidies by the developed countries.

Where India does have a comparative advantage is in the tertiary, or services sector. India has a cost-cum-competence advantage in professions like law, accountancy, design, engineering, tax consultancy, financial and IT services. Doctors, MBAS, chartered accountants, nurses, lawyers and many other professionals are available in India at a much lower cost than elsewhere in the world. This is a major strength. Many multinationals are setting up their R&D centers, business process outsourcing facilities and product development centers in India. Indian IT firms can provide world-class services at one-tenth the cost that an US company, for instance, would incur. At the international level, we have to push for the opening up of services sector under Mode 3 and Mode 4, i.e., there should be free mobility of manpower across countries and complete reciprocity with developed nations. Mutual recognition agreements should be put in place so that our professionals get recognition and opportunities in those countries.

What about the manufacturing sector? Building the infrastructure required entails capital expenditure and is risk-ridden in a world where technologies get obsolete very quickly. Take the case of BSNL, which has the world’s most extensive networks of copper wire. But this may no longer be an advantage since people are switching rapidly to wireless telephony. It makes sense, then, to concentrate on developing the agriculture and services sector.

(The writer is member, Central Economic Cell, BJP)

By Gopal K Agarwal, 

Two sectors the government is focusing on are agriculture and small scale industries

Recently India has embarked on a growth path unprecedented in the past. There is criticism from some quarters about its benefits being concentrated to small groups. But this ‘feel good’ factor has been attributed to the policies of the present BJP-led NDA government. The main contribution comes from good governance, a clear foreign policy, the economic reform process moving in the right direction and infrastructure development. This has led to wide economic activities, creating a push in demand and development in the manufacturing and services sector. It is reflected in the stock market boom. The world looks towards a resurgent and confident India.

The main task before the government now is to build on this confidence by furthering infrastructure development and implementing policies so that this growth continues further. The emphasis must be on wider distribution of its benefits. If a section of society cannot directly benefit from this growth, they must be provided support in the form of social security measures. Roopa Purshottam, co-author of the much talked about BRIC report of Goldman Sach, argued that to realise its true potential, India requires a lot of investment in sectors yet in the nascent cycle, like power, defense, telecom, oil and path gas exploration. The banking sector also calls for attention and the credit cycle should go forward. There should be a focus on sectors. But that are consumer-interest intensive Positive forecasts will not hold good if labor reforms are not. introduced. Anne Kreuger, first comes deputy managing director of International Monetary Fund form (IMF), has said that while fiscal imbalance was not the only impediment to growth, its reduction was important to encourage growth and reduce poverty in developing countries.

Joseph Stiglitz advocates the need to scrutinise the term globalisation. Opening up countries to more trade is good; opening them to unbridled capital flows is bad. Tariffs must be reduced and developed countries should open their fit markets to developing countries. Inefficient public enterprises must of be privatised, not efficient ones. Privatisation isn’t about raising revenues for government but about increasing productivity in the economy. Care must be taken not to replace public monopoly with private monopolies.

The 10th Planning Commission document warned that the infrastructure won’t be able to provide jobs for new entrants or clear the backlog. Fifty-four per cent of the India’s population is under the age of 25; a majority have no inclination to work in the agriculture sector.

Two sectors the government is focusing on, and which have potential to sustain growth and its proper distribution, are agriculture and small scale industries. The agricultural sector requires the followingand allowing leasing of agricultural land; developing cottage industry to promote the village economy and stop the flow of rural population to the citiesimproving water management organizing private markets providing better storage and warehousing facilities, improving the rural road network; implementing crop insurance facilities; providing improved seeds to farmers, establishing research centres in agriculture  technologies and disseminating knowledge to farmers, giving credit facilities at low interest educating the farmer in patenting and intellectual property rights and promoting organic farming.

In the small-scale sector the proposed reforms are: Providing guidance vis a vis the induction process for the entrepreneur, conducting market survey reports for small industries; setting up laboratories for the analysis of raw mate- rial; branding the product; creating a cell in the government for legal assistance; framing taxation policies giving concessions for emastries. ployment generation; requesting equires RBI to earmark funds for SSIs; Imple- providing an exit policy, preventing reserved items from being ille- Leasing gally produced by big industries; loping preventing industries from going te the to BIFR without clearing SSIs dues; making provisions for revival of SSIs under RBI guidelines; monitoring banks for credit delivery and financing.

Some steps are also required in the capital market. The sensex has become the barometer of economic progress. The current ovid- volatility must be curbed. The rally house is being fueled by FII money. Rural. Some stabilising fund is required in case of a sudden exit of FIls.

With all the macroeconomic factors pointing towards a robust Indian economy, we hope to build on the current confidence and make it a global superpower by the year 2020.

(The writer is member, Central Economic Cell, BJP)

By Gopal K Agarwal,

The turnover tax is III-advised as all transactions do not lead to profit

IN its first Union budget the United Progressive Alliance was expected to give a clear direction to the economy of the country. The UPA government had inherited a healthy economy with very strong fundamentals, burgeoning foreign exchange reserves, economy growing at more than 8 per cent annually, fiscal deficit and inflation under control and a booming stock market. All were the result of economic policies followed by the previous NDA government. There is no doubt that there were certain sectors like agriculture and small-scale industry which needed some drastic steps and had been identified by the NDA for focus in the coming period but the NDA lost the elections. Thus, everybody expected the Congress and its allies to clarify their policy on each of these issues.

The Indian economy in at a critical juncture. Internal contradictions at the government due to differences in the economic views of the Congress and the Left do not leave much room for innovation. This is evident from the criticism of the budget by the Left Front.

In his budget speech, the finance minister paid a lot of lip service to rural development the there are no concrete provisions or policies. Almost all the policies of the NDA government are being continued. But instead of going support to the small-scale sector, 85 items have been dereserved Second, he has spoken so much on education and imposed a cess of 2 per cent scates the board on all taxes, but it has not been clarified ut to how this fund will be spent In our bureaucratic set-up imple mentation has always been a prob lem. If the government does not specify how the benefits will be delivered to designated beneficiaries, no amount of good intentions will bear results. If all these hands are left to the states to be utilised as they see fit, certain failures would appear inevitable. Third, the finance minister has announced that a consortium of private banks will give loans to the tune of Rs 40.000 crore for infrastructure development. This kind of announcement regarding intention of the private banks has no meaning as these will be commercial decisions and the credit can not be taken in the budget. Fourth, announcements with regard to water conservation, that wells, ponds, etc, will be revived, is also an eve-wash, as thus will be done over a period of 10 years and that too without any fund allocation

To meet his revenue requirement ment the finance minister says there will he a 40 per cent increase in revenue collection from the corporate sector without any increase in tax rates. He plans to achieve this through stricter compliance of tax laws. This may strike some as highly unrealistic.

After criticizing the NDA government on disinvestment, the UPA is to continue with disinvestment of NTPC. It also proposes to raise FDI caps in three sectors, including telecommunications which the NDA was reluctant to do.

Conomions on taxable income up to Rs 1 lakh have created some confusion. It would have been much better if, instead of this, the basic exemption limit of Rs 50,000 had been increased. The current change will create resentment amongst those whose income is slightly higher than the cut-off mark. The increase in service tax by 25 per cent of the earlier level 8 per cent to 110 per centy will also have an inflationary effect. Service tax has a cascading effect and the government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Moreover, increase in excise on steel will abe be inflanon ary as this basic metal and this will have repersime to the housing sector.

There is a big blow to the securities market by the imposition of an unreasonable as on all transactions. The transaction tax in illad voed, as, first, all transactions do not lead to profit. Second, 80 percent of the stock market turnover is either arbitrage business or jobbing transactions at a very meagre price differencs of as low as Rs 0:05. Thus will lead to a complete erosion of Inquility in the market which is very casential for true and bar price decovery and reduang impact cost (that is, the effect of bulk purchase order on the price of a scrip). Even without this step the market was very nervous about the policies of the UPA government and the influence of Left partisan economic policy.

The low interest regime of the NDA government, which was a major factor facilitating industrial development and growth in the housing sector, etc, is showing signs of reversal as interest rates are firming up. If this government does not take major initiatives which are missing in the budget, the impact on the economy could be severe.

(The writer is member, Central Economic Cell, BJP)

FM has paid lot of lip services to rural development without concrete announcement of policies, says Gopal k  Agarwal

The Government has turned out to be a damp squib. The Congress and the Left, earlier highly critical of the economic policies of the NDA Government, were expected to give a clear direction to the country’s economy. The UPA Government inherited a healthy economy with very strong fundamentals, burgeoning foreign exchange reserves, a economic growth of eight per cent, fiscal deficit and inflation under control and a booming stock market. All these were the result of the sound economic policies pursued by the NDA Government. Everybody expected the Congress and the Left Front to implement their distinct policy statements in this Budget. However, the ideological differences in the economic thinking between the two does not leave any room for economic innovation. This has come out very clearly in the criticism of the Budget by the Left Front.

First, in his Budget speech. Finance Minister P Chidambaram paid a lot of lip services to rural development without concrete announcement of policies. Almost all the policies of the NDA Government are being continued. Instead of providing support to the smallscale sector. 85 items have been dereserved.

Second, Mr Chidambaram has spoken so much of education and has imposed a cess of two per cent across the board on all taxes, but he has not spelled out as to how this fund would be spent. Will this amount be in addition to the amount earmarked for education earlier? In our bureaucratic setup, implementation of policies has always been a problem. If the Government does not specify how the benefit will be delivered to the actual beneficiaries, all the good intentions will not bear fruit.

Third, Mr Chidambaram has announced that a consortium of private banks will give loans to the tune of Rs 40,000 crore for infrastructure development. Announcements regarding intentions of the private banks will have no meaning as these will be commercial decisions, and its credit cannot be taken in the Budget. Fourth, in the field of water conservation, Mr Chidambaram’s announcement that wells, ponds, etc.. will be repaired and renovated is also an eyewash as this will be done over a period of 10 years and that too without any fund allocation.

To meet revenue requirement, Mr Chidambaram has stated that there would be a 40 per cent increase in revenue collection from the corporate sector only without there being any increase in the tax rates. He plans to achieve this through greater and stricter compliance of tax laws which is unrealistic and impractical.

After criticising so much the disinvestment policy of the NDA Government, Mr Chidambaram, in continuing with the disinvestment of NTPC, a profit-making company, has also announced the setting up of a disinvestment commission.

The Left Front’s rhetoric of opposing FDI in strategic sectors has been given a raw deal by announcing increase in FDI in all the three strategic sectors of telecommunication, aviation, and insurance. Telecommunication is one sector in which even the US does not allow majority holding to foreign investors.

Tax concessions in income tax on the taxable income of up to Rs 1 lakh is creating confusion. It would have been much better if instead the basic exemption limit of Rs 50,000 was increased. This will create resentment to anybody having even a slightly higher taxable income of more than Rs 1,00,000.

The increase in service tax by 25 per cent of the earlier level of (eight to 10 per cent) will also have an inflationary effect. Service tax has a cascading effect and the Government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Further, increase in excise tax on steel will also be inflationary as it is a basic metal for infrastructure development. and will harm the housing sector too. The imposition of the anretisonable transaction tax on all securities transactions came as a big blow to the securities market. It seems the Government has not applied its mind as to whether this can be absorbed or will it completely kill the capital and bond market. Transaction tax is bad as every transaction does not lead to profit. Second, 80 per cent of the stock market turnover is through either arbitrage business or jobbing transactions at a very meagre price difference of as low as five paisa. This will lead to complete erosion of liquidity in the market which is very essential for true and fair price discovery and for reducing impact cost (that is, the effect of bulk purchase order on the price of a scrip).

The low interest regime of the NDA Government, which was a ma- jor factor in facilitating industrial development, housing sector, etc., is showing signs of reversal as interest rates are firming up. If the UPA Government does not take major initiatives, which are missing in the Budget, then we may soon see reversal in the country’s economy.

(The writer is member, Central Economic Cell, BJP)

By Gopal K Agarwal,

India had draconian tax laws which harassed honest taxpayers Compliance was difficult. Non-compliance was at a premium and led to generation of black money, which was not available for investment and economic development. There was a growing understanding that if the government has to increase tax collection, more people have to be brought under the tax net.

Government recognised that this requires simplified and ra- tionalised procedures Laws must be made less draconian. the tax department friendly to the assessee. Successive budgets were moving in this direction. The NDA government set up the Kelkar Committee on tax reforms. The widespread discussion on its recommendations helped in creating a positive environment.

The government has to work with the premise that citizens are honest and law-abiding, any action against them can be taken only when proved guilty. This is a basic law of jurisprudence and will have to be adhered to, or the re is a danger that the country will see a rise of state terrorism, wh ich will justify all action under the guise of enforcing compliance.

Certain provisions in the recent budget amount to state terrorism. The finance minister is creating an extremely unhealthy environment for taxpayers. He has been directing tax officials to ensure increased tax revenues. They have been given targets.

These targets are passed down the line. The officials work out a collection strategy and identify parties from whom mobilisation can be done. The income tax of officer is revenue-minded and makes an addition to a taxpayer’s account in order to meet his mobilisation target. The Commissioner of Income Tax, Appeals, is revenue-minded and upholds orders passed by the income tax officers.

The taxpayer approaches the judiciary. The nightmare gets worse when the finance minister wants to influence the judiciary so that it does not grant any relief. Taxpayers are informed that an addition is being made to their income and unless they pay up, their assets will be attached. If they protest they are told that they can go in for appeal to have the additions reversed and have their assets released. The situation is tailor-made for extortion Further, the FM has directed the tax department to resort to harsh measures like surveys and raids. The victim pays a huge amount of money to be allowed to carry on with his life and business. Laws like informing the tax department of any purchases above Rs 50,000 can only lead to harassment of the general public. It is not just applicable to single transactions but to the aggregate amount. Even assesses who will pay no tax will be included, the report will have to be in a computer-readable form, and figures relating to the beginning of the financial year would have to be furnished.

TDS was to be implemented when the tax information network was complete. People were to be protected from the hassle of seeking TDS certificates by having TDS deductions reported directly to tax authorities and entered into a central database. Each taxpayer would have access to the database through a Permanent Account Number (PAN) identification and password. The database is nowhere in sight, but the budget has gone and changed the TDS reporting requirement. Amendments to section 203 and Section 203 AA say that TDS details should now be sent to the income tax authority or a person authorised by it and no certificate is required to be issued to the person whose tax is deducted. This means that people whose tax is compulsorily deducted will not even have a piece of paper to prove their tax payment. And they will be at the mercy of income tax officials to get TDS certificates.

A new section, 277A, has been introduced in the Income Tax Act, where the assessing officer for the purpose of filing a complaint of prosecution u/s 277A, has to simply record the intention of the third party to abet the tax evasion and not to substantiate his charges. The explanation to the proposed section provides it shall be sufficient in any charge to allege the general intent to enable such other person to evade any tax, penalty or interest.

Explaining the concept of tax on securities’ transactions, FM said in his budget speech that it is to simplify the taxation of capital gains. The new proposals are neither simple nor revenue yielding. To keep track of such transactions and ensure that the tax payable is correctly worked out and paid would be an uphill task. The objective of generating more money for the government would be frustrated.

Service tax is in the form of double taxation and has a cascading effect. It is successively being increased without relief in the direct income tax. The government will have to make laws simple, non-draconian and introduce checks on the income tax officials. The only way India can be a true welfare state is by providing economic freedom to its citizens. Else, all the rhetoric about the government being a welfare state is merely lip service.

(The writer is a member BJP’s Central Economic Cell)

By Gopal K Agarwal,

UPA should set its priorities right and stop ignoring questions of national interest, say

It’s time the citizens of the coun I try took a firm decision They should either accept the hypocrisy of the current regime with regard to policies like secularism, economic reforms and creation of employment opportunities on the one hand and its indifference to in ternal security on the other, or they should prepare to confront the Government to answer certain ques tions before the nation.

Everybody will accept that there cannot be any compromise as far as the security of the country is concerned. It is an established fact that Pakistan is involved in cross-border terrorism and India has been trying to convey this to the whole world. But the recent joint statement of Prime Minister Manmohan Singh and President Musharraf was conspicuously missing the above point. It seemed to convey a shift in India’s stand on the issue. There is a sudden spurt in violence in the Northeast, where Pakistan’s ISI’s involvement is suspected. But both the Home Minister and the Defence Minister seem helpless about it.

More worrisome is the Congress’s dillydallying on the issue of illegal Bangladeshi immigrants. General SK Sinha, the former Governor of Assam, in his report to the then President, had pointed out that large-scale illegal immigration from East Pakistan (now Bangladesh), over several decades, has been altering the demographic complexion of the State. These demographic changes are a major cause of concern, he had further pointed out, which can lead to severing of the entire Northeast from the rest of the country. This will have disastrous strategic and economic consequences. Even countries like Malaysia have taken a tough stand on the issue of illegal immigrants. But our Government, in its zeal to please the minority, cannot take tough decisions.

The Congress is resorting to the rhetoric of its “secular” credentials and hypocritically trying to please the minority. It has set up a commission on the reservation for minorities. which was stalled by the Election Commission. Further, the announcement of reservation to mi norities in Andhra Pradesh was quashed by the High Court. I must add that all the rhetoric about secularism by these people is based on deception, of which all of us are well aware. Yet it persists.

Most people of the country will agree that we need a strong and effective law to combat terrorism but this Government has repealed POTA and has not brought any law in its place. The Government could have modified some provisions. The discovery of explosives in the form of scrap shows the recklessness of our Government in handling the sensitive issue of internal security. At the present juncture, any compromise with the internal security of the country is unacceptable and the Government should come out with a firm stand.

Internal security is not the only issue of concern. A lot of confusion has been spread about economic reforms mainly due to differences in thinking of the Congress and the Left parties- whether it is foreign direct investment, PSU’s disinvestments or panel of experts in the Planning Commission. If India has to progress economically, it requires a clear-cut direction and roadmap.

Then, look at the hypocrisy of the Left. In West Bengal, they are taking help of foreigners, but at the Centre, they are opposing it. They don’t want the disinvestment of PSU’s and want to keep them as their fiefdom. The Left would like them to bleed and would continue wasting the exchequer’s money. People know that many of the PSU’s are being misused by ministers and are working with complete inefficiency to the extent that they have not even completed their accounts for several years Such wastage of money will con- tinue. The Finance Minister wants to unleash a reign of terror in the name of tax collection. He is giving draconian powers to raid, harass and confiscate properties of the taxpayers to a level of an inspector in a department which is known to be the most corrupt of all the Government departments.

There are many major issues where the present Government should concentrate-like controlling spiralling inflations, creating employment opportunities as promised. putting new life to road construction. building social security network. keeping the rising interest rate under control and, most of all. Strengthening internal security. But it diverts public attention by raking up emotive issues like removing Veer Savarkar’s plaque from the Cellular jail, arresting Ms Uma Bharati on the issue of hoisting Tiranga, making noise over detoxification of the educational system. All this while it could have easily reviewed the portions which it found objectionable. It is going to the extent of creating a situation in which the Opposition is provoked continuously, especially when the Leader of the Opposition is not allowed to speak in the House. The Opposition is further provoked when a group of ministers is set up to review every decision of the past Government.

It is time the Government got down to constructive work. It must get rid of vindictiveness and authoritarianism and stop victimizing people of different ideology. By appointing its own persons, the UPA Government is being instrumental in destroying some of our great institutions which have been established by our forefathers.

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