With announcements over the last couple of days, the Government of India has rolled back the FPI tax, super-rich tax, Angel Investors tax and Criminalization of CSR contribution. In addition, Rs. 1.76 lakh crore from out of the capital reserves of the Reserve Bank of India (RBI) was paid to the Government of India. A lot of sectors were opened for investment through the FDI route including 26% in Digital Media. Will this arrest the economic slowdown? In my view it will not; not in the current situation. India Inc. needs a lot of liquidity in the hands of the people of the nation. Liquidity right now means money in the hands of rural as well as urban people.
A lot will depend on where and how the Government will spend 1,76,000 crores. If it spends it on revenue account payment of pending bills of the private sector and refund of GST, it will come back into the system and the liquidity will be solved temporarily; it will not, however, generate employment or have a money multiplier effect. But, the pending bills of the private sector from the Government and refund of GST, as I understand, is 3 times more than 1.76 lakh Crore. What about the rest of the pending amount? With the payment of 1.76 lakh Cr, the reserves balance with RBI currently stand at 7.25 lakh Crore. Will the RBI release further payments to the Government remains to be seen. If it spends for infrastructure, it will create employment and the domino effect of money circulation maybe ten times of 1.76 lakhs Cr since the private sector and individuals will be the beneficiaries of this money. But, for the present situation, this is too little and maybe too late.
So, what’s the alternative for the Government to revive the economy immediately? This time I agree with Dr. Subramanian Swamy’s 5 robust suggestions to revive the present economic situation:
- Abolish personal income tax – This will bring extra liquidity in the hands of individuals who are paying tax right now, irrespective of what they do and how they earn the money. The free flow of money in the hands of individuals means more buying power. Rest you know what I mean. A large number of people will lose jobs in the Income Tax Department, but the majority of them are corrupt and it is better they lose the job for the larger benefit accruing to the Nation’s economy. Corporate tax must, however, continue.
- Reduce bank prime lending rate to 9% – Absolutely correct. This will again bring money into the hands of people and enterprises. People can borrow at 9% and invest in housing, buy vehicles, invest in business, manufacturing, share market and more which in turn can generate employment in the Real estate, Rural Development, Automobile and many other sectors, which have bitten the dust right now. Banks must be taught a lesson – they must learn how difficult it is to earn money – they must earn their salaries and huge overheads; let them find a way to generate revenue other by than lending to generate money to pay their salaries, rent, and other administrative expenses and recovery of funds spent on posh branches. (Pitiful is the fact that most of the branches do not have a photocopier and they send the documents containing confidential information to outside vendors).
- Bring the term deposit interest rate to 9% – This move will bring money to banks from individuals spread across the globe including India. NRIs will transfer funds, Resident Indians will save the money because it’s in our DNA to save and without taking a risk we can earn on our deposits. Banks can lend more money to the MSMEs who in turn will create a multiplier effect in money circulation in the hands of rural as well as urban people.
- Tax deductions to Corporates in R&D and Employees Children education expenses for 10 years – This will create huge employment in various fields like science and technology, agriculture, farming, sports, entertainment, media innovations, Nature related developments, education, health and pharmacy, and many more sectors.
- Print Notes for infrastructure Development – Yes, instead of distributing dividends, print notes on the basis of reserves of RBI. There won’t be inflation, in fact, it will be reversed – the GDP will grow in double digits, economy will revive, India will be a place for global investors, better infrastructure- roadways, railways, waterways and airways, 24×7 water and electricity supply, ease of doing business, ease, and quality of life. This will trigger a lot of people to halt migration from villages to the cities and from cities to abroad. In fact, people will probably find a way to come back to their motherland and involve in multiplying wealth for themselves as well as fellow Indians.
All the above must be done at once and not like demonetization. I will add one more thing here; the Government or rather the GST Council must fix GST at 5% on all goods and services. When you abolish the personal income tax and reduce GST to one rate across the country, see for yourselves how people will be involved in taking India to a USD 5 trillion economy in the next 5 years. There will be a smile on the face of every Indian and the present political party to which Dr. Subramanian Swamy belongs will come to power even in 2024. This is what I believe. Jai Hind.
About the Author
CA Valerian Dalmaida is a Fellow Member of the Institute of Chartered Accountants of India, residing in the UAE and practicing as a consultant for an accounting and advisory firm in Abu Dhabi. He has more than 38 years of experience in accounting, finance, banking, investment and advisory services.
