MONEY NEVER SLEEPS!

SUNNY THOMAS

I create nothing. But I own. We make rules. War, peace, famine, upheaval.  We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you are not knave enough to think that we are living in a democracy, are you buddy? It’s the free market. And you are a part of it. Stick around pal, I’ve got a lot to teach you.   

That’s Gordon Geeko, the god of the Wall Street. He may never have lived but echoes the truth of the time. Time magazine, especially! To Time, all American Presidents are achievers, whether their achievement is one of sending American troops to a foreign land in search of weapons of mass destruction and finally finding none, or pursuing a stupid economic policy that granted tax benefits to the super rich (5%) by snatching health benefits from the less privileged (70%).

German Chancellor Angela Merkel who is hated across Europe is an achiever. So are the British Premiere David Cameron and the fallen French President Nicolas Sarkozy. But Dr Manmohan Singh, who navigates the second fastest growing major economy, is an under-achiever!! Who said it? Gordon Geeko.  

To understand the enormity of Time’s misrepresentation, have a realistic look at the Indian economy. True, the growth rate in the first quarter is a mere 5.3 per cent, the slowest in nine years. The RBI has hiked the interest rates from 4.25 per cent in January 2010 to 8.5 per cent in January 2012, to check inflation. This undoubtedly led to the slowing down of the pace of investments in infrastructure and the manufacturing sector.

The worsening trade deficit because of increased consumption of oil and coal, accompanied by spiraling prices on the international market, made prudent economic management difficult. During the fiscal year ended March 2012, India did extremely well as on the export front: Shipments grew by a stellar 21 per cent to a record $322 billion. But, alas, imports, too, grew even more sharply—by 32 per cent, to $489 billion.

What irked the foreign investor is the proposal to impose a “retroactive” capital gains tax on indirect transfers of India-based assets between foreign buyers and sellers. The government’s backtracking on foreign direct investment in multi-brand retail aroused their suspicion.

India has emerged as one of the world’s biggest grain producers but because of an extremely weak supply chain infrastructure, an estimated 40 per cent of the grains rot before it reaching the consumer. An open door policy for foreign direct investment in retail would help eliminate the rot, permitting higher compensation to farmers, lower prices for consumers, and an even more robust export performance.

Major global economies are nervous on a Euro Zone implosion, while India would remain the least affected. For one, India’s exports to the Continent account for only 3 percent of the country’s GDP. In fact, it would lead to a significant moderation in oil prices, which would benefit India immensely. Even a 10 per cent drop in oil prices would reduce the import bill by an amount large enough to compensate for the likely reduction in direct or indirect exports to Europe.

Every major economy—Europe, the U.S., China, Russia, Brazil—is slowing down, while even at its current pace, India retains its ranking as one of the two fastest-growing large economies in the world. India’s fundamentals remain strong. India’s rate of savings and investment (as a proportion of GDP) remains one of the highest in the world.

Indian labour is nine years younger than China’s, pointing to a lower wage inflation. Adult literacy has risen sharply during 2000-10. With the spread of 3G connectivity and inexpensive tablet computers, India should overtake China in the next 10 years.

India’s private sector remains vibrant, innovative and competitive, judging from the number of billion-dollar acquisitions made in Europe and the U.S.

Seen from foreign investor’s perspective, three things are important. First, the government should open more industries to foreign direct investment, especially in retail and aviation. Second, the government should implement a national Goods and Services Tax (GST) to replace state-level taxes. Third, the government should eliminate the uncertainty on retroactive capital gains tax.

With a slowdown in China, and economic turmoil in Europe and the U.S., this could be a golden moment for India’s economy.