A letter to the readers from K N Govindacharya
My beloved friends,
I sincerely wish a good health to all of you in the global pandemic of Covid-19. The danger, due to Covid-19, has emerged not only on the physical health of human race but also many questions ensued to the existing systems established by the modern human society.
How come our country can be untouched to these problems?
We might have been utilising the lockdown period in our own creative ways. Similarly, my colleague, Dr Surendra Singh Bisht, was showing his keen interest on writing some of his research on the current economic situation of our country. This lockdown period has given him enough time to rethink with deeper understanding and to write few suggestions. After reading these suggestions, I am well convinced that there are some reasonably good remarks inline to the current situation and economical condition of our country.
Therefore, his findings must have to be shared with the Thinkers and Economist friends of our country. It is my humble request to all of you that we should think on these suggestions broadly without having our previous biased thoughts.
I request all of you to kindly share your views and suggestions with me and with the writer in order to further improve these suggestions. I am sure that you would also have some deep understanding and valuable thoughts on the economy of the country therefore you are requested to exchange some of your own ideas with us.
Anxiously waiting to hearing from you.
K N Govindacharya
Article Written by: Dr. Surendra Singh Bisht
Declaimer: Requesting, do not consider these recommendations as a solution to the problems arose due to Covid-19 pandemic because it was planned earlier to write on this topic before the Covid -19 pandemic came into picture.
The GDP of India has not been at par in last couple of years. The growth rate of India has fallen down to 4.2% in last financial year 2019-20 and it is expected to be less than 2% in the current financial year 2020-21. If India is looking forward to become free from poverty and to become global financial power, then it will have to maintain an average 10% of growth rate of GDP for next 1o years with strategic planning inline to its internal vim. Many intellectuals – right from political leaders of the governments to their economic advisors, from renowned economists of country and abroad to social thinkers etc. are advising to the Government regularly to accomplish this goal. Therefore, making any opinion, among the galaxy of these intellectuals, is nothing less than to show a torch to the sun. But will I still dare to express my views in front of all of you considering that it is my fundamental responsibility for my nation. In these suggestions two things have been taken care
1) These recommendations do not direct to be dependent on foreign investments (FDI).
2) Also, these are not inline to increase extra financial burden on the budget of central government.
I am purposefully putting these suggestions in reverse order considering that simple issues to be taken earlier and complex issues, require some brainstorming, to be put later. Let us now come directly to the points –
10-As per the recommendations of Finance Commission, untied fund distributed to the Gram Panchayat (Village Council), must be advertised as rigorous as Pulse Polio.
In 2012, Shri K N Govidacharya, demanded that central government must distribute 7% fund of central budget directly to the Gram Panchayat so that Panchayats can implement this fund to their specific requirements. Later, 2 Trillion (2 Lakh Caror) rupees have been directly provided to 2.5 Lakhs Gram Panchayats for five consecutive years during 2015-2020 on the recommendations of 14th Finance Commission. Means, each Gram Panchayat has received average 80 Lakhs rupees. It was untied fund other than the fund received by different central government schemes like MGNREGA. The policies, related to the expenditure of this fund, has to be developed by Gram Sabha. There is possibility to increase this fund more than the double as per the recommendations of the 15th finance commission. Means, each Gram Panchayat now will receive rupees 160 Lakhs in place of 80 Lakhs for per 5 years or 30 Lakhs per year. Did any significant development come into notice in Gram Panchayats by the utilization of this amount? More than 80% of the sanctioned fund goes into the personal pockets of the political leaders of the ruling parties of central and state, bureaucrats, head and members of Gram Panchayat etc. If this fund is properly utilized for the welfare of the villages then only any significant development will be seen.
In this subject, there are two simple suggestions – i) The policy of expenditure of this amount must be made under the supervision of the Gram Sabha and its implementation is taken care by the Gram Panchayat. ii) The transferred fund must be rigorously advertised like Pulse Polio; every year in February after the budget session, announcements about this scheme should be made through various media at least for one month regularly. This year it can be started either in May or in June then its extraordinary impact can be seen.
9. Negotiable Warehouse Receipts (NWR), the scheme of central government, must also be advertised like Pulse Polio
In 2007, Government of India has passed an act called Negotiable Warehouse Receipts (NWR) to insure that the substantial price of the crop to be received by the farmers; it is implemented since 2010. According to the act, farmers can store its crop in warehouses and receive the bill for the same. The banks may sanction loans on the warehouse bills. When the proper price of the crop in market will meet then the farmer may sell its crop and pay the loan of bank and rest of the profit will be take home. This scheme is very good but it is trapped in bureaucratic system. Only 1,705 crores rupees’ loans have been sanctioned during 2011-2019 under this scheme. Only a drop of the bucket is utilized so far. Profitable income of farmers can be insured every year by distributing billions of rupees’ loans to the them. If government is really serious in welfare of farmers, then this scheme must be implemented properly. It is relatively easy in the age of digital India. The central government must pass formal orders to the banks to sanction loan against the receipt of the warehouses by digitizing under this scheme for its proper implementation. At the same time, it should be advertised rigorously for one month every year like Pulse Polio. This will lead to reduction in exploitation of farmers, increment in income of farmer along with the business in rural market. As a result, there will be exponential growth in GDP of country.
8. Government must appreciate inter-cropping in sugar cane etc. to be self-sustainable in producing Pulses and Oil seeds
India slowly has become dependent on the import of edible oil in last 20 – 2 5 years. Now, 70% of total requirement of edible oil is imported. There was import of 15 million Tons of edible oil in 2018 -19 which has the cost of approximately 70000 crore rupees. Similarly, import of pulses has been reached to 25% in last 10 to 12 years. It is something very serious and pity situation for the agrarian country. In last budget, central government has promised to promote zero budget organic farming established by Padma awardee Shri Subhash Palekar Ji. This can be considered a great initiative only if it will be free from the clutches of agriculture scientists and associates of Sangh Parivar in governing bodies. Palekar ji has successfully developed unique methodology to grow pulses and oil seeds along with sugarcane, cotton, nutri-nugget, trees etc. The beauty of this methodology is that parallel crops can be grown without compromising with the main crop. It means additional cropping on the existing crops of sugarcane etc. at same amount of land can be achieved by inter-cropping. Government of India can make country self-sustainable again in producing Pulses and Oil seeds by advertising inter-cropping properly. Palekar ji tells that there will be a net profit as sugar cane with inter-cropping because the cost of cropping will be governed by the inter-crops only. If central government rigorously advertises inter- cropping methodology once in a year in media like pulse polio, then we will not only be self-sustainable in Pulses and Oil seeds in next decades but also billions of foreign currency will be saved. That money will reach to the farmers of India every year and it will be further utilized in domestic markets.
7. Government must complete dedicated freight corridor by 2024.
In 2006, Government of India proposed two eastern and western corridors to reduce the problem of increased traffic in railways and to ensure timely transportation of raw and finished products. Later, the work on corridors has been started on 2009. Eastern corridor has to be constructed from Punjab to Kolkata and western corridor has to be developed from Delhi to Mumbai. The construction of these corridors has been however started 10 years back but none of the two corridors completed yet. Now, government has proposed four more corridors. From Delhi to Chennai and from Mumbai to Kolkata. Similarly, Kolkata to Chennai and Chennai to Goa. According to me last two proposals to be dropped.
The traffic of transportation of materials has been increased on roads with the time due to increased burden on rail tracks. Currently 80% of materials supply is being done via road. Freight transportation via railway is inexpensive and it helps in reducing the dependency on imported petroleum products. Therefore, dedicated freight corridors have multiple advantages for India. At moment, reduction in unemployment is the additional responsibility for the government apart from taking country out of the economic recession. We do not have any problem of resources and technology to complete the work of these corridors except strong will power. It is therefore our humble suggestion that the government must have to make better policies to complete these freight corridors.
If government targets to complete western corridor by 2021, eastern corridor by 2022, Mumbai to Kolkata corridor by 2023 and Delhi to Chennai corridor by 2024 then it will help in taking out main industries from the recession, many people will get employment and after completion of these corridors, the country will save thousands of millions of rupees due to reduction in imported petroleum products.
Therefore central government must immediately create a task force to complete the dedicated freight corridors by 2024 for the long term benefit.
6. Price of diesel – petrol etc across the country must be fixed
In last suggestion, we have pointed to complete four dedicated freight corridor in four years. Now Question arises, from where the money will come? The first answer is to keep the price of petroleum products at a fixed price.
From 2012 to 2014, the price of crude oil in global market was very high. The price was once reached $113 per barrel in 2011 and $111 per barrel in 2013. Fortunately, it is below $60 per barrel from 2015. Last year it reached above $60 but in 2020 came down below $50 per barrel. Now due to Covid19 pandemic it reached at its lower of last 20 years. It is again a good time for the central government. Countrymen have purchased petrol up to 80 Rupees per litre last year. Now crude oil is very cheap.
As per the interpretation of world recession, the price of crude oil will remain below $50 per barrel. Central government can fix price of petrol between rupees 75 – 80 across the country and it should keep the price fixed till price of crude oil does not reach $100 per barrel or above. The government will have to make term for dynamic pricing to implement this. This will be helpful in two ways: 1) the central government will get enough money to continue all the development work necessary to deal with the recession and 2) if the price of petrol and diesel remains constant between 75 and 80 it will motivate people to purchase electric vehicles because driving electric vehicles will be inexpensive than that of conventional vehicles. And in future, when the numbers of electric vehicles will increase then the import of crude oil will be less. As a result, this will help in saving billions of rupees.
It is therefore our recommendation to central government to immediately make decision of maintaining the price of petrol and diesel nearly rupees 75 or 80 without caring to charm its face value for short term rather should focus on multiple and long term gain of country.
5. Central government should make policies to approve subsidized loans on 90% price of electric vehicles maximum up to rupees 15 Lakhs.
Solar power has become blessing for the India and electric vehicles are going to be in future. Currently, the market price of electric vehicles is one and a half or two times more than that of the price of vehicles with petrol and diesel. Therefore, on road expenses of electric vehicles are more. Government will have to make important steps to maintain the running cost of electric vehicles and petroleum vehicles closer to each other. One step we have already discuss in previous suggestion that the price of petrol and diesel should be maintained between 75 and 80 rupees per litre so that the driving cost of electric vehicles become closer to that of conventional vehicles. Second, to provide 90% loan of total cost on subsidized interest rate to purchase electric vehicles. Two important factors to be noticed. First, to subsidize interest rate and second sanction of the loan up to 90% of total cost. With these two factors we can bring the expenses of electric vehicles closer to petrol. Electric vehicles will be purchased by the consumers only if the cost of electric vehicles will be closer to the vehicle with petrol and diesel.
It will be beneficial for the country to distribute subsidized loan up to 90% of the cost of electric vehicles like two wheeler, three wheeler and taxi. The price of electric two wheeler-scooter motorcycle and three wheeler auto rickshaw has now in rang similar to that of it’s petrol counterpart. Therefore, the sale of these vehicles will increase if subsidized loan has been given. In general, according to me, all the private cars run 20 kilometres on average per day and taxi cars on average 120 kilometres per day on the roads. Means, one taxi utilizes petrol and diesel close to six private vehicles daily. If conventional taxis are shifted into electric vehicles, then the import of crude oil will be reduced. If in next 5 years 80% electric two wheeler and three wheeler and taxis will be sold, then the dependency on imported oil of India will reduce to 50% today. For this, the only way is to subsidize interest on loan up to 90% cost of vehicles up to the price 15 Lakh. It is important to take care that indigenous companies should take major role in this as per our next suggestions.
4. Government should plan for the subsidized loan approval up to 90% of total cost of rooftop solar panels for its expansion
Solar power has become a blessing for India. Today the cost of generating electricity from coal and the cost of generating electricity from solar panels are almost similar. The advantage of electricity generation from coal is that it is a continuous process, where as, solar electricity can be generated only in the presence of sunlight.
In current scenario, the major challenge is not the cost of solar power generation but the policy making in bureaucracy. Still the policies related to subsidies are the same the one made for 2010. There is an urgent requirement of improved planning related to subsidies for the installation of solar panels. Similarly, there is a limitation in installation of rooftop solar panels. As per rule, solar panels of around 1.5 times capacity of your domestic consumption of electricity will only be subsidized. In mega-cities, not all the residents have rooftop. Also, those who have rooftop they are not given subsidy on solar panel more than their consumption capacity. It indicates that the major problem is policy making by the existing bureaucracy. It is our first and foremost suggestion that the subsidy limitation of 1.5 times of domestic consumption capacity of solar panels must have to be withdrawn. Second, the earlier made policies, when solar panels were very expensive must now be updated according to the subsidized loan sanction up to 90% of total cost of its installation. However, companies should be certified by ISO and GMP to insure the quality of solar panel but its registration must not be mandatory in any government agency. The user of solar panel should contact to banks for the loan and it should not require formalities or approval for the subsidies from any other government agency.
Solar power which has become the blessing for the country can help in generation of millions of employments for next 10 years; only thing is that it should be free from typical bureaucracy and solar panels should be subsidized up to 90% of its cost. This is our humble suggestion.
3. The import tax must be revised by the central government as per the economic and strategic requirements of India.
China has openly announced ‘all weather friendship’ with Pakistan and therefore it is giving all sort of economic and strategic support to Pakistan. Many terrorist organisations are safe in Pakistan because China exercises veto power to not announce them terrorist organisation in UNO. If China has relationship with Pakistan in all fronts, then what should be our relationship with China? There is no doubt that China has now become the biggest challenge for India. In spite of this, the import from China to India has been drastically increased in last 10 years compared to that of the export from India to China; which has no significant progress. There was an average $50 billion per year difference in import and export in last five consecutive years. In other words, every year, we are importing 3 lakh crore to 3.5 lakh crore rupees more than our export to China continuously since last 5 years. China is helping Pakistan after making profit from the India. Most of the imported products every year can be manufactured in India also. But Indian industries did not receive the help and the support from government the way it should have been given to them. On the contrary, Government of India has supported China by making free trade agreement with ASEAN. We have free trade agreement with ASEAN and ASEAN has its agreements with China therefore many products are imported tax free from China to India through ASEAN. One of the good examples of these are solar panels and solar cells. Approximately 90% of solar panels and solar cells are imported from China and from other ASEAN countries however it can be manufactured in India if Government supports to industries.
If China is all weather friend of Pakistan, then why not two democratic countries like America and India can become a very good friend. In the age of globalization, foreign relationship depends on the foreign trade. The import from China – a friend of enemy Pakistan, is more than the USA – a strategic friend of India, will not last for prolong time. Therefore, India should change its import policies in a way that goes against to the China but in favour of USA. If America will support us, then only we can implement policies against China. Therefore, for next 10 years, India should make its policies to strengthen its relationship with USA the way it has FTA with Japan and ASEAN should be scrapped under the excuse of service sectors. Once bilateral relationship of India with USA is developed then the taxes in import from China should be increased on items like solar panels, solar cells, mobile handsets, laptops and other electronic items, on raw material for medicines, lithium battery, lithium cells, and on vehicles and its parts and so on. This import tax can be maintained between 30% to 60%. Once this import duty will increase then import from China will be expensive and those products will automatically be manufactured in India. Once, there will be a free trade agreement with USA then other countries will not able to make disagreement with India on the increased import duty. There is no way to save economy of India other than making trade deal with America and increase in import duty. The policies may further be changed after 10 years based on experiences gained during the course of the time.
2. Government should make dynamic rate of GST in consumer items
There is 18% GST on the mobile phones having cost of rupees 5,000 and 100,000 both. How is it justified and logical? It is completely illogical to impose injustice on the consumers and at the same time having burden of losing probable revenue on every financial budget. It is unimaginable from both the ends.
Government has implemented a type of dynamic GST on television set without any logic behind this. There is 18% GST on television of screen size 32 inch and 28% GST on sizes bigger than this. Now, if one has to purchase televisions bigger than 32 inch in two different prices of rupees 20,000 and 200,000 in both the cases one has to pay 28% GST. This type of dynamic GST rate is not at all logical.
Therefore, it is my proposal to make the rate of GST more justified and logical making it full dynamic. It will reduce the burden of GST on poor people, there will be pressure on the companies to reduce the price and government will able to generate more revenue with limiting the consumerism. So, according to me, it is more logical to have GST rate based on the cost of items. Our suggestion is that 12% GST should be there on items up to 10,000 rupees, 18% GST should be on items between 10,000 to 20,000 rupees and 28% GST on items more than 20,000 rupees. Poor people will purchase mobile or TV or cooler or fridge in the range of 10000 rupees, middle class will purchase between 10 to 20 thousand rupees and more than 20,000 rupees articles will be purchased by the rich people where 28% of GST can be implemented. Then only, GST will be paid by economical condition of the person. Such kind of dynamic system of GST will be supportive to indigenous units and SMEs also. Government should first analyses how this full dynamic GST can be implemented on which type of articles. Accordingly, the policies should be made on dynamic GST so that the GST should be more reliable and logical and it can produce more amount of tax for the development. This is what we think.
1. The central government should make policies to depreciate the rupees to its REER value
In January 2020, the market price of rupees was approximately 120% of its Real Economic Exchange Rate. Means, market value of rupees was 20% higher than the REER value declared by the Reserve Bank of India. That time, it was approximately 70 rupees equals to $1 but it was 20% over valued than its REER value. What does it really mean? It means there was 20% indirect tax on export and 20% subsidy on import. The Indian trade and business system was on loss due to both of these reasons and foreign countries were getting benefits. The employment rate in the country was reducing where as we were helping in employment in foreign countries due to both of these reasons. Then why Government of India allows rupees to sell at higher than REER value by putting its economy into stake.
It is not that the global Indian economist have not notified this issues to Government of India. Right from 2015, the then Governor of Reserve Bank of India, Mr Raghuram Rajan was indicating about new type of currency war inflicted due to quantitative easing across the world. Later, Ashok Panagariya, Shankar Aacharya, Arvind Subramanian, the world class economists, have also written many times to GOI about the loss in export due to strong rupees. But in the policies of government, the influence of the few RSS ideologues exhibits who consider that stronger the rupees, stronger the country. This ideology relates to the high self-respect of country with the overvalued rupee in global market. Rather making decisions based on the experiences of various other countries, they stick to this principle the way a monkey mother keeps its dead baby close to her chest. The central government is ignoring the losses of the country by assuming that maintaining the high price of rupees is its achievement.
There are two good examples in front of us – Japan and China. In 1985, Japan was the global leader in trade. But then Japan has made its currency stronger under the pressure of United States of America. As per the agreement $1 equals to 250 yen was increased to 150 yen. It means, the currency of Japan has become stronger up to 40%. As a result of this, the economy of Japan shifted on stagflation and Japan has lost its global presence in trade. Its economy was stagnated by making its currency stronger.
On the contrary, China is an example. China has allowed its currency to fall down slowly right from 1981. In 1981, 1 dollar was equals to 1.51 yuan and in 2010 $1 has become 9 yuan. It means the currency of China has fallen down from 1981 to 2010 up to six hundred percent but what was its result in these 30 years? China has become production power of the world slowly. These two examples are enough to follow the decision in right path.
In modern global economic system, the business runs on the certain principles of economics. The exchange of currencies is also based on those standards. It is not possible that all the standards of economics are followed but the principles of currency are ignored. If the outcomes are indicating that it is going against the economy, then continuing same practices will be considered as an attempt to commit suicide.
Make sure that all the above 9 suggestions to maintain the GDP rate of avg. 10% will be ineffective in couple of years due to strong currency policy, the way the advantages gain in last 20 years are lost in last 6 years. Therefore, it is our suggestion to the government to make policies for rupees to depreciate to its REER value so that the export of India can be increased and import can be reduced.
(I have already written in an open letter in front of everyone earlier. How the value of rupees to fall to its REER is beneficial to the economy of the country?
Here, we have given 10 suggestions to the central government. Based on our research, it is our finding that if these suggestions will be implemented for next 10 years then the 10% average GDP growth rate will be maintained. We have already discussed the specialty of these suggestions that neither these are dependent on foreign investment and nor it will put any extra burden on Central Government. On the contrary, few suggestions are helping to increase the budget of Central Government. These should be considered as suggestions only. We do not claim that only we have capacity to think about the country and also that our suggestions are the only solutions. Few more people must have been suggesting to central government. Those suggestions would also be investigated by central government. After assessing the danger in front of Indian economy in current scenario we have decided to put our suggestions considering it our fundamental duty for our country. Man only proposes, God disposes.