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"Lacklustre" economic reforms: Market liberals disillusioned, "cultural warriors" alone Modi's top supporters

By Our Representative
In a sharp critique of Prime Minister Narendra Modi’s economic policies, America’s powerful business newspaper, “Wall Street Journal” (WSJ), has said in an opinion piece that “free-market liberals” in India are fast “losing faith that Modi will deliver on his promise to launch India on a path of prosperity.”
Warning that “lacklustre reform record will likely have electoral consequences”, despite whatever “senior politicians” from Modi's BJP argue, WSJ says, if one takes way “market liberals” from his support, “the only opinion makers left supporting the BJP are a group of culture warriors championing ancient Hindu glory.”
Written by WSJ columnist Sadanand Dhume, who is attached with the conservative Washington-based think-tank American Enterprise Institute, the article says, just two years ago, “a small but influential cohort of market-friendly analysts and commentators were among his most ardent supporters”, which is not the case how.
WSJ says, “Today many of them have lost enthusiasm for Modi, who appears to lack both clarity and appetite for bold reforms. The prime minister's advisors may pooh-pooh this development. India's elections, they say, are won by appealing to the masses, not to intellectuals spouting Adam Smith and Friedrich Hayek.”
Insisting that “they are wrong”, WSJ says,  “Loathed by the cultural left, Modi cannot afford to alienate the economic right. Should Finance Minister Arun Jaitley deliver another lacklustre budget next month – his third dud in a row – it will not only hurt India's economy but also his boss's re-election prospects.”
Giving examples of “most influential market liberals” who have signaled their disappointment, theWSJ says, one of them is “former cabinet minister Arun Shourie, who successfully privatized state-owned firms during Prime Minister Atal Bihari Vajpayee's tenure from 1998-2004”.
If Shourie recently accused the Modi government of confusing managing the economy with “managing the headlines”, investment guru Jim Rogers, once an enthusiastic Modi backer, has accused him of having done little “to change the basic macroeconomic problems facing India”, the opinion piece says.
While the government may have rolled out “red carpet for investors”, WSJ says, “In terms of minimizing government, particularly in business, the slogans have little connection with reality.”
Among the examples WSJ offers on failure of Modi to go in for market reforms, WSJ says, the proposed goods and services tax “to stitch India into a common market won't be rolled out this April as planned”, and the government has been forced to beat a retreat “on a proposal to ease land-acquisition norms for industry”.
Further, WSJ says, the reform of labour laws – which currently discourage job growth by making it difficult to lay off workers during a downturn – has been left to state governments; and the UPA directive “compelling companies to channel some of their profits toward social objectives continues, which is being used by politicians to “encourage” businessmen to fund their favorite boondoggles.
Finally, WSJ regrets, “Instead of winding up the previous government's flagship programme — a rural job guarantee that wasted billions of dollars — Modi plans to increase its funding.”
Pointing out that the Modi administration displays “no philosophical clarity on the economy”, WSJ says, this is clear from the fact that he seems to believe that “he can stem the rot in state-owned companies by picking the right managers rather than privatizing the firms.”

Comments

STRUCTURAL REFORMS ?

Speaking at the Global Business Summit yesterday , Shri Arun Jaitley said :
" We will introduce Structural Reforms in the forthcoming Union Budget "
What is the current structure of Union Budget ?
# SOURCES of REVENUE
* Taxes ( Direct + Indirect )
* Borrowings ( Domestic + Foreign )
* Sale / Leasing of Assets ( PSUs + Natural National Resources )

# DEPLOYMENT of REVENUE
* Administrative Expenses ( Salaries / Pensions / Maintenance / Subsidies , etc )
* Interest ( + Principal Amount ) on borrowings
* Developmental Expenses ( Creation of new Assets / Infrastructure )
* Lending

Broadly speaking , this is the current structure
Most of the time , all that the successive Finance Ministers have done is to slightly " Increase / Decrease " the " Sources and / or Deployment " of the funds , here and there
Once in a while , some Finance Minister , even introduced altogether NEW source or a NEW way to spend the revenue !
But so far , no one has attempted to change the FUNDAMENTAL STRUCTURE !
I wonder whether Shri Jaitleyji's BUDGETARY REFORMS would incorporate the following Structural Changes for which , I have sent to him ( and to most of his cabinet colleagues ), dozens of emails ? :

* Total abolition of Personal Income Tax ( Revenue Loss of approx Rs 2.5 lakh*crores )
* Introduction of 2% Bank Transaction Tax - BTT ( Revenue Gain of Rs 15 lakh*crores )
* Decreasing Corporate tax slab-rates based on No of permanent employees ( to encourage job creation )
* Perpetual Amnesty Scheme ( no questions asked as to the source for CASH deposits in Jan Dhan Accounts , if
funds from these Accounts are invested in Govt approved INFRASTRUCTURE SPVs )
So far , Rs 30,000 Crores have been deposited in Jan Dhan Accounts . With introduction of this REFORM ,
that figure will rise a thousand times to Rs 30,000,000 Crores , within one year !
These investments will generate 10 million jobs each year and raise our GDP to 10 % in 2016-17 !
* Transferring 10% of GST ( ie 1.8 % out of 18 % ) to PPF accounts of the buyers ( increase Domestic Savings )
* Embedding of RFID chips in Currency Note ( read Kurzweilai.net ) to solve twin problems of BLACK MONEY and
CORRUPTION
* Introducing " Budgeting By Objectives " ( instead of Monetary Allocations, setting Physical Targets for Ministers )
* Quarterly Performance Review of " Targets vs Actual Achievements " to be published on Govt web sites
* Thru an Online Opinion Poll , involving citizens in framing of the Ministry-wise Physical Targets before the budget

After second World War , German Economy was in shambles
68 years later , Germans are still thanking their then finance minister , Ludwig Erhard , for the miracle ("Wirtschaftswunder," German for "economic miracle") he brought through his " Out of the Box " reforms to revive the German Economy
I hope Shri Jaitley displays similar courage on 29 Feb 2016 - even if he is not bothered being remembered or not !
-------------------------------------------------------------------------------------------------------------------------------
hemenparekh.in / blogs
31 Jan 2016

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