INDIAN ECONOMY – BACK ON THE GROWTH PATH

The recent turmoil in the US economy has shaken the confidence of the Indian businesses in the economic and monetary system of the world. The sentiments have been hurt very significantly. The distress sale of Indian Companies shares by foreign investors of more than US $ 25 billion, non renewal of short-term international funding of about US $ 50 billion and reduction in growth rate of foreign direct investments during last 3 months have impacted the exchange rate, market sentiment,
international demand for exports and the resultant reduction in confidence of the Indian businesses. We must thank Dr. Manmohan Singh that after assuming the charge of Finance Minister he has been able to very quickly take very important strategic action including substantial reduction in excise duty rates and certain initial steps to improve the liquidity into the system. This is indicative of only a very good beginning towards the future steps which may be inevitable to provide necessary impetus
to growth.

The Government of India, the thinkers and the opinion makers may consider the following suggestions for immediate implementation for revival of growth rate of the Indian economy:

• As a sequel to reduction in excise duty, it may be very important to immediately announce reduction in service tax rates to 8% and 4% slabs to give boost to the service sector. In view of CENVAT this is also a natural requirement.
• The central government and the State governments need to consider reduction of VAT rate comprehensively to provide further fuel to the growth path. The Chartered Accountants community is quite confident that even if the rates are reduced by 40% to 50%, the overall collection of the revenue of the Government will be rather more as compared to the collection in terms of the present rate, by improved compliance and improved business activities due to higher demand.
• It is important to immediately announce deficit funded infrastructure projects by at least Rs. 200000 crore for immediate commencement of their implementation to put back necessary confidence into the economy.
• The reduction in commodity prices including oil, metal and other important commodities internationally is a natural correction in the backdrop of speculative rise in prices in last 2 years.
• The Real Estate Sector and the Infrastructure Sector will require special attention of the Government. The comprehensive reduction of interest rates, taxes on these sectors and adequate money supply will be necessary to stimulate the growth of housing, real estate and infrastructure sector.
• Special incentive package is needed to boost tourism and hospitality industry. Aviation is seen severely hit, flights moving at abysmally low capacity, lower travel by businesses warrant removal of FBT.
• Inflation cannot be the 1st agenda as an economy. The important agenda at this stage would be to bring back the activity and positive outlook into the economy. A substantial reduction in CRR and SLR would be mandatory as the Indian Banking Sector will need at least additional flow of Rs. 2 lakh crore within next 2 months which can be released from the system by the Reserve Bank of India.
• The Indian banking sector and the financial market need not have apprehension about possible NPA's and should not desist from lending. The position of the Indian economy and the Indian businesses is reasonably strong and apprehensions of the banking sector is mainly impacting adequate flow of money and has adversely reduced the growth rate of M3 (Money supply).