Saturday, June 15, 2013


The recent fall of the Indian rupee vis- à-vis US Dollar and other major currencies have caused serious concern in the business, profession and Indian intellectuals. The fall of Indian rupee indicate serious inherent weakness of the Indian economy and in spite of some arrests of the inflationary tendency the overall outlook is very weak. Some major indicators include:

  • The industrial production growth rate has come down around 2%;
  • GDP growth rate is at its lowest in more than a decade;
  • Public Sector Corporations are sitting on hard cash reserve of more than Rs 4 lakh crore, without any major initiative for investments;
  • Private sector top 500 companies are also sitting on hard cash of more than 1 million crore, no major investment initiatives;
  • Balance of payments is getting bad to worse;
  • Gold import is mounting up;
  • Real Foreign Direct Investment is shying away due to hyper active taxation wing of the government including transfer pricing, international withholding tax and a tendency to deny legitimate benefits to the assessee.
  • Almost all large public sector and private sector banks are not receiving any major investment related loan proposals except real estate, roads and power sector.
  • Project worth more than Rs 7 lakh crore in infrastructure sector including power, roads, ports and mining are stuck/ standstill due to policy constraint and lack of financial closure.
US Economy Strengthening

In this backdrop it is important to note that the US economy has off late started to strengthen materially. The US government has advised all the major funds having their headquarters in US, to divert all their major investments into US and have even directed them to wind up their current investments from India and other developing countries to achieve the objective of investment in US.

Excessive Speculation in Foreign Currency and Gold

The fall of rupee and specially a very severe volatility can also be attracted to increased speculative transactions in the foreign currencies stock exchanges and very heavy speculative activities in gold on the commodity exchanges. The Gold funds have even lead to larger Gold imports.

Government Policy in action

The Indian government seems to have become insensitive and have come to a position of complete confusion in respect of the direction and strategy. Any further lackluster approach will very severely harm the Indian economy. The economy requires a real push as the Indian entrepreneurs are primarily waiting for a clear green signal from the government to provide them sufficient confidence about their investment initiatives. The government needs to review again even their latest policy of domestic transfer pricing, which will further aggravate the investment climate.

Overblow of Investigation

Lack of policy initiative and decision making is largely contributed to scam related investigations, arrests and resignations. While corruption cannot be tolerated, a clear- cut decision of the government and the judiciary is mandatory to provide confidence among political leadership, top bureaucrats, bankers and the public sector that the genuine decision will not be questioned on the pretext of non compliance of procedures or technical breaches. In the absence of direct clinching evidence, corruption charges should not be blown beyond proportion, based on apprehensions or alleged benefits to related parties or very indirect circumstantial evidence. The allegations of favour or a questionable policy framework alone cannot be the basis of  questioning, arrests and prosecution.

In case politicians, after politicians and bureaucrats after bureaucrats are questioned for a possible corruption, which are ultimately held as not guilty, may result into a complete absence of quick decision making at various levels. In our considered view, the accused should only be arrested in corruption charges, after the charges are fully established and punishment given by the court. In case a large number of persons are arrested or are subjected to harassment or humiliation, without final evidence, the working atmosphere gets fully vitiated.

Investigation should be completely confidential

The investigation or interrogation and even prosecution can be kept confidential in a properly institutionalized mechanism till the time charges against the persons are fully established. In the absence of these precautions a very large number of persons get defamed, humiliated and actually punished even much before their guilt is finally established. The old famous judicial guidelines that no innocent should be punished at any cost, has to be followed in letter and spirit.

Tax Laws should be business friendly

The tax GDP ratio is already very high, when we consider state level as well as central level taxes. The indirect tax rates need to be substantially lowered. The complicated and vindictive tax and regulatory laws and procedures have to be curtailed and their litigant interpretations need to be avoided. We need to respect DTAT and a liberal interpreta-tion is necessary to provide confidence back in businesses.


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