Take up the right issues

 Take up the right issues

By Gopal K Agarwal,

UPA should set its priorities right and stop ignoring questions of national interest, say

It's time the citizens of the coun I try took a firm decision They should either accept the hypocrisy of the current regime with regard to policies like secularism, economic reforms and creation of employment opportunities on the one hand and its indifference to in ternal security on the other, or they should prepare to confront the Government to answer certain ques tions before the nation.

Everybody will accept that there cannot be any compromise as far as the security of the country is concerned. It is an established fact that Pakistan is involved in cross-border terrorism and India has been trying to convey this to the whole world. But the recent joint statement of Prime Minister Manmohan Singh and President Musharraf was conspicuously missing the above point. It seemed to convey a shift in India's stand on the issue. There is a sudden spurt in violence in the Northeast, where Pakistan's ISI's involvement is suspected. But both the Home Minister and the Defence Minister seem helpless about it.

More worrisome is the Congress's dillydallying on the issue of illegal Bangladeshi immigrants. General SK Sinha, the former Governor of Assam, in his report to the then President, had pointed out that large-scale illegal immigration from East Pakistan (now Bangladesh), over several decades, has been altering the demographic complexion of the State. These demographic changes are a major cause of concern, he had further pointed out, which can lead to severing of the entire Northeast from the rest of the country. This will have disastrous strategic and economic consequences. Even countries like Malaysia have taken a tough stand on the issue of illegal immigrants. But our Government, in its zeal to please the minority, cannot take tough decisions.

The Congress is resorting to the rhetoric of its "secular" credentials and hypocritically trying to please the minority. It has set up a commission on the reservation for minorities. which was stalled by the Election Commission. Further, the announcement of reservation to mi norities in Andhra Pradesh was quashed by the High Court. I must add that all the rhetoric about secularism by these people is based on deception, of which all of us are well aware. Yet it persists.

Most people of the country will agree that we need a strong and effective law to combat terrorism but this Government has repealed POTA and has not brought any law in its place. The Government could have modified some provisions. The discovery of explosives in the form of scrap shows the recklessness of our Government in handling the sensitive issue of internal security. At the present juncture, any compromise with the internal security of the country is unacceptable and the Government should come out with a firm stand.

Internal security is not the only issue of concern. A lot of confusion has been spread about economic reforms mainly due to differences in thinking of the Congress and the Left parties- whether it is foreign direct investment, PSU's disinvestments or panel of experts in the Planning Commission. If India has to progress economically, it requires a clear-cut direction and roadmap.

Then, look at the hypocrisy of the Left. In West Bengal, they are taking help of foreigners, but at the Centre, they are opposing it. They don't want the disinvestment of PSU's and want to keep them as their fiefdom. The Left would like them to bleed and would continue wasting the exchequer's money. People know that many of the PSU's are being misused by ministers and are working with complete inefficiency to the extent that they have not even completed their accounts for several years Such wastage of money will con- tinue. The Finance Minister wants to unleash a reign of terror in the name of tax collection. He is giving draconian powers to raid, harass and confiscate properties of the taxpayers to a level of an inspector in a department which is known to be the most corrupt of all the Government departments.

There are many major issues where the present Government should concentrate-like controlling spiralling inflations, creating employment opportunities as promised. putting new life to road construction. building social security network. keeping the rising interest rate under control and, most of all. Strengthening internal security. But it diverts public attention by raking up emotive issues like removing Veer Savarkar's plaque from the Cellular jail, arresting Ms Uma Bharati on the issue of hoisting Tiranga, making noise over detoxification of the educational system. All this while it could have easily reviewed the portions which it found objectionable. It is going to the extent of creating a situation in which the Opposition is provoked continuously, especially when the Leader of the Opposition is not allowed to speak in the House. The Opposition is further provoked when a group of ministers is set up to review every decision of the past Government.

It is time the Government got down to constructive work. It must get rid of vindictiveness and authoritarianism and stop victimizing people of different ideology. By appointing its own persons, the UPA Government is being instrumental in destroying some of our great institutions which have been established by our forefathers.

(The writer is National Convener, BJP Economic Cell.)

Where taxpayers are full of fear

 Where taxpayers are full of fear

By Gopal K Agarwal,

India had draconian tax laws which harassed honest taxpayers Compliance was difficult. Non-compliance was at a premium and led to generation of black money, which was not available for investment and economic development. There was a growing understanding that if the government has to increase tax collection, more people have to be brought under the tax net.

Government recognised that this requires simplified and ra- tionalised procedures Laws must be made less draconian. the tax department friendly to the assessee. Successive budgets were moving in this direction. The NDA government set up the Kelkar Committee on tax reforms. The widespread discussion on its recommendations helped in creating a positive environment.

The government has to work with the premise that citizens are honest and law-abiding, any action against them can be taken only when proved guilty. This is a basic law of jurisprudence and will have to be adhered to, or the re is a danger that the country will see a rise of state terrorism, wh ich will justify all action under the guise of enforcing compliance.

Certain provisions in the recent budget amount to state terrorism. The finance minister is creating an extremely unhealthy environment for taxpayers. He has been directing tax officials to ensure increased tax revenues. They have been given targets.

These targets are passed down the line. The officials work out a collection strategy and identify parties from whom mobilisation can be done. The income tax of officer is revenue-minded and makes an addition to a taxpayer's account in order to meet his mobilisation target. The Commissioner of Income Tax, Appeals, is revenue-minded and upholds orders passed by the income tax officers.

The taxpayer approaches the judiciary. The nightmare gets worse when the finance minister wants to influence the judiciary so that it does not grant any relief. Taxpayers are informed that an addition is being made to their income and unless they pay up, their assets will be attached. If they protest they are told that they can go in for appeal to have the additions reversed and have their assets released. The situation is tailor-made for extortion Further, the FM has directed the tax department to resort to harsh measures like surveys and raids. The victim pays a huge amount of money to be allowed to carry on with his life and business. Laws like informing the tax department of any purchases above Rs 50,000 can only lead to harassment of the general public. It is not just applicable to single transactions but to the aggregate amount. Even assesses who will pay no tax will be included, the report will have to be in a computer-readable form, and figures relating to the beginning of the financial year would have to be furnished.

TDS was to be implemented when the tax information network was complete. People were to be protected from the hassle of seeking TDS certificates by having TDS deductions reported directly to tax authorities and entered into a central database. Each taxpayer would have access to the database through a Permanent Account Number (PAN) identification and password. The database is nowhere in sight, but the budget has gone and changed the TDS reporting requirement. Amendments to section 203 and Section 203 AA say that TDS details should now be sent to the income tax authority or a person authorised by it and no certificate is required to be issued to the person whose tax is deducted. This means that people whose tax is compulsorily deducted will not even have a piece of paper to prove their tax payment. And they will be at the mercy of income tax officials to get TDS certificates.

A new section, 277A, has been introduced in the Income Tax Act, where the assessing officer for the purpose of filing a complaint of prosecution u/s 277A, has to simply record the intention of the third party to abet the tax evasion and not to substantiate his charges. The explanation to the proposed section provides it shall be sufficient in any charge to allege the general intent to enable such other person to evade any tax, penalty or interest.

Explaining the concept of tax on securities' transactions, FM said in his budget speech that it is to simplify the taxation of capital gains. The new proposals are neither simple nor revenue yielding. To keep track of such transactions and ensure that the tax payable is correctly worked out and paid would be an uphill task. The objective of generating more money for the government would be frustrated.

Service tax is in the form of double taxation and has a cascading effect. It is successively being increased without relief in the direct income tax. The government will have to make laws simple, non-draconian and introduce checks on the income tax officials. The only way India can be a true welfare state is by providing economic freedom to its citizens. Else, all the rhetoric about the government being a welfare state is merely lip service.

(The writer is a member BJP's Central Economic Cell)

Tax as state terrorism

 Tax as state terrorism

By Gopal K Agarwal,

Certain announcements and provisions in the recent budget by the Finance Minister amount to state terrorism. The FM is creating an extremely unfortunate and unhealthy environment for taxpayers.

India had draconian tax laws, which harassed honest payers. Compliance tax was extremely difficult. Persons came into the tax net either through salary income or voluntarily, for their zeal to be law-abiding citizens. Non- compliance was at a premium and led to generation of black money, which was used in wasteful expenditure and was not available for investment and economic development of the country. There was a growing understanding in the government that if the government has to increase tax collection, then more and more people have to be brought under the tax net. Merely increasing tax rate was becoming counterproductive to the economic development of the country and was harming entrepreneurship.

The government recognised that this will require simplified and rationalised procedures and laws are to be made less draconian with the spirit of dealing with honest citizens. The tax department has to be made friendly to the assessee. Successive budgets were moving toward this direction.

The previous NDA government set up the Kelkar Committee to give report on tax reforms and the widespread discussion on its recommendations helped in creating a positive environment.

The government has to work with the premise that citizens of the country are honest and law-abiding and any action against them can be taken only when proved guilty. This is a basic law of jurisprudence and will have to be adhered to at any cost, otherwise there is every danger that the country will see rise of dictatorship and state terrorism, which will justify all its actions under the guise of enforcing compliance. There are four pillars of democracy and each has a role to play, there cannot be any overlap in their roles. Recently, there has been a growing tendency in the bureaucracy, which is involved in the formulation of various laws to take upon themselves and assume judicial powers. In India the judiciary has always upheld the constitutional rights of the citizen. Indian judiciary has exercised control over politicians and bureaucrats. This is required for balancing the power structure of the country, otherwise the nexus between the corrupt politicians and bureaucrats will leave little space for the people to lead a peaceful and a dignified life. Judiciary derives its power from the laws of the land. The laws should be equitable and fair to all, without giving undue powers to government officials. There has to be a counter-check so that these laws are not misused by corrupt or overzealous officials.

Certain announcements and provisions in the recent budget by the Finance Minister (FM) amount to state terrorism. The FM is creating an extremely unfortunate and unhealthy environment for taxpayers. In his meetings with tax officials, he has been directing them to ensure increased tax revenues. They have been given targets. These targets are passed down the line. The officials work out a collection strategy and identify parties from whom mobilisation can be done The Income-tax Officer is revenue-minded and he makes an addition to a taxpayer's account in order to meet his mobilisation target. The Commissioner of Income-tax (Appeals) is also revenue-minded and he upholds the orders passed by the Income-tax Officers. A taxpayer approaches the judiciary. The nightmare gets worse when the Finance Minister wants to influence the judiciary so that it does not grant any relief and if any relief exists, then vacate them. Tax-payers are informed that an addition is being made to their income and unless they pay up, their assets will be attached. If they protest, they are told that they can go in for appeal to have the additions reversed and have their assets released. The situation is tailor-made for extortion.

Further, he has directed the Tax Department to resort to harsh measures like surveys and raids to increase compliance. The raid can sometimes last for days, and by the end of it, when the victim is finally broken down with humiliation, sleep deprivation and other terror tactics, the head of the raiding party usually comes forward with a "deal". The victim pays a huge amount of money-depending on how much he has to be allowed to carry on with his life and business without being harassed daily by the Income Tax Department.

It is an open fact that the Income-tax Department of our country is one of the most corrupt departments of the government. The corruption in this department affects the life of a common man to a great extent as it involves public dealings. If these corrupt government officials are given draconian powers it will only lead to harassment of the ordinary citizens and may be misused by some of these officials to extract money.

Several other laws like informing about any purchases above Rs 50.000 to the Tax Department u/s 285BA, can only lead to harassment of the general public. It is leading to several Certain announcements and provisions in the recent budget by the Finance Minister amount to state terrorism. The FM is creating an extremely unfortunate and unhealthy environment for taxpayers. complications as it is not just applicable to single transactions, but to the aggregate amount, it could apply to aggregate of all transactions under five separate heads, it could include even the total household expenditure if it exceeds Rs 50,000 a year, even assessess who will pay no tax will be included The report will have to be in a coraputer-readable form and figures relating to the beginning of the financial year would also have to be compiled and furnished.

TDS had to be implemented when the tax information network was complete People were to be protected from the hassle of seeking TDS certificates by having TDS deductions reported directly to the tax authorities and entered into a central database. Each taxpayer would have access to the database through a Permanent Account Number (PAN) identification and password. The database is nowhere in sight, but the Budget has gone and changed the TDS reporting requirement. Amendments to Section 203 and Section 203 AA says that TDS details should now be sent to the income-tax authority or a person authorised by it (NSDL) and no certificate is required to be issued to the person whose tax is deducted This means that people whose tax is compulsorily deducted will not even have a piece of paper to prove their tax payment Worse, they will be at the mercy of income-tax officials to get TDS certificates.

A new Section 277A has been introduced in the Income tax Act, where the assessing officer for the purpose of filing a compliant of prosecution u/s 277A, has to simply record the intention of the third party to abet the tax evasion and not to explain or substantiate his charges The concept of mens-ria is completely missing. The explanation to the proposed Section 277A provides that it shall be sufficient in any change (without specifying any particular instance or sum of tas penalty or interest which has been or would have been evaded by such other person) to allege the general intent to enable such other person to evade any tax, penalty or interest The Section provides punishment with rigorous imprisonment for a term not less than three months but which may be extended to three years and with a fine imposed.

Explaining the concept of tax on securities transactions the Finance Minister said in his budget speech that it is being done to simplify the taxation of capital gains The new proposals are neither simple nor revenue-yielding. To keep track of such transactions and ensure that the tax payable is correctly worked out and paid would be an uphill task. Further, the changes would mean substantially lower revenue for the government, and thus, the objective of generating more money for the government would be frustrated. The issue is whether the complicated exercise prescribed by the government is worthwhile. The scheme, which was intended to simplify the taxation of capital gains, has ended up being highly complicated, and has laid down multiple and complicated slabs which will be very difficult to implement and monitor. It is very surprising that no empirical studies were made before announcing the changes on the impact of the tax and on different segments of market players.

Service tax is in the form of double taxation and has a cascading effect. It is successively being increased without relief in the direct income tax. The government will have to sincerely sort out many of these complications and it has to make the laws simple, non-Draconian and conduct counter checks on the actions of income-tax officials

The only way India can be a true welfare State is by providing economic freedom to its citizens, otherwise all rhetoric about the government being a welfare State are merely lip service.

The author is member of BJP Central Economic Cell

Chidambaram and his Package of Contractions

 Chidambaram and his Package of Contradictions

By Gopal K Agarwal,

The internal contradiction in the present government due to differences in the economic thinking of the Congress and the Left does not leave any room for economic innovation. This is coming out very clearly in the criticism of the Budget by the Left Front.

In the Budget speech of the Finance Minister there is lot of lip service to rural development but there are no concrete provisions or announcement of policies. Almost all the policies of the NDA government are being continued. Instead of giving support to the small-scale sector, 85 items have been dereserved. Secondly, he has spoken a lot on education and has imposed a cess of 2 per cent across the board on all taxes, but it has not been clarified or spelled out as to how this fund will be spent and will this amount be in addition to the amounts earlier being earmarked for education in the Budget? In our bureaucratic set-up, implementation has always been the problem. If the government does not specify as to how the benefit will be delivered to the actual ultimate beneficiary, all the well intentions will not bear results. If all these funds are left to the states to be utilised then it will be a big failure. Our states have poor infrastructure and corruption being widely prevalent, many of the allocated funds to states are not being properly and fully utilised.

Thirdly, the FM has announced that a consortium of private banks will give loans to the tune of Rs 40,000 crore for infrastructure development. This kind of announcement regarding intentions of the private banks has no meaning as these will be commercial decisions and its credit cannot be taken in the Budget.

Fourthly, the announcement in the field of water conservation that wells, talabs, etc., will be repaired and renovated is also an eyewash as this will be done over a period of ten years and that too without any fund allocation. To meet his revenue requirements, the FM has stated that there will be a 40 per cent increase in revenue collection from corporate sector only, without there being any increase in tax rates. He plans to achieve this through greater and stricter compliance of tax laws which is highly unrealistic and impractical.

After criticising so much on the disinvestment policy of the NDA, he is continuing with the disinvestment of NTPC, a profit- making company, and has also announced setting up of a Disinvestment Commission.

The Left Front's rhetoric of opposing FDI in strategic sectors has been given a raw deal by announcing increase in FDI in all the three strategic sectors of telecommunication, aviation and insurance. Telecommunication is one sector in which even USA does not allow majority holding to foreign investments. Even NDA government was reluctant to increase this limit

The major announcement of tax concession in the direct tax on the taxable income up to Rs one lakh is a more of a confusion and a complete eyewash. It would have been much better if instead of this, the basic exemption limit of Rs 50,000 had been increased. This will create resentment in anybody having even slightly higher taxable Income than Rs 1,00,000.

The increase in service tax by 25 per cent of the earlier level (8 per cent to 10 per cent) will also have inflationary effect. Service tax has a cascading effect and the government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Further, the increase in the excise tax on steel will also be inflationary as this is a basic metal and will harm housing sector also.

The imposition of unreasonable transaction tax on all transactions is a big blow to the securities market. The government has not applied its mind as to whether this can be absorbed or will it completely kill the capital and bond market? Levying transaction tax is bad, as firstly, all transactions do not lead to profit, secondly, 80 per cent of the stock market turnover is either arbitrage business or jobbing transactions at a very meagre price difference of as low as five paisa This will lead to a complete erosion of liquidity in the market which is very essential for recovery reducing impact cost (ie. the effect of bulk purchase order on the price of a scrip). Even without this step, the market was very nervous on the policies of the UPA government and the influence of Left parties thinking on the economic policies.

The low interest regime of the NDA government which was a major factor facilitating industrial development and the housing sector, etc., is showing a sign of reversal as the interest rates are firming up. If this government does not take major initiatives, which are missing in the Budget, then we may see a major reversal in our country's economy.

(The writer is National Convener, BJP Economic Cell.)

Reversal in economy is likely

 Reversal in economy is likely

FM has paid lot of lip services to rural development without concrete announcement of policies, says Gopal k  Agarwal

The Government has turned out to be a damp squib. The Congress and the Left, earlier highly critical of the economic policies of the NDA Government, were expected to give a clear direction to the country's economy. The UPA Government inherited a healthy economy with very strong fundamentals, burgeoning foreign exchange reserves, a economic growth of eight per cent, fiscal deficit and inflation under control and a booming stock market. All these were the result of the sound economic policies pursued by the NDA Government. Everybody expected the Congress and the Left Front to implement their distinct policy statements in this Budget. However, the ideological differences in the economic thinking between the two does not leave any room for economic innovation. This has come out very clearly in the criticism of the Budget by the Left Front.

First, in his Budget speech. Finance Minister P Chidambaram paid a lot of lip services to rural development without concrete announcement of policies. Almost all the policies of the NDA Government are being continued. Instead of providing support to the smallscale sector. 85 items have been dereserved.

Second, Mr Chidambaram has spoken so much of education and has imposed a cess of two per cent across the board on all taxes, but he has not spelled out as to how this fund would be spent. Will this amount be in addition to the amount earmarked for education earlier? In our bureaucratic setup, implementation of policies has always been a problem. If the Government does not specify how the benefit will be delivered to the actual beneficiaries, all the good intentions will not bear fruit.

Third, Mr Chidambaram has announced that a consortium of private banks will give loans to the tune of Rs 40,000 crore for infrastructure development. Announcements regarding intentions of the private banks will have no meaning as these will be commercial decisions, and its credit cannot be taken in the Budget. Fourth, in the field of water conservation, Mr Chidambaram's announcement that wells, ponds, etc.. will be repaired and renovated is also an eyewash as this will be done over a period of 10 years and that too without any fund allocation.

To meet revenue requirement, Mr Chidambaram has stated that there would be a 40 per cent increase in revenue collection from the corporate sector only without there being any increase in the tax rates. He plans to achieve this through greater and stricter compliance of tax laws which is unrealistic and impractical.

After criticising so much the disinvestment policy of the NDA Government, Mr Chidambaram, in continuing with the disinvestment of NTPC, a profit-making company, has also announced the setting up of a disinvestment commission.

The Left Front's rhetoric of opposing FDI in strategic sectors has been given a raw deal by announcing increase in FDI in all the three strategic sectors of telecommunication, aviation, and insurance. Telecommunication is one sector in which even the US does not allow majority holding to foreign investors.

Tax concessions in income tax on the taxable income of up to Rs 1 lakh is creating confusion. It would have been much better if instead the basic exemption limit of Rs 50,000 was increased. This will create resentment to anybody having even a slightly higher taxable income of more than Rs 1,00,000.

The increase in service tax by 25 per cent of the earlier level of (eight to 10 per cent) will also have an inflationary effect. Service tax has a cascading effect and the Government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Further, increase in excise tax on steel will also be inflationary as it is a basic metal for infrastructure development. and will harm the housing sector too. The imposition of the anretisonable transaction tax on all securities transactions came as a big blow to the securities market. It seems the Government has not applied its mind as to whether this can be absorbed or will it completely kill the capital and bond market. Transaction tax is bad as every transaction does not lead to profit. Second, 80 per cent of the stock market turnover is through either arbitrage business or jobbing transactions at a very meagre price difference of as low as five paisa. This will lead to complete erosion of liquidity in the market which is very essential for true and fair price discovery and for reducing impact cost (that is, the effect of bulk purchase order on the price of a scrip).

The low interest regime of the NDA Government, which was a ma- jor factor in facilitating industrial development, housing sector, etc., is showing signs of reversal as interest rates are firming up. If the UPA Government does not take major initiatives, which are missing in the Budget, then we may soon see reversal in the country's economy.

(The writer is member, Central Economic Cell, BJP)

Sum of all Subtractions

 Sum of all Subtractions

By Gopal K Agarwal,

The turnover tax is III-advised as all transactions do not lead to profit

IN its first Union budget the United Progressive Alliance was expected to give a clear direction to the economy of the country. The UPA government had inherited a healthy economy with very strong fundamentals, burgeoning foreign exchange reserves, economy growing at more than 8 per cent annually, fiscal deficit and inflation under control and a booming stock market. All were the result of economic policies followed by the previous NDA government. There is no doubt that there were certain sectors like agriculture and small-scale industry which needed some drastic steps and had been identified by the NDA for focus in the coming period but the NDA lost the elections. Thus, everybody expected the Congress and its allies to clarify their policy on each of these issues.

The Indian economy in at a critical juncture. Internal contradictions at the government due to differences in the economic views of the Congress and the Left do not leave much room for innovation. This is evident from the criticism of the budget by the Left Front.

In his budget speech, the finance minister paid a lot of lip service to rural development the there are no concrete provisions or policies. Almost all the policies of the NDA government are being continued. But instead of going support to the small-scale sector, 85 items have been dereserved Second, he has spoken so much on education and imposed a cess of 2 per cent scates the board on all taxes, but it has not been clarified ut to how this fund will be spent In our bureaucratic set-up imple mentation has always been a prob lem. If the government does not specify how the benefits will be delivered to designated beneficiaries, no amount of good intentions will bear results. If all these hands are left to the states to be utilised as they see fit, certain failures would appear inevitable. Third, the finance minister has announced that a consortium of private banks will give loans to the tune of Rs 40.000 crore for infrastructure development. This kind of announcement regarding intention of the private banks has no meaning as these will be commercial decisions and the credit can not be taken in the budget. Fourth, announcements with regard to water conservation, that wells, ponds, etc, will be revived, is also an eve-wash, as thus will be done over a period of 10 years and that too without any fund allocation

To meet his revenue requirement ment the finance minister says there will he a 40 per cent increase in revenue collection from the corporate sector without any increase in tax rates. He plans to achieve this through stricter compliance of tax laws. This may strike some as highly unrealistic.

After criticizing the NDA government on disinvestment, the UPA is to continue with disinvestment of NTPC. It also proposes to raise FDI caps in three sectors, including telecommunications which the NDA was reluctant to do.

Conomions on taxable income up to Rs 1 lakh have created some confusion. It would have been much better if, instead of this, the basic exemption limit of Rs 50,000 had been increased. The current change will create resentment amongst those whose income is slightly higher than the cut-off mark. The increase in service tax by 25 per cent of the earlier level 8 per cent to 110 per centy will also have an inflationary effect. Service tax has a cascading effect and the government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Moreover, increase in excise on steel will abe be inflanon ary as this basic metal and this will have repersime to the housing sector.

There is a big blow to the securities market by the imposition of an unreasonable as on all transactions. The transaction tax in illad voed, as, first, all transactions do not lead to profit. Second, 80 percent of the stock market turnover is either arbitrage business or jobbing transactions at a very meagre price differencs of as low as Rs 0:05. Thus will lead to a complete erosion of Inquility in the market which is very casential for true and bar price decovery and reduang impact cost (that is, the effect of bulk purchase order on the price of a scrip). Even without this step the market was very nervous about the policies of the UPA government and the influence of Left partisan economic policy.

The low interest regime of the NDA government, which was a major factor facilitating industrial development and growth in the housing sector, etc, is showing signs of reversal as interest rates are firming up. If this government does not take major initiatives which are missing in the budget, the impact on the economy could be severe.

(The writer is member, Central Economic Cell, BJP)

Should they kill the goose for the egg?

 Should they kill the goose for the egg?

By Gopal K Agarwal,

The ban on outsourcing may also be a sign of weakening of American confidence in the strength of dollar. The US has been running up higher and higher deficit.

 A succession of US visitors has told us that India is one of the most closed economies in the world. This is partly an attempt to legitimise anti-outsourcing legislation. The conventional test for gauging openness is tariff structures, on which India scores good as per WTO standards. New Delhi has strongly conveyed to Washington that any linkages of a quid pro quo in outsourcing would not be acceptable to it. It also holds the view that outsourcing is a commercial activity and should not be seen as a bilateral and hence not bedevil ties between India and the United States.

Americans were earlier in a position to win competition and control economies of other countries through monetary policies. They were vehemently establishing institutions such as IMF, WTO, GATT and World Bank to promote their interest by pursuing other countries to open their economies and remove trade barrier. When international trade agreements were extended to agriculture and services sectors, in which developed nations were not very comfortable and started loosing in competition, they started shouting anti-liberalisation slogans. Once this reverse process starts. it will not take much time for other nations to follow. US will be the biggest looser in the whole process. The US economy is based on accessing world markets. One cannot ban outsourcing of business process but continue to have access to world markets and international demands. US ban on outsourcing will have serious backlash.

Business process outsourcing (BPO) is a process through which some business processes are outsourced to other countries where they can be performed at a cheaper rate or at a better quality. This helps in globalizing national economies. Outsourcing depends on labour arbitrage. Per capital income of different countries varies.

Until national income of countries come on parity, these arbitrage opportunity will remain.

With the opening of the world economy and integration of international trade, BPO has created vast opportunities for the developing countries due to availability of cheap and skilled labour. India is considered to be a major beneficiary of this process. Take any field where knowledge is involved, India has the potential to become a global giant and an economic superpower. India has several advantages. Owing to availability of cheap and highly educated labour, the cost difference at which we can provide services and many commodities of comparable quality will put the other world at a great disadvantage.

India has cost-cum-competence advantage in professions such as law, accountancy, design, engineering, tax consultancy, financial and IT services. Doctors, MBAs, chartered accountants, nurses, lawyers and many other professionals are available in India at a much lower cost than the world over. Many multinational companies are setting up their R&D centers, BPO facilities and product development centers in India

 Recent technological revolution in the field of telecommunication etc. has put our infrastructure at par with global standards. India's vast pool of English-speaking manpower, coupled with its educational system and training programmes, has helped transform the country into a global outsourcing superpower. The rapidly growing BPO industry has virtually turned the country into an electronic housekeeper to the world, taking care of a host of routine activities for multinational giants. As Indian training institutes churn out tens of thousands of computer literates every year, the vast majority has jobs waiting for it with the local firms rushing to spread wings to offer services at sharply lower rates.

On the back of these English-speaking, tech-savvy. Cheap manpower, India's IT market has grown from $1.73 billion in 1994-95 to $16.5 billion in 2002-03. The country's software exports were able to grow at 26 to 28 per cent during the current fiscal year ending March 2004

Now suddenly we hear anti-globalisation noises in America. Recently, several legislations have been passed in US that seek to deter the outsourcing of work previously done in the US states to developing countries. It seems strange for a country that in the past had been harping so loudly on opening economies without international trade barrier, to turn conservative in its approach.

The ban on outsourcing may also be a sign of weakening of American confidence in the strength of dollar. The US has been running up higher and higher deficit, which has crossed half trillion dollars this year. Earlier, this was being financed by attracting global currency reserves. The central banks world over were keeping their currency in the form of dollars, thereby increasing the demand for dollars and keeping it strong. Now other currencies are gaining strength and dollar is weakening. A national debate is required so that a consensus can be built on capital account convertibility and delinking of the rupee-dollar exchange rate. We have huge foreign exchange reserves: we may think of delinking rupee from dollar and allow it to float freely.

US has to understand that good economics should not be sacrificed at the altar of short-term policies, as said by our Prime Minister Atal Behari Vajpayee. He further added that it was somewhat perverse that Americans should turn protectionist and thus reinforce anti-globalisation crusades at a time when developing countries like India had successfully handled the political economy of resistance and had begun to open up.

Even Alen Greenspan, Chairman of Federal Reserve, said that the efforts to protect OS jobs through legislation could end up backfiring. He further said that US had a choice of erecting walls to foreign trade and even discouraging job-displacing innovation but this would surely slow the pace of competition, Initially tensions might appear to ease but only for a short while. Further US companies have little choice, if they don't cut costs by outsourcing, they will rapidly become uncompetitive comparison to those companies that do. In that case many more US jobs will be lost as these companies shut down. Off-shoring is still only a small component of the business of many US-based companies.

Outsourcing is a two-way process, of which India was beneficiary. The world outsourcing market was estimated to be about five trillion dollars in 2002, according to Outsourcing Research Council Shri Colin Powell, the US Secretary of State, said that outsourcing is a reality of 21st century and an opportunity for both sides. Nearly 20 per cent of the total business is constituted by the IT and ITES market, which is growing at about 15 per cent per annum. Of this, India receives only about two per cent of the work, which indicates the huge potential. However, in a simultaneous reverse process, some of the best and biggest Indian companies are outsourcing strategic IT functions to some of the global companies.

Strategic outsourcing is in fact the fastest-growing segment in the Indian IT market as seen from the series of deals announced in the last few days. A notable deal is the one that struck in the recent past between Hewlett-Packard and Bank of India for over Rs 680 crore. It is also clear that global vendors have established their expertuse and experience in handling long-term, complex outsourcing needs of Indian companies to enable business transformation. It is not a sheer coincidence that strategic outsourcing is being opted by Indian companies at a time when the BPO phenomenon is at its peak. Indian non-IT companies are taking to outsourcing as they are on the lookout for vendors with the best domain knowledge. In simple terms, this is just a manifestation of globalisation.

But America's selfish mentality is evident everywhere. Until America did not feel the heat of terrorism, it ignored terrorist activities of some countries in the name of freedom struggle. As soon as the heat turned towards USA all forms of terrorism becarne bad for the world. Similar is the case with international trade. Now that USA's interests are clashing, it wants to wriggle out of agricultural and services sector agreements under WTO. In this unipolar world it is important that USA starts looking at the whole world neutrally.

(The writer can be contacted at gopalagarwal@hotmail.com)

Feeling good, continuously

 Feeling good, continuously

By Gopal K Agarwal, 

Two sectors the government is focusing on are agriculture and small scale industries

Recently India has embarked on a growth path unprecedented in the past. There is criticism from some quarters about its benefits being concentrated to small groups. But this 'feel good' factor has been attributed to the policies of the present BJP-led NDA government. The main contribution comes from good governance, a clear foreign policy, the economic reform process moving in the right direction and infrastructure development. This has led to wide economic activities, creating a push in demand and development in the manufacturing and services sector. It is reflected in the stock market boom. The world looks towards a resurgent and confident India.

The main task before the government now is to build on this confidence by furthering infrastructure development and implementing policies so that this growth continues further. The emphasis must be on wider distribution of its benefits. If a section of society cannot directly benefit from this growth, they must be provided support in the form of social security measures. Roopa Purshottam, co-author of the much talked about BRIC report of Goldman Sach, argued that to realise its true potential, India requires a lot of investment in sectors yet in the nascent cycle, like power, defense, telecom, oil and path gas exploration. The banking sector also calls for attention and the credit cycle should go forward. There should be a focus on sectors. But that are consumer-interest intensive Positive forecasts will not hold good if labor reforms are not. introduced. Anne Kreuger, first comes deputy managing director of International Monetary Fund form (IMF), has said that while fiscal imbalance was not the only impediment to growth, its reduction was important to encourage growth and reduce poverty in developing countries.

Joseph Stiglitz advocates the need to scrutinise the term globalisation. Opening up countries to more trade is good; opening them to unbridled capital flows is bad. Tariffs must be reduced and developed countries should open their fit markets to developing countries. Inefficient public enterprises must of be privatised, not efficient ones. Privatisation isn't about raising revenues for government but about increasing productivity in the economy. Care must be taken not to replace public monopoly with private monopolies.

The 10th Planning Commission document warned that the infrastructure won't be able to provide jobs for new entrants or clear the backlog. Fifty-four per cent of the India's population is under the age of 25; a majority have no inclination to work in the agriculture sector.

Two sectors the government is focusing on, and which have potential to sustain growth and its proper distribution, are agriculture and small scale industries. The agricultural sector requires the followingand allowing leasing of agricultural land; developing cottage industry to promote the village economy and stop the flow of rural population to the citiesimproving water management organizing private markets providing better storage and warehousing facilities, improving the rural road network; implementing crop insurance facilities; providing improved seeds to farmers, establishing research centres in agriculture  technologies and disseminating knowledge to farmers, giving credit facilities at low interest educating the farmer in patenting and intellectual property rights and promoting organic farming.

In the small-scale sector the proposed reforms are: Providing guidance vis a vis the induction process for the entrepreneur, conducting market survey reports for small industries; setting up laboratories for the analysis of raw mate- rial; branding the product; creating a cell in the government for legal assistance; framing taxation policies giving concessions for emastries. ployment generation; requesting equires RBI to earmark funds for SSIs; Imple- providing an exit policy, preventing reserved items from being ille- Leasing gally produced by big industries; loping preventing industries from going te the to BIFR without clearing SSIs dues; making provisions for revival of SSIs under RBI guidelines; monitoring banks for credit delivery and financing.

Some steps are also required in the capital market. The sensex has become the barometer of economic progress. The current ovid- volatility must be curbed. The rally house is being fueled by FII money. Rural. Some stabilising fund is required in case of a sudden exit of FIls.

With all the macroeconomic factors pointing towards a robust Indian economy, we hope to build on the current confidence and make it a global superpower by the year 2020.

(The writer is member, Central Economic Cell, BJP)