At last never before perfect Coordination between the Central Government and RBI is a reality.

 It is really heartening to observe that The Reserve Bank of India while keeping its well recognised professionalism and statutory commitment intact, has come out with its very accommodative and supportive bold   monetary policy   to secure not only monetary stability in India but also to meet the challenges of an increasing complex economy which got badly hurt due to the unprecedented and unheard of covid 19 pandemic.  The monetary policy gives the much needed fillip   to maintain price stability and ensure economic growth overcoming the uncertainties and hurdles from all fronts particularly the financial markets, institutions and instruments. The readiness and assurance from the Governor to act as per the requirements of the dynamics of the economy would definitely set the foundation strong to make the economy perform and deliver as per the expectations of the Government to reach the$ 5 trillion at the earliest.  

With this very liberalised and bold approach both from the Government and the RBI the economy can enter the fast track soon and leave aside all the negatives so far faced to kick start the economy and make it perform to its full potential. Very imaginative and innovative fiscal policies of the Central Government and the very accommodative and supportive monetary policy of the Central Bank, the path is clear now for the economy to move fast and the never before Perfect Coordination between the Central Government and RBI now visible can help the economy only to move in one direction i.e. to move up and forward without looking back and with record breaking results all around.

The RBI’s conservative estimate of GDP growth at 10.5% as against the Economic Survey’s projection of 11% and its policy stance to continue to be accommodative to achieve this growth keeping the inflation at 5.2% well within the band fixed by the Monetary Policy Committee give both encouragement and relief for all the vital sectors to perform under the favourable environment   of financial and monetary stability. The key take away of the policy is to keep the policy rate unchanged at 4%, Reverse Repo rate at 3.35%, MSF and bank rate at 4.25%.which will help to put into optimum use the resources at the command of the borrowers, market operators and the Government without any uncertainties on the availability of liquidity, reasonably cheap credit both from India and abroad, and other needed support for production, transportation and distribution. The restoration of CRR in two phases to 4%,, support to NBFCs by way of LTRO facility on tap scheme and measures to streamline digital payments system, strengthening of the banking Ombudsman, better regulation of Cooperative banks and NBFC segments are some of the measures well intended to reinforce the much needed credibility in the effective functioning of institutions in the financial markets. Once the Financial System gets well stabilised in terms of healthy, sound and dynamic financial institutions, with stable, dependable, deep, wide and sound markets and dynamic and comparatively risk free products, the end users of the system i.e. the producers of all kinds of goods and services and the consumers can become active without any hesitation of any kind and the result is nothing but the growth of the economy. Governance of the financial system is the key to the development and the Reserve Bank seems to be very much alive to the requirement as is evidenced by many of its policy initiatives highlighted in the policy announcement. The notable highlight of the policy is the opening of the Government Securities Market to retailers and that too by allowing them to have accounts with the Reserve bank direct. This can help not only to widen and deepen the securities market but also strengthen the entire financial markets in varied ways helping the market players to be innovative and find ways and means to contain undue volatility, minimise mismatches in their balance sheets. This may also bring some solace to the Government to its fiscal balancing exercise.   

The development of infrastructure is the key to kick start the economy and the Government’s liberalised approach despite financial constraints and regulatory disciplines on the fiscal deficit front is an exceptionally bold step in the present precarious conditions the economy has been dragged in. This should pave way to enhance the long overdue demand driven expansion of the economy all round in terms of manufactured products, generation of employment, movement of goods and services. Various budgetary provisions seem to have bolstered the confidence level at all levels of investors, producers, service providers, and all those who matter in the matter. Once the confidence in the capability of our full potential to take the economy forward is regained fully, there cannot be any sort of stumbling block is what is made known through this years’ budget although there are some gaps left in some areas like satisfying the lower middle class, pensioners, vulnerable senior citizens, many in the unorganised sector and tourism as well.

All said the fact remains that this year’s budget announcement closely followed by the Reserve Bank’s very supportive monetary policy announcement has given a morale boost to all stake holders of the economy to perform well.  It is very apt to quote here the observations of the Governor of the Reserve bank when he concluded his monetary policy announcement that “I would like to say that, going forward, the Indian economy is poised to move in only one direction and that is upwards. It is our strong conviction, backed by forecasts, that in 2021-22, we would undo the damage that COVID-19 has inflicted on the economy. After the chaos and despair of the year gone by, through which we have sailed together and shall continue to sail ahead, the overall situation can be best described in the words of Mahatma Gandhi, “We are daily witnessing the phenomenon of the impossible of yesterday becoming the possible of today …”

The perfect understanding and the coordination (which was missing for decades) expected of the Central government and the Central bank in initiating economic and monetary policies in the best interests of the Economy and the people seem to have at last reached now and this augurs well for the all round welfare of all .Good Going indeed to realise the dream Atmanirbhar Bharath.

TVG Krishnan

5/2/2021                        

The economy got a vaccination at last. Well Done FM

The economy got a vaccination to get a boost at last through the budget 2021-22. The positive side of covid pandemic has brought in some sensitive changes in the thinking of policy makers and the economy got the much needed animal spirit to perform. As is always the case, the implementation of various proposals  is the key and hope the bureacrats, administrators , enforcement authorities, bankers, and right thinking public would cooperate with the Government and take the economy forward . Well done FM. 

TVG Krishnan

Why not delink all Capital gains tax from Income Tax?

                           

It is heartening to observe that  despite the slowdown of  the economy  for  more than 9 months on account of  Covid pandemic and its  related adversaries affecting all economic activities the capital market has attracted fresh investments  and by and large all IPOs have been a grand success with several times oversubscription. The capital market is booming and the average per day turnover in the markets has been reportedly in the range of about Rs Rs 80000 crores. With the improved performance of real estate business and some of the commodity markets,  the revenue earning potential of the Government through Capital gains, Security Transaction tax and other levies  has substantially gone up  and by nature  these revenues are non inflationary in character helping the economy and people a lot. It would be ideal in this background to think of streamlining the mode of Capital Gains Tax and make it totally independent of Income tax.  As it is, there is lot of hue and cry to abolish the Income tax as the collections of taxes and the costs and hassles involved in collecting the taxes do not favour continuance of this tax. Delinking of capital gains tax from Income tax not only bring lot of relief to the tax administration but also would help income tax payers particularly salaried class and pensioners who generally keep away from capital market and speculative investments. All capital gains tax, dividend tax, and Security Transaction tax can be preferably collected at source instantly  using the technology optimally and doing away with filing of returns if desired.  Just like general customers paying GST not filing Returns, the capital market investors in particular can be free of filing of returns as the taxes get collected instantly and there is no need to have a further follow up wasting national resources. Simplicity in both tax collections and tax compliance get accomplished simultaneously.

 Similarly, If bank transaction tax is introduced, even the very income tax can be abolished and the Government can make the transaction tax system more dynamic in such a way that the possible loss on account of income tax abolition can be made good by having different rates of transaction tax for bank account holders based on their deposits and other parameters of Credit card operations and like that. Any credit transaction including salary and other credit of any kind can have a higher transaction tax in lieu of income tax .This can  be different  compared to  the rate applicable to debit transactions.

 The objective of meeting  revenue targets and compliance of tax payments of different tax levies can be met by reforming the modes of tax collections without filing of returns and   ensuring ease of doing business and living as well .Both the Government and Tax payers stand to benefit by detaching capital gains tax from Income tax and introducing bank transaction tax .Use of technology and the readiness to change the modes of tax collection matter a lot to augment tax resources, tax simplification, tax compliance and minimise tax evasion.

Dr T V Gopalakrishnan     

A very good move from the Reserve Bank to strengthen the Supervision of banks.

 Both the bankers and Supervisors have to understand that banks deal with public money based on Trust and the loot of the money through advances and frauds cannot be TOLERATED.. The deposits and tax payers moneywith which banks particularly Public Sector Banks function, have some sentiments and no one can be allowed to hurt the sentiments by taking away the funds without contributing to the economy and general good of the public.Hope the College of Supervisors being strenghtened by the Reserve Bank will live upto expectations and save the banking system from bad borrowers  and fraudsters..The loss to the economy and the general public accruing perennially  because of the financial unsoundness of banks is some thing incalculable which needs to be arrested and the banks should be turned into well performing assets by eliminating the non performing loans in their books.   

 TVGKrishnan 

Corporate banks not suitable for Indian Background

Dear Sir,

 

This refers to the article 'Corporate Banks -the idea whose time has come' in Business lIne dated 26/11/20. The very thought for considering Corporates, Corporate Owned NON Banking Financial Companies and other NonBanking Financial companies to have license to run banks by the Internal Working Group of the Reserve bank is ill conceived and  if by any chance accepted for implementation, can only add miseries to the already weak banking system and help weaken further the Financial system exposing the economy to unfathomable danger. As it is, there is a wide gap between the rich and the poor and if the banks are allowed to be owned by corporates, the inequality levels seen in the economy will get widened further giving rise to social unrest, labour problems, and all sorts of ills in the economy taking away the social benefits so far extended to the ordinary masses under various economic reforms implemented as of now. 

 What the economy badly needs now  is a very strong Financial system consisting of very sound and healthy banks with high professionalism, well regulated and supervised non  Banking Financial Companies and Cooperative banks without any scope for having any systemic risk.The accumulation of bad debts and loot of the finacial institutions are by and large man made out of vested interets taking advantage of weak legal system and laxity of governance all around. The solution for this is to professionalise the institutions and bring them under effective and meaningful  regulation and supervision under a highly independent regulator accountable to parliament. There is also a paramount need to widen and deepen the capital market,  particularly bond market,forex market,and commodities market. There is also an urgent need to review the various products in vogue in different institutions and  markets and introduce lots of dynamism to regulate and supervise the market in such a way that confidence in the institutions and their efficient running with accountability for lapses if any, is fully restored and strengthened further There is definitely no exigency at present  to hand over the banks to corporates at this juncture.

 There is absolutely no harm in taking the views of experts irrespective of their background, based on merits and national interest.  After all, economic development is in the interests of all people without any reservations.        

 

Yours faithfully,

Dr.T.V.Gopalakrishnan

(This letter appeared in BusinessLine dated 27/11/20 with some editing).

Increase in Gold loans is an indirect indication that the people do not have proper employment, steady income and are forced to pledge / sell their family silver / Gold to sustain themselves. In a way it is a positive sign to track the wealth in the form of gold with the masses and the Government can think of having a GOLD BANK to find the much needed resources to put the economy on fast track.

( This comment appeared in Business standard dated 8/11/2020 against the article ' Gold Loan Glitter for Banking').

Dr    T V Gopalakrishnan 

Inequality in income levels is the root cause for economic slowdown

 

        Inequality in income levels is the root cause for economic slowdown

“Look Back, therefore, as far as you can, drink deep of the eternal Fountains that are behind, and after that, look forward, march forward, and make India brighter, greater much bigger than she ever was.”

                                                                                                       Swami Vivekananda.

The wide inequality of income levels and huge wealth creation by a few and for a few experienced in India over a long period cause irreparable damage to the Political, ECONOMIC Social and Technological set up is a fact to be recognised sooner than later and some serious remedial measures put in place to have a strong economy and credible democracy. The $5trillon economy is a possibility by all means but passing on the benefits to 130 crores of people with the present policies in force in a fair and somewhat equitable manner is doubtful as the experience indicates. In his book Break Out Nations Ruchir Sharma in the chapter on Great Indian Hope Trick under the paragraph India is a Political Chameleon in a good way, has very rightly observed that” India’s boom has also sparked a rise in inequality, which to some extent is natural in the early stages of economic development; however, inequality can pose a threat to growth if it goes unchecked. Over the last decade, consumption levels have grown dramatically for all Indians, but 6 percent faster per year for the richest 10 percent than for the poorest ten percent.” Despite well meaning economic reforms, the slowdown in the economic growth remains unabated and unfortunately further aggravated by the pandemic covid19, is adequate proof that the gap between the rich and the poor if allowed to deepen further unchecked, can take away all the intended benefits to the society, the economy and the nation over a period unless some concrete measures to distribute the wealth are imaginatively put in place with the much needed checks and controls to prevent amassing by a few.                  

As per an OECD report DECEMBER 2018, “one country that has experienced a significant increase in earnings and inequality over time is India, where the ratio between the top and the bottom deciles of the wage distribution has doubled since the early 1990s. The main driver has been an increase in wage inequality between regular wage earners – i.e. contractual employees hired over a period of time. By contrast, inequality in the casual wage sector – workers employed on a day-to-day basis– has remained more stable. The broad challenge of gradually reducing inequality in the EEs over the long-term can be framed in the context of a multipronged approach that addresses four areas: 1. better incentives for more formal employment; 2. targeting social assistance to those in need; 3. Spreading the rewards from education; and 4. preparing to finance higher social spending in the future. The EEs can alter the distribution of incomes by adjusting their benefits and government transfer systems and improving tax provisions. Such redistributive policies, once appropriately assessed to reflect domestic circumstances and priorities, can be powerful tools for reducing inequality.”

The economic policies pursued so far though have benefited the economy in many ways particularly in enhancing agricultural development, industrial growth, social advancement and technological progress, but unfortunately they all seem to have widened the gap between the rich and the poor despite the fact that there is some improvement in the removal of poverty.  While more than 85% of the population just manage to survive, 10% of the population have the ways and means to lead a good standard of life, the remaining 5% who dictate and control the economy have all the wealth either to contribute to the economy or mar the economy. This 5% in the top bracket cannot definitely be expected to generate the demand needed to expand this very vast economy generating widespread employment, production, investment and keep the cycle rotating making the economy strong and vibrant all around. Here in lies the importance of sound economic policies taking into account the amount of resources of the nation, their redistribution and putting them into productive ventures. The gap between our capacity and achievement is so wide that it has helped only to widen the gap between the haves and the have- not in such a way that the much needed demand to drive the economy is greatly missing. The absence of money at the consumer level is in fact the creation of the economic policy pursued over a period and the presence of informal economic activities is its by-product.  It is  time  now to seriously ponder over the economic policies presently in vogue by the policy makers, economists, researchers, academicians, administrators, financiers, social reformers, and all other stakeholders and come out with fresh ideas and give new directions to revive the economy with fresh thinking . About 80 % of the population need to be brought above the just survival levels which only can generate widespread perennial demand for varieties of goods and services to keep the economy moving. While food and clothing are taken care of by removal of poverty to a great extent, the fact remains that India fares poorly in Hunger Index as per the latest report. Over all, India ranks 94 out of 107countries in the Index, lower than Bangladesh and Pakistan. Provision of shelter remains pending for many is the ground reality. Once the basic need for food shelter and clothing is met for all, the economy can think of moving into the fast track backed by powerful engine of growth i.e. Greater Demand for items other than just food shelter and clothing from a majority. The need to enhance the quality and standard of life is paramount at this juncture. The application of Maslow’s theory of motivation is very relevant in this context and the policy makers have to necessarily ensure that the Country satisfies four out of the six major needs Viz: Physical Needs, Safety Needs, Social needs, and self esteem of the larger part of the population. This requires a well planned redistribution of wealth and provision of social security. The task is not that easy but is achievable as the Vision set by the Government is Welfare for All and the Mission ATMANIRBHAR BHARATH IS THE WAY AHEAD.  Quality of life and slow down of the economy have close correlation and these two variables cannot be overlooked while aiming for economic growth and lessening the inequality levels.      

Lack of all round infrastructures via physical, financial, social and technological infrastructure particularly in rural urban and semi urban areas throughout the width and breadth of the country is perhaps one of the culprits behind widening the gap between the rich and the poor. Besides total exemption of agriculture from Income tax without any trace of very rich farmers and their other economic activities makes it easy to accumulate wealth and be free from any interference from the tax authorities. Highly rich farmers with their political links and influential connections acquire power and dictate the terms and conditions to frame the economic reforms and be in power to perpetuate the reforms in such a way that the poverty and illiteracy levels remain perpetually and abysmally low enabling to exploit and create social unrest. Even the anti-farm bills agitation seems to be the handiwork of highly rich farmers in collusion with the powerful local politicians. Informal economic activities which include running of chit business, money lending at abnormally exorbitant rates, brokerage of all kinds, running of all sorts of businesses without adequate checks and balances taking advantage of the corrupt practices in vogue continue to flourish throughout the country making it rather difficult or cumbersome to bring them under formal economy. Incidentally and unfortunately Political affiliations and support of politicians help the wrong doers and they are allowed to thrive with unaccounted money harming the society at the cost of the whole economy and large segment of the population i.e. tax payers and other stakeholders. Farm bill is a landmark achievement and can be a good foundation and forerunner to tax the high agricultural and rural income in due course. Likewise, the financial system particularly the Banking system and Capital market knowingly or unknowingly caters to the cream of the society and the wealth multiplies fast only with them. The need to reopen  and review the entire financial system has arisen in the context of fast changing circumstances and the Institutions, markets and the tools /products used therein require lots of dynamism to achieve redistribution of wealth in a healthy and fair manner. The money multiplier effect seen and confined to a few segments has to change and the circle needs to be made bigger and bigger. Trust in the Institutions, market and products and effective Governance in the overall delivery of the financial system would help to lessen the inequality levels keeping the macro economic objectives well within the set targets.         

While high end cars are produced and marketed, but there are no proper roads throughout the country to use these cars is a reality. Massive infrastructure right from build up of roads in and around the country, build up of large go downs with cold storage facilities and warehouses to facilitate successful implementation of the farm bills, marketing and distribution of goods and services using digital technology and removing the middlemen would itself go a long way in enhancing the income levels and distribution of wealth from the ugly rich farmers in particular. Expansion of domestic tourism with all concepts of safety, comforts and attractions, would enhance employment opportunities, improved demand for goods and services, and encourage all round investment and industrialisation to produce mass consumption and other goods keeping in view even the demand over the global market based on tastes, preferences and affordability of the people in different parts with expected quality standards. The objective of Atmanirbhar Bharat is well within our reach with the administrative and fiscal and monetary incentives. More the incentives, the better should be the result without giving any scope for wrong doings of any kind at the cost of the economy. The Legal system should not provide any sort of relief for violators of laws taking advantages of the loopholes in the laws of the country in any manner. Strong and Result oriented administration without corruption of any kind can definitely deliver the result.

The fact that inequality leads to high inflation of food items in particular, financial instability, laxity in governance standards, increase in social unrest and generation of black money nullifying even the good intentions of economic reforms need to be realised, pondered over and acted upon earnestly. Very high inequality levels in an economy can also be an easy target for powerful international economies to exploit in different ways which can only do more harm to the whole economic system. 

The reforms and policies should invariably encourage Good Morals as part of Democracy, High standards of Education, Effective Governance, Decent living and Recognition of personal and financial achievements through rightful means and contribution to the welfare of people and the nation. The educational reform recently initiated is a very right move and is definitely capable of bridging the imbalances seen in the social economy to a great extent.  Let the Country and people move forward in the right track aiming for peace, comfort, safety and reasonable living standards with love for humanity, devoid of greed, fraud, hatred, jealousy, intolerance and all sorts of violence causing irreparable damage to human beings, the society, the economy  and national wealth.. The wealth creation through informal ways and bypassing the laws of the nation needs  to be reviewed, necessary changes brought in to minimise if not eliminate the bad effects altogether and progress evaluated by an eminent and independent jury consisting of people of eminence from all walks of life. Continuous social audit can do the trick. Socially and economically well placed citizens with their worldly wisdom and solid experience in different fields would be of very great help in the achievement of targets in a disciplined, orderly and systematic manner.

 Creation of strong data base, tying up of sensitive and very high value transactions through technology with proper linkages to trigger possible tax evasive transactions can perhaps be thought of as a mechanism to identify wealth creation and its adverse impact in the economy. It is very apt to quote here our Honourable Finance Minister’s recent observation while addressing All India Federation of Tax Practitioners at the National tax Conference 2020 that “Unless it is so small that you cannot go in for digital, it is always encouraging to know there will be digital ways of doing things so that every (transaction) somewhere is into the realm of getting noticed”. Digitisation of transactions, capturing data and linking the data with production, employment, tax collections, and interpretation of data with reference to the policy requirements would go a long way in formalising and integrating the informal with formal economy for the overall benefit of the country and the people. The whole public need to be exposed to national and international developments, educated and impressed upon the need to have a formal economy and convinced with the all round benefits such an  economy can bring in to the whole society aspiring for Universal welfare. The Visual and print media have to play a very creative and motivating role in the development of the economy and the nation and make the people feel and convince that democratic process is well adhered to in the policy enunciations and their implementation. Appropriate economic and administrative policies with effective governance standards can definitely help to reach the destination.        

The Country which has all the potential in terms of wealth, strong institutions, very talented human resources and worldly recognised innovative technological initiative and talent, cannot and should not suffer from the slowdown / growth of the economy any more. It is really heartening to observe in this regard that as per Human Development Index 2020, India’s Innovation Rank has jumped from 81 to 48 in six years ie from 2015 to 2020. However, the inaction and silence of the wealthy segment of the population cannot remain so any longer at the cost of the vast majority and widen the inequality levels further costing the ECONOMY irreparable damage and spoiling the image of the Government and the people. It is time to act to generate and spread the wealth and welfare for all and add strength to the democracy by enhancing the equality levels in letter and spirit to ensure good quality of life for all. It is time to fix the gap between the thoughts, words and action and see that the results reflect pretty well in the economy and reach equitably to all stakeholders. Poverty somewhere and prosperity everywhere cannot go together. Mismatch between these two create all the ills in the economy.   

As the saying goes without deviation from norms progress is not possible. I would like to end this note with a Quote from F Max Muller on India. “If I were to look over the whole world to find out the country mostly richly endowed with all the wealth, power, and beauty that nature can bestow in some parts a paradise on earth_ I should point to India. There are many bright dreams to be dreamt about India, and many bright deeds to be done in India, if only you will do them."    

 

Dr T V Gopalakrishnan

A Senior Citizen