Can PM Modi’s economic plan make India a global financial hub when many poor people shiver on streets?

Can PM Modi’s economic plan make India a global financial hub when many poor people shiver on streets?

-Dr. Abdul Ruff Colachal

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I

If all development premises remain useless for common people as many starve, live without proper clothing, an ordinary shelter of their own to live in, what is the point in making loud official economic claims that a nation has achieved?

A modern budget today should reveal the real intent of the government in making the poor and common people properly empowered with sufficient purchasing power to match the rising prices.

However, dreaming of outsmarting western powers including USA and Asian super power China, Indian rulers have been talking for years about mega-reforms that would reshape the contours of India as it tries to become among the world’s fastest-growing modern economies.

Indian government after government of all colors and programs want to project as the big power that shines while the real picture is somewhat different.

India is viewed as super power of South Asia, but Indian government has never been quite sure or confident about its economic and financial position. Indian corporates want to expand their business across the globe, making more and more extra profits.

Indian regime while promoting crony capitalists in the country do not show any interest to see the tricking effect reaches the common people also. Here India failed baldy. But none complains about the fate of the poor as even communists are busy counting their own profits.

The Congress has enjoyed for years dreaming up schemes and scams that were meant to help the poor but ended up helping everybody but the poor. The Aam Aadmi Party wants to help the poor by promising free water, half price of electricity and, free wi-fi.  The Jaitley Budget says that the poor must have social security and that they should pay a nominal amount for it (R1 a month for a R2 lakh pension), and the rest being made up by the government through a subsidy. This was an important signal of the roadmap people were looking for—a roadmap of what policies will be pursued. If the AAP or the Congress had made this policy, it would be poverty removal

The Congress party sources said the common man had been completely ignored. It was listless and direction less and represented sectoral bias. Narendra Modi had been talking of improving the life of the common man but there was no indication that the budget would carry the country’s economy towards that direction. He said the Modi government had earlier utterly failed in arresting the price level and one had expected that this inflation might be neutralised for the common man at least by raising the taxable income level to leave more money in the pocket of the common man.

Neither the Congress and BJP nor other regional big parties, thriving on corruption, can be expected to pursue the interests of common people who form the majority of their voters. However, the matter can be left at that. The Aam Aadmi came to fill the gap, caring for the poor and common people in real terms.

Indian PM Modi seems to be committed not to make common people happy by providing the essentials to the needy and less fortunate ones in a democracy but to make India a global financial hub as top priority and his 2015 budget is supposed to achieve that.

Of course, a prime minister who is fond of wearing Rs 10 lakh suits could not be expected to think about the common man despite the fact of his having risen from an ordinary family.

The Modi government seems to be interested only in big money for corporates as national economy, FDI and structural front, in the form of gradual rejuvenation in the confidence of investors towards Indian equities.

Perhaps, gone are the days of running from one regulator to another as firms, wearing the garb of universal banking, wreaked havoc on the savings of Indians.

One must watch the performance of the BJP government if it is indeed genuinely pro-poor.

Please don’t laugh straight away!

 

II

Budgets have remained a matter for specialists to think about, write about and to be concerned about while they affect the common people and underprovided people the most.

When Finance Minister Arun Jaitley read out the Budget speech the budget missed certain populist announcements that make Budget interesting for the common man. The biggest blow to the middle-class seems to be no provision elevation in income tax exemption tax. Adding to the woes, service tax rate has been scaled up from 12.3 per cent to 14 per cent, a raise that will make a hole in the pocket of the middle-class.

The speech by Indian finance minister started with what needs to be done to reform agriculture, one sector of the economy that has been completely untouched by reforms—to date. No more. Some steps towards reforming agriculture, a national market for agricultural produce, and related removal of poverty, formed the core of the first half of Jaitley’s speech. An important component of the Budget is the promise of social security and pensions for the poor. When the finance minister was delivering his speech, the social media guys were agog with speculation and comments that this was a Kejriwal Budget or a UPA-3 Budget.

Indian PM Modi’s finance minister Arun Jaitley’s budget for 2015 begins from the premises that a properly functioning capital market requires proper consumer protection. Jaitley, therefore, proposes to create a task force to establish a sector-neutral Financial Redressal Agency (FRA) that will address grievances against all financial service providers.

The Modi government is eager to implement the GIFT (Gujarat International Finance Tec-City) in Gujarat, envisaged as International Finance Centre that would actually become as good an International Finance Centre as Singapore or Dubai, which, incidentally, are largely manned by Indians, but GIFT has taken root in Gujarat. GIFT is a globally-benchmarked international financial centre that will target 8-10 percent of financial services on 84 million sq ft of space and create one million new jobs – 30,000 by 2016 from 700 today. Its core operations will include offshore banking; insurance, assurance and reinsurance; regional financial exchanges and back offices.

Since an international financial centre, of the likes of London, Singapore or Dubai, can’t just live on money, GIFT is being created as a smart city with schools, hospitals, clubs, entertainment centres and so on to attract top talent from across the world. The urban infrastructure being planned is world class.

India’s international financial centre will occupy the time zone that’s currently lying vacant, between Singapore to the East and Dubai to the West. If it rises to the occasion, it will be able to pull back a lot of markets that India has lost. Much depends on execution, some of which has begun. Phase 1, for instance, is in an advanced stage of completion, and institutions such as World Trade Centres, State Bank of India and a Bombay Stock Exchange tower have already committed to it.

From Gujarat PM Modi moved to Indian capital to pursue his GIFT idea. The multinational corporates are either using him or assisting him to achieve the objective. While the IFC rebuilds the domestic financial architecture, GIFT becomes a hub for international finance. These are also in tune with the larger objectives of Make in India, an endeavor that will need finance in order to gather momentum.

The Budget under the NDA-led government was expected to ease the life of the common man, because they are the ones who are affected the most. The cost of living should be lesser. For example, conveyance costs like train, taxi, auto fares etc. should come down somewhat. It can be lowered only if the petrol or diesel costs come down. The cost of food items, including vegetables and fruits, should come down. Overall, the expenses faced by the common man should reduce.

Every Consumer seeks is a return on investment at a low cost and transparent architecture.  Consumers would experience the push towards an insurance product when they go to invest in the Public Provident Fund or a mutual fund but an environment of institutionalised mis-selling puzzles and annoys them. Under the FRA, they will have a single complaint management agency to go to – the Financial Sector Legislative Reforms Commission (FSLRC), consumers can carry complaints against all financial firms.

Foreign institutional investors have reasons to be happy. The finance minister has clarified that the Minimum Alternate Tax will not be applicable on FIIs, and also offshore fund managers can set up office in India without any adverse tax consequences. Keeping FIIs in good humour is crucial to the Finance Minister’s plan to raise Rs 70,000 crore by way of stake sales in public sector firms in the coming fiscal.

Arun Jaitley moots the creation of Indian Financial Code (IFC). In effect, the IFC disrupts existing regulatory structures and recreates a more cohesive, more accountable financial architecture that oversees nine important moving parts – consumer protection, micro-prudential regulation, resolution, capital controls, systemic risks, development and redistribution, monetary policy, public debt management, and contracts, trading and market abuse. The finance minister informed the Parliament that work assigned to the task forces on the Financial Data Management Centre, the Financial Sector Appellate Tribunal, the Resolution Corporation, and the Public Debt Management Agency are progressing satisfactorily.

The increase in service tax and no hike in tax exemption limits for individuals too is a negative from the market perspective as it is seen dampening consumer sentiment. The government’s increasing reliance on indirect taxes like service, customs, excise, rather than direct taxes, to maximise revenues is a disturbing trend.

An out-of-turn cut in benchmark interest rates before the next credit policy on 7 April would mean the RBI is convinced about the government’s fiscal consolidation measures.

Higher spending on infrastructure is music to the market’s ears. The good thing is that investments stuck in stalled projects as a proportion of the GDP has not risen in the last three quarters. The higher fiscal deficit is also to meet non-investment expenditures like salaries and interest payments.

Although the need for an international financial centre had been felt for a long time, ever since India opened up in 1991 and Indian companies began to expand their footprint globally, this is an idea that has taken all of eight years to turn into reality.

Jaitley said India produces some of the finest financial minds, including in international finance, but they have few avenues in India to fully exhibit and exploit their strength to the country’s advantage.

The positives for the market are the government’s efforts at a more predictable tax regime for industry and investors, measures to plug subsidy leakage, and increased spending on infrastructure. The reduction in corporate tax will be simultaneously accompanied by a phased elimination of tax exemptions. In addition, companies to will be subject to the 2 percent surcharge on income above Rs 1 crore. Tax experts feel the removal of exemptions means some companies may end up with a tax rate higher than ever.

III

Even weeks before the Finance Minister presented the Union Budget for 2015, the common man has started building up expectations from the Narendra Modi-led NDA government at the Centre. People had expected the BJP dispensation at the Centre to deliver what it promised in the run up to the Lok Sabha polls, some significant policy changes that would make a positive impact on their day-to-day lives.

Prices of manufacturing are still at high level due to which consumers, mainly middle class are feeling the pinch now. The common man, who has nothing to do with the nitty-gritty of the very volatile and evolving business world, hopes to see the net effect of the strong measures taken by the government on inflation, education, taxation, and affordable housing etc.

It is claimed the budget was total appeasement of the corporate sector which had heavily funded the election campaign of the BJP. It was for this reason that this sector had hailed the budget as a big bang budget. But then so far as the common person was concerned, there was nothing much in it. All the decisions of the government had been anti-farmer and the budget was the manifestation of that doctrine of this leadership in which the common person had no place.

The budget was totally in tune with the economic philosophy of the current BJP leadership in the government which associated more with raising the high expectations of the people without doing anything concrete for them as evident from this budget.

The wealth tax got removed not because the Modi-Jaitley Budget wanted to decrease taxes for the super-rich, but because they wanted to increase the tax the rich paid—and with it, the yield in terms of tax revenue. The government obtained very little from the wealth tax

If government enhances tax exemption limit or announces tax incentives on small savings scheme, it would then increase domestic savings rate in the country and minimize government’s dependency on foreign capital. The national saving rate is about 30 percent of GDP. There were suggestions that national saving rate hit an all-time high of 36.9 percent in FY08, but has been consistently declining ever since as the economic conditions worsened. The government should aim at restoring domestic savings rate by boosting financial savings of households through tax incentives.

The middle class men, as part of common man, expect the income tax limit to be increased from prevailing Rs 250,000 to Rs 300,000. This would help people save more. Additionally, increase in tax limit will kickstart savings which will ultimately lead to increase in investment and liquidity in the system.

The hike in freight rates in the Rail Budget was criticised by a section of the industry as being a hurdle to the Make in India project by pushing up logistics cost.

Industrialists feel the Union Budget has done little to boost the manufacturing sector.

Of course, the question is if with this budget PM Modi could ever make India a global financial hub.

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