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Beware of get-rich-quick financial schemes

To grow the economy, Modi has to attract foreign investment, make the business environment more conducive by reforming the inflexible labour laws and speeding up environmental clearances while simultaneously establishing institutes for skills development.

business Updated: Oct 18, 2014 02:30 IST
J Mulraj
J Mulraj
Narendra Modi,India,Economy

Prime Minister Narendra Modi must be delighted by the exit polls for Maharashtra and Haryana, which expect BJP to wrest power in both the states. Winning in the two states will also gives BJP a larger presence in the Rajya Sabha, where it has a minority, thereby giving it the ability to implement new laws quickly.

The electorate, especially the youth, are voting for BJP in anticipation of its promise to spur economic growth and to provide them with jobs. The UPA government was caught in its own tangled web, of sharing of spoils with coalition partners and of corruption scandals, which led to policy paralysis, no growth, and no jobs.

To grow the economy, Modi has to attract foreign investment, which he has been trying to do by meeting foreign politicians and business leaders. He is also seeking to make the business environment more conducive by reforming the inflexible labour laws and speeding up environmental clearances, while simultaneously establishing institutes for skills development. But Modi has miles to go before he sleeps.

Here are some suggestions that could help attract direct and indirect investments:

Stable and less subjective laws

Vodafone’s case present itself as an example whenever foreign investment comes to mind. The government made a retrospective amendment to the tax laws to make the claim for capital gains tax on Vodafone and to be fair, the Income-Tax department claims to have informed Vodafone of its intention to claim the tax, and had asked it to deduct the tax at source; Vodafone did not. So the dispute is a legitimate one, but it should be resolved faster.

Quicker judicial process

Though, foreign investors are important, Indian investors who are increasingly refraining from saving — household savings rate have fallen to 30% — should take precedence.

But why is domestic investment declining? Well, one, because bank deposits, where over 80% of household savings go, give a negative real interest rate, which forces Indians to invest in gold that in turn swells the current account deficit.

And two, because Indian investors do not feel protected by fraudsters such as Saradha, Sahara and NSEL. Saradha chief Sudipta Sen told CBI that he has paid `42 crore to delay regulatory probes.

Modi’s government must ensure that scamsters do not get control of corporate funds for such nefarious purposes. And that they get their punishment swiftly.

Faster decision-making

Although ministries have been combined for efficiencies, decisions need to be speeded up. For instance, the ministry of corporate affairs stated that it was ‘looking into suspected lapses in accounting’ by Kingfisher Airlines.

Or take the VSNL case, wherein the government has around 800 acres of land in its hand from 2002, when the company’s control was sold to Tata. Yet, 12 years later, the government has not sold the surplus land, and is just ‘appointing a consultant’ for it.

When, exactly, do ministries stop ‘looking into’, or ‘appointing committees’ and actually start doing their job?

Business sense and bureaucrats

In China, a US retailer, Costco, has teamed up with Alibaba and is using Alibaba’s Website and warehouses to sell and supply its goods.

In sharp contrast, Karnataka’s sales tax officers have issued notices to 40 sellers of domestically manufactured goods, barring them from stocking their goods in an Amazon-owned warehouse.

The government should stop harassing genuine business.

Caution advised

Industrial output has slowed in August showing a growth of just 0.4%. But inflation is down to a 5-year-low, bringing hopes that RBI may reduce interest rates.

Globally, crude oil prices have fallen to mid $80 range bringing relief to India, which is a big importer. However, this is not helping boost economic growth.

Ebola is spreading fast, and is becoming a global threat. WHO believes the infection rate can hit 10,000 patients a week. That can badly affect global growth, and stock markets.

Caution is advised as these global threats combined can make the miles ahead of Modi a difficult journey.

(J Mulraj is a stock market commentator and India head for Euromoney Conferences)

First Published: Oct 18, 2014 00:58 IST