If India is to be taken seriously as a great power, its economy needs to expand from the present level of $2 trillion to $10 trillion, a fact understood by Prime Minister Narendra Modi, which is why he has made “Make in India” his signature tune. What he needs to do is to ensure that a trillion dollars of investment flows into India over the next five years. That will not be easy, for decades of bad policy have resulted in a clogging and a hardening of the arteries of progress, such that every now and again, the economy gets a heart attack, thus far none fatal, but getting there. India is probably the least competent major power on the globe when it comes to the management of the economy. It is a coal superpower, having vast reserves of what is termed as “black gold” for its value in the production process, but a succession of bad policies has resulted in a slew of court verdicts that have sent the industry into paralysis, so much so that this country has joined the ranks of the biggest importers of coal, getting the resource from countries that have more rational systems of economic administration.
Across the country, manufacturing units have been shut down, several for lack of power, others because of tax policies designed by economic ministries and institutions that focus on smothering growth rather than encouraging it, with the Nokia plant at Chennai as an example. This was the largest mobile handset manufacturing plant in the world, churning out $6 billion of output, much of which comprised of exports. However, tax demands resulted in its closure, a situation which ought to have been avoided. It is true that there is much fiddling of accounts on the part of companies sending products for export, with the result that exports get under-invoiced and imports grossly over-invoiced, especially with equipment, the difference going off to offshore banking accounts. However, authorities in India have been selective and arbitrary in their measures against such transfer pricing frauds.
This is where a better relationship with the US can help. The Treasury Department can be requested to help get data on companies that export products to dummy companies, which almost immediately sell them at much higher prices to genuine overseas buyers. Several of the companies to which exports from Indian entities are being made, at least on paper, are located in offshore banking centres such as the Bahamas.
Were the Department of Revenue Intelligence to live up to its name (rather than, as now, often functions in a manner totally bereft of intelligence), it could very easily identify the fake entities to which exports flow, immediately to get resold at the actual market price. Rather than thrive under the patronage of high officials and politicians, those responsible need to get booked for the crime of seeing to destroy the economy. Instead, they occupy honoured places on committees set up to improve economic performance. The Ministry of Finance needs to work harder to fulfil Prime Minister Modi’s promise to the nation that he would be ruthless in dealing with the bulk depredators creating black money. In what must be causing concern to Modi, neither have the names of those already identified as having huge stashes of unaccounted money abroad been released, nor has any individual of note been proceeded against, even while the venerable Special Investigation Team (appropriately called “SIT”, as that is what they seem to do best) labours on in its mission of identifying those who are the major holders of black money. If all that the SIT does is have sittings, then by the end of a year since it was set up, it should perhaps be re-constituted with individuals who may be more effective in tracking black money.
Prime Minister Modi paid great attention to US corporates during his visit, and this is as it should be, for these entities are collectively possessing more than $2 trillion of cash that they can deploy across the globe. Without compromising its core interests, such as remaining the prime source of affordable medicines to the poor across the globe, India needs to put in place a regulatory structure that monitors rather than constricts. All the rules and procedures added on in layer upon layer by successive governments have not eliminated black money. Indeed, each fresh policy, each new institution, has only made matters worse. What is needed is to fulfil the campaign pledge of “Minimum Government”, for that is the only path to the objective of Maximum Governance. Taxes, regulations and interest rates need to be lowered for the economy to boom in a way never seen since 1947.
Should Modi succeed in his stated goal, a goodly chunk of that $2 trillion could flow into India, giving jobs and hope to tens of millions.