The government can take a cue from Brazil which gives four per cent interest subsidy for those taking a loan to buy omestically manufactured food processing equipment
The government announced this week a further hike in foreign direct investment (FDI) caps in several sectors, various concessions in multi-brand retail and 100 per cent FDI in telecom. It is generally agreed that FDI in multi-brand retail will not come till after the 2014 general elections. The only signal these announcements send out is that the government is willing to bend to invite global capital. Caps have been increased this year, but what about next year? Financing of current account deficit (CAD) is a continuing process and how much leeway is there to increase caps? So these decisions are, at best, cosmetic.
The CAD of nearly $90 billion still remains, with an outgo of $300 million every day! FDI and domestic investment will come if there are conducive policies, especially in the manufacturing sector. For instance, the government can take a cue from Brazil which gives four per cent interest subsidy for those taking a loan to buy domestically manufactured food processing equipment. Union communications minister Kapil Sibal’s complaint on Friday that the government and bureaucrats are not moving on the `25,000 crore computer chip plant would then, perhaps, be unnecessary. Why should the government get involved in this business? Let it just announce attractive tax concessions and the assurance that it will buy chips produced for its smart cards and other programmes and invite the Koreans and Americans to compete for this in India.
If there is no production, what are you going to export? The root cause of CAD is the difference between export earnings and expenditure on imports.
Fortunately, the government has recognised the need to curb import of items other than oil and gold, thanks to the Exim Bank bringing a paradigm shift in thinking on imports of electronic and engineering goods which are more than that of gold. The government’s import duty on gold is in any case flawed for the long term as smuggling of gold is expected to be 150 tonnes this fiscal. This means a huge loss of revenue for the government when it has a massive fiscal deficit that threatens Union finance minister P. Chidambaram’s lakshman rekha of 4.8 per cent of gross domestic product.
The jewellery and bullion federations have repeatedly suggested measures to bring out at least one to 10 per cent of the 20,000-22,000 tonnes of gold lying idle with households as this would curb imports drastically. But for some inexplicable reason, the government ignores the suggestions of various sectoral federations, be it jewellery, engineering, electrical equipment or the National Highways Builders Federation, at great cost to growth. Contrary to what Mr Chidambaram says, there are quick fixes, if only he and his government listen to the voice of the people.
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