Just ahead of the Union Budget 2022-2023, when the economy is reeling under the third wave of the COVID-19 infections, Subramanian Swamy, economist, mathematician and Member of Parliament, in an exclusive interaction with Business Today, discussed various aspects of the economy and steps needed to bring it back on the right track. Edited excerpts.
BT: The Budget is around the corner. So, if you would have been the finance minister, what would have been the immediate policy decisions you would take right now to mitigate the impact of the pandemic?
SS: Firstly, I would announce that effective from April 1, till we are back to normal, no income tax will be paid by anybody. And once normalcy comes, I think we should start making that permanent. Secondly, I would reduce the interest rates on loans from the present prime lending rate of 12 per cent down to 9 per cent. That's also within our hands; banks can do it and raise the fixed deposit interest rates from present 6 per cent to 9 per cent. So that people save more. At one point, we were saving 36 per cent of GDP and 80 per cent came from household industries. Today, we are down to 31 per cent. And this means your investment is also down because investment comes from savings. Secondly, I would lower interest rates. Thirdly, I would ask Gadkari to build as many roads as he can, and we will finance it, print notes. But I must say that [the] Modi government failed from June 2016 because, if you plot the GDP growth, it has been coming down from 8 per cent to 3 per cent since 2016.
BT: You have been a proponent of abolishing income tax but that would be a big revenue loss for the government. How is it feasible as far as revenue hit is concerned?
SS: I remember hearing the same language when P. V. Narasimha Rao was the prime minister, he said, “How can you remove controls and licenses? We have nothing in place.” One day he abolished it, and nobody will remember that. I first suggested this in the beginning of our tenure as BJP government, we were getting revenue from income tax around 4 lakh crore, which is nothing, you can look at the whole Budget, and it has now gone to perhaps to 8-9 lakh crore. At that time, when I said it, I said there are alternative ways of raising resources without taxation, like auctioning 2G licenses, how much did you get from the first auction? 4 lakh crore -- exactly what the income tax was. Then there is the option of raising resources from coal auctions. There's no shortage of alternative sources for the government to raise taxes. And if the economy is booming, people are willing to give taxes. Also put a rule saying that income of companies which are reinvested will be exempt from taxes altogether. So, the savings rate will go up and, with this, growth rate will also go up.
BT: According to you, what is the recipe for sustainable growth and job creation and how can Indian economy get back on track?
SS: The best way is to handle the demand factors in such a way that supplies get exhausted, in the sense that people buy it. Also, there should be motivation to produce more. For ex-RBI governor, Raghuram Rajan was of the view that to control inflation, increase interest rates. But if you raise interest rates, you also put a lot of MSMEs out of business, which means you will raise unemployment. I must add that unemployment today is more than what it was 10 years ago.
BT: So we know that after the first and a second wave, the economy was on the path of the recovery. So how do you assess the state of the economy as of now?
SS: Firstly, we have still not regained the level of the fourth quarter of 2019-2020, just before the start of the pandemic. Few days ago newspapers said that the finance ministry estimates that the growth rate will be 9.2 per cent in FY22. Firstly, the MSME is excluded in the calculation. Second, the third quarter data has still not come. So it's really two quarters.
In the meantime, the World Bank has cut down GDP projection data to 8.2 per cent. Now at this moment, I would only say that we have failed to combat the ill effects of the pandemic on the economy. But more importantly, this pandemic accentuated the decline, the decline that started in 2016. And in the third quarter of 2022, we had come down to 3.1 per cent growth rate in GDP on an annual basis, which means this is worse than Jawaharlal Nehru.
BT: The share of private consumption in the GDP has been falling, inflation has been rising. So currently inflation is at 5.99 per cent. So this is a sort of a double whammy for the policymakers. So how should they tackle a situation like this?
SS: We began with excess supply. The supplies were much more than the demand. We began that way so at that time we needed to boost the demand and we fail to do it. For instance, in my opinion, till the pandemic was over we should have abolished all income taxes, saying you don't have to fill forms to pay income tax. And you should have gone in for large public works. I think things were not done and I must say finance ministry has been a hopeless failure.
BT: How do you see the idea of asset monetisation, national infrastructure pipeline and Gati Shakti master plan? Do you think any of them are a game changer?
SS: No, because they will take at least five-six years. In India, they were talking about the privatisation of Air India from 2017. All the Prime Minister’s strength was put in for privatisation of Air India, and finally got it done at the end of 2021. And that is all haphazard because still the deal is not through in a formal sense. So, the climate is not for these things, the time is for bubbling of ideas, people should be invited, encouraged. They should be blunt; they should criticize and should be listened.
BT: If we want to achieve $5 trillion economy dream, what should be the growth rate? And how can we achieve it?
SS: To have $5 trillion economy we need 14.8 per cent growth rate per year. I think India is capable potentially to have that growth rate when P. V. Narasimha Rao came; he produced the growth rate of 8 per cent because all he did was to empower the people. India's capacity to grow has been demonstrated once by Narasimha Rao. And I'm telling you, we can also demonstrate in future and overtake China in another 10 years.
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