Former disinvestment minister Arun Shourie describes the current economic situation as the result of policy paralysis and says the food security bill “must be stopped” to restore investor confidence and bring the economy back on track.
“It should start with fiscal discipline,” the former NDA minister told The Indian Express today in response to queries. “There should be clear signals for fiscal responsibility. That means no new announcement either by the prime minister or by the finance minister because their words are not being believed. The food security bill must be stopped forthwith, if you want investors to believe you are serious on this [fiscal discipline] count.”
Asked about opposition parties (including the BJP) supporting the bill with suggestions for more food guarantees, he said: “I am strongly opposed to going along [with the government] like this on reservations, NREGA and food security.”
About the economic situation, he said, “It is an economic consequence of political paralysis. For the last five years there has been no competence at all. The core competence of Dr Singh [the Prime Minister] has been to pass the blame to others, whether it is the 2G scam or the coal block allocations. Now, in the current situation, the world crisis is being blamed.”
He called it an outcome of domestic policies and said it will take four to five years before the economy can be brought back on track.
“The untrammelled fiscal deficit since 2008 is the reason. Budgetary deficits sustained over years are now getting reflected in the current account deficit.,” he said. “When [BJP leader] Yashwant Sinha and I pointed this out then, they justified it as stimulus. Now, we have landed in a predicted cycle where the rupee’s devaluation is leading to higher inflation, which means higher interests that lead to sacrificing growth.”
He stressed that expecting the RBI to control the situation would be too much and suggested a two-pronged approach to instil fiscal discipline and restore investor confidence.
“When the dam has burst, the RBI cannot do much. Monetary policy cannot fight these challenges because any attempt to hold the rupee will be beaten in its tracks by speculators. There is no instant remedy. It will take four to five years to get it back on track,” Shourie said.
“It depends on the outcome of elections,” he said, to a query whether early elections may help the country get itself out of the corner it is in.
Shourie also indicated that he was less inclined towards Nobel laureate Amartya Sen’s emphasis on subsidies for redistribution and more towards economist Jagadish Bhagwati’s view that economic growth should precede redistribution for welfare.
“I am certainly against expenditures being advocated by Sen. Subsidies to the rich should be stopped. It doesn’t mean entitlement to more unproductive susbisides. I am more inclined towards him (Bhagwati) than Sen,” Shourie conceded.
In addition to fiscal discipline, Shourie suggests restoring investors’ confidence through a series of actions to revive the economy.
“The second thing that must be done is to restore investor confidence through specific policy announcements that should include a no to retrospective taxation, regulatory clearances once granted will not be rescinded to avoid a repeat of Vedanta, Lavasa, and Posco etc, litigation should be curtailed — like if there is any contest, the government should contest vehemently up to high court level, but if it loses in the high court they should leave it at that — or such announcements indicating a reversal of the last five years’ policies,” he said.
Shourie dismissed attempts at restoring investor confidence through moves such as relaxing FDI limits for retail and insurance. “These are non-issues. They (foreign investors) are not going to come in these situations,” he said.