Source : India Today

4 ways to recover from double-digit inflation

If the Government can prevent double-digit inflation, ensure law and order, secure a 5 per cent GDP growth and kick-start the reform process, the economy will be more robust.


Control inflation

Below par monsoon and global energy price rise have worsened inflation.

1. So reduce subsidies in LPG, kerosene and diesel by Rs.30,000-40,000 crore.

2. Control impact of drought by additional Rs.20,000-25,000 crore allocation to NREGA, which with changed norms could provide rural employment while building water-saving facilities.

3. Check food prices by international purchase of onions, pulses and potatoes. allowing farmers to directly sell in cities, doing away with barriers to internal trade, rapid changes in Essential Commodities Act and APMC Act both at the state and national level.

4. Control deficit by generating Rs.100,000-150,000 crore in asset sale-PSE minority share disinvestment, possible opening of additional oil/gas blocks, and some sale of excess land in urban areas.


Accelerate growth

Significant export and domestic consumption growth are unlikely.

1. So raise investment in infrastructure by 

  •  Removing permissions logjam for large industry, energy projects and perhaps even mining.
  •  Enabling greater FDI in banking, insurance, defence and manufacturing in general.
  •  Managing legacy of disagreements in PPPs, and dealing with the surfeit of laws and rules getting in  the way of full-scale permissions to various large projects.

2. Rationalise personal income tax bands and remove a few deductions.


Restore stability

The Government has to take responsibility for its actions, eliminate back and forth, and avoid backtracking.

1. So explain each price rise to the people.

2. Remove retrospective taxation.

3. Constitute an amnesty scheme for black money abroad and in India.

Most optimistic estimate of Indian money abroad is $2 trillion. In a year, the Government can identify 10 per cent of the total amount, assuming it charges 20 per cent, it can get Rs.25,000 crore if lucky.

Have a domestic Voluntary Disclosure Scheme after a year, when the Government has greater ability to punish those who do not conform.

4. Enhance focus on security at the border and within.


Ensure confidence

As drought threatens, prices rise and incomes fall, especially in rural areas.

1. So reduce energy subsidies, purchase food products internationally to contain domestic prices, and remove constraints on trade in food products for addressing food inflation.

2. Use FDI and FII inflows to maintain and enhance India's forex reserves, currently standing at about $ 313 billion. In the process, the rupee will face downward pressures. A more aggressive Government may even let the rupee fall to around Rs.65 to the US dollar . When that occurs, a whole range of exporting sectors will gain.

3. Rapidly improve FDI and FII investment environment.