Jawahar Lal Sen

Recession has already arrived as the most unwanted guest. The central banks of the world, governments of all the countries of the world are passing through the most difficult situation after 30s. World economy is sliding downwards in an unprecedented speed. Worst sufferers are common people like us. Everybody is trying to adjust and in our efforts to make such adjustments in our family budget, some idea developed which we would like to share with everyone, big and small so that we can get rid of the guest as quickly as possible.

In our opinion the recession in Wall Street is primarily the result of unethical lending by the commercial banks in western countries, particularly in USA. Shortage of food supply is also responsible but this factor as well as the hike in crude prices comes only next. Sudden and uninterrupted fall in the crude prices may also generate recession .However; the Indian scenario is totally different. The volume of sub prime lending is not at all alarming. The impact of hike in the crude price was also well absorbed in Indian economy. The price rise in food grains and other edibles was in most cases seasonal in nature. Our internal market demand situation is also more or less steady. Still we watch a feeling of panic looming large over the market. The share market is about to reach all time low in past 4 years! Why this bearish sentiment? The answer is simple: there is no fresh investment in the market on the one hand and withdrawal of money by foreign investors after booking huge profit on the other. Fall in the level of investment immediately curtails production, adds to the number of unemployed, and gradually the forces of trade cycle set in.  Our analysis is based on the theories of social sciences; however we are mentioning here the policy prescriptions only for easy understanding.

Confidence is reaching the lowest ebb and therefore top priority should be accorded to confidence building. Million dollar question is how to build confidence. The central banks have already lowered CRR and adopted various other similar measures. Governments are coming out in the open to bail out shortages. But confidence level has not yet responded in a positive manner. Price of crude has fallen without any trickle down effect. IMF is approached to interfere before everything goes out of control. But nothing is happening. Gold has emerged as the only destination for safeguarding savings. People will prefer to purchase gold instead of shares, at least in India.

            In this part of our discussion we will concentrate only on Indian scenario. Share market is to be revived at any cost.  Prices have fallen to a very attractive level and this is the high time for purchasing shares which are fundamentally strong. But the indigenous investors are not coming forward. They are either purchasing gold or have adopted the policy of wait and see.

Therefore, let the consumers have more disposable income in their hands. For that ordinance should be issued for revising income tax structure. The salaried persons should be asked to pay 15 days gross salary as income tax in a financial year for a period of 5 years. Persons drawing Rs.6,000,00 or less in a year as gross salary should not be asked to pay income tax. Similarly corporate tax also should be reduced to maximum 15% in a financial year.

Moreover if any body invests fund in the share market he should not be asked to disclose the source. Do we sound ridiculous? No, absolutely not. First, this is a short term

measure. Second, the non disclosure of source may help in unearthing black money. Third, increase in economic activities will push the economy in the recovery trail which will ultimately make the coffer richer.

Next we will prescribe for withdrawal of subsidy and abolition of administrative prices practiced in the case of petroleum products. Whatever the ruling party or members of the opposition say, kerosene is sold in rural India at the rate of Rs.40/- per litter on an average. This is the reality. Similarly the administrative prices of other petroleum products also should go. Taxes should be reduced on such products.

The Finance Minister may also consider the possibility of granting tax holiday for two years in case of FDI. That will encourage incoming of international idle fund in the country. For that, keeping national interest and security in view, 100% investment may be allowed in appropriate cases.

Finally revival of share market will not revive the economy as a whole. Effective demand should be increased. For raising effective demand something unique – something dynamic should be done. We have tried to show how lowering income tax rate can increase effective demand. The experts may suggest some other measures. Whatever it may be ,by any means the level of effective demand should be increased.

RBI is very much vigilant and taking copybook actions.  But now it is not even one dayer, no question of 5 days test match – it is 20-20. So quick action is the call of the day. For that something should be done outside syllabus. The RBI may consider funding Indian private sector banks by purchasing atleast 25% shares of such banks at the market price.If purchased, this will not only raise the value of shares and flush in liquidity but also raise the level of confidence of the common investors. Such shares may be retained or may be sold in future at a profit. Lowering of CRR etc has got a considerable social cost, a factor which we cannot afford to ignore. In the case of foreign banks the RBI may have other considerations. Subprime loan sanctioning by the commercial banks should be STOPPED by the RBI.

The Government may also consider purchasing blue chip shares and sell those  at appropriate time. Foreign investors or the financial institutions enter only for reaping profit by creating a bullish or bearish sentiment in the market. Direct or indirect government entrance in the market will stop such unhealthy practices and will definitely play a positive role in confidence building.

The measures so far adopted or suggested here will be helpful in reviving the share market. But we must take note of the impact of global depreciation in the demand of our products. As a result of which our exporters are suffering loss, they are about to curtail production and retrench labourers . By creating an internal market within the country for their products this problem can be solved. For this also measures should be adopted for raising purchasing power (disposable income) of the common people.

In Singur like developments merchant associations of India should come forward and help the Central and State Governments in defusing the situation. For that Finance Minister will also have to take some positive steps. Such developments send wrong signals to the investors. The attitude should be ‘loss of one is the loss for all’.

 Though we are confident, yet we will appreciate further discussion on this issue for finding out an effective solution.

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