The Bharatiya Janata Party, while criticising the government for mismanagement of the economy, has suggested several measures that it must take to tackle the situation.
The government, on its part, has taken some of the measures and is likely to move along the same trajectory, suggesting an element of bipartisanship on economic issues that hasn’t been seen between the two of late.
On core issues, the BJP has been trenchantly critical of the government. In a statement on October 14, the party said it was the crisis in the real economy which was the cause for more serious concern than the vagaries of the market. Three former ministers — Jaswant Singh, Yashwant Sinha and Arun Shourie — who issued the statement, say that for want of access to equity capital (which was curtailed as part of liquidity control measures) Indian companies ran up corporate debt at ruinous rates.
The constriction of the economy put a strain on exports, real estate and construction industries. In fact, the government need not have emphasized so much on the monetary route to curb inflation.
It did not pay enough attention to the supply side which is why liquidity was sucked out of the market, they said. The withdrawal of investments by the FIIs added to the problem only in a small way, the BJP leaders said.
Blaming the government’s SEZ policy for creating the real estate bubble, the BJP said there was a very sharp correction in capital values that needed liquidity. The party said mutual funds that need liquidity should be assured of it.
A similar crisis of liquidity with banks was causing soaring interest rates, the party said, adding the 150 basis point cut in the CRR announced on October 10 was a first, but an inadequate step.
The CRR should be brought down to 5 per cent, it said. It wanted oil bonds and other off-budget items (such as fertiliser subsidies) to be included in budgetary calculations as government borrowing so that they could be converted into SLR bonds.
The party also emphasised the urgency of funds transfusions to SMEs and to the National Rural Employment Guarantee Scheme (“It is not reaching the intended beneficiaries”).
The party said the restriction on interest rates to be paid to NRIs should be relaxed and that the schemes like India Millennium Deposits and Resurgent India Bonds could ease the pressure on the rupee and help stabilize the exchange rate.
The BJP also said the reopening of the P-Notes system was only facilitating the flow of money out of India. The party said P-notes should be discontinued forthwith. It also argued against “naked short-selling”, that is shares being sold short by entities that just do not have them at all. It asked the government to use foreign exchange reserves to finance infrastructure development in India through a sovereign wealth fund.
| WHEN THE TWAIN MET | |
| BJP wishlist of October 14 | What UPA government/RBI did a day later |
| 1. Line of liquidity for Mutual Funds | Accepted, special window created by RBI* |
| 2.Cut CRR to 5% | Partly accepted (CRR cut by 100 bps) |
| 3. Include oil bonds, other off-budget items in budgetary calculations | No public comment as yet by government |
| 4. Remove blockage of funds for Rural Employment Guarantee Scheme and unfreeze Kisan Credit Card loans | No public comment as yet by government |
| 5. Ensure funds for SMEs | Advisory issued to banks by FinMin |
| 6. Cut Repo rate by 200 bps by March 2009 | In RBI ambit, next policy review slated for October 24 |
| 7. Hike interest rate on NRI deposits | Hiked by 50 bps by RBI |
| 8. Float overseas bonds | No public comment as yet by government |
| 9. Discontinue P-notes forthwith | No public comment as yet by government |
| 10. Outlaw naked short-selling, regulate short-selling | No public comment as yet by government |
| 11. Use forex reserves for infrastructure | No public comment as yet by government |
| 12. Set up India Sovereign Wealth Fund | No public comment as yet by government |
| 13. Strengthen PSU banks through rights issues | Principally accepted, modus operandi to be worked out and announced later |
| 14. Open up corporate and government debt market for FIIs | Partly accepted, FII cap in corporate bonds doubled to $6 billion |
| Announced by RBI on October 14 itself | |
It said it would support the government if banks were allowed to go in for a major rights issue. This would immediately infuse liquidity into the banks, and at the same time enable them to become much stronger and more competitive, it added.
