Jairam writes to Sonia and Rahul, suggests ways to fix economy

While Prime Minister Manmohan Singh has kept the finance ministry with himself for now, Union Rural Development Minister Jairam Ramesh has written to Congress president Sonia Gandhi and Rahul Gandhi recommending a set of measures to bring the country's economy back on track.

In the letter sent recently, Jairam wrote that the austerity measures announced by the UPA government were "meaningless" and would have "no impact whatsoever".

Some of the measures suggested by him are:

To rein in fiscal deficit, decontrol and raise diesel and LPG prices and introduce a tax on diesel passenger cars, especially SUVs;

Announce an across-the-board cut to the tune of 5 per cent in the budget of key spending ministries;

Announce a decision on FDI in aviation immediately and FDI in retail soon after the presidential election;

To restore policy credibility in the eyes of investors, especially FIIs, the finance ministry should categorically state that GAAR rules will be circulated to stakeholders in draft form within two weeks, comments noted and then finalised as soon as possible;

The ministry should state that complete clarification on the issue of retrospective taxation will be made in the next four weeks;

The ministry should clarify that the issue of tax on global research centres will be resolved soon.

According to Jairam, while the high current account deficit is the immediate cause of the crisis, the long festering structural issue of high fiscal deficit cannot be ignored. The two deficits are, in fact, inter-related, he wrote. He added that the government was not able to raise enough tax revenues to meet expenditures even as it had taken on huge expenditure commitments.

His letter added that the government should either take bold measures to control expenditure on subsidies — especially fuel on which the subsidies total Rs 1,90,000 crore, which is twice the budget for Rural Development — or raise revenue.

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