An economic policy for Kejriwal's Aam Aadmi Party

The Aam Aadmi Party started by the anti-corruption activist Arvind Kejriwal is yet to frame an economy policy as per their own admission. The party is idealistic in nature, and has been formed to weed out corruption in the system. Hence an economic policy for the Aam Aadmi Party (Party) should be idealistic too. The party can take the following suggestions for framing its economic policy.

Suggestions for economic policy for the Aam Aadmi Party

The economic policy should benefit the aam aadmi. The question is who's the aam aadmi? Is it the man/woman on the street in cities and towns of India who commute daily to work to earn a living and who pays regular taxes? Is it the farmer who toils in the fields and who lives in villages? Is it the poor of India who do not earn a living? Is it the small business owners? Is it the construction worker? One thing is certain, it is not the corrupt rich (hopefully), a class of population that is growing in numbers.

The party, given that its primary activity now is to get media attention by revealing crony capitalism details, is gaining eyeballs from the man/woman on the street who commutes to work everyday. The aam aadmi is the working class population in cities and towns of India, who watch TV, read newspapers and browse the internet. The working class population is affected most by the poor economic policies of government. Hence the economic policy of the Party should be targeted towards improving the lives of the working class population.

The party should look to adopt the policies suggested below to improve the lives of the working class population. The economic policy should target:

Low inflation: Inflation target of below 4 percent for both WPI (Wholesale Price Index) and CPI (Consumer Price Index). RBI's comfort level for inflation in India is below 4 percent and if inflation can consistently be maintained at lower levels, interest rates can be eased leading to improved chances for economic growth.

Low fiscal deficit: Fiscal deficit in India does not work to the benefit of the aam aadmi. Fiscal deficit adds to inflation, widens the rich-poor gap, increases corruption as public money is used for private gains and pulls up interest rates. The party should not tolerate high fiscal deficits. Fiscal deficit of below 3 percent of GDP is manageable for the country.

Low inflation and low fiscal deficit are part of the economic policy of all other political parties. However, the other political parties do not frame policies that bring down inflation and fiscal deficit. The Aam Aadmi Party should frame clear cut policies to being down inflation and fiscal deficit.

The policies to bring down inflation and fiscal deficit are:

1. Increase in tax-GDP ratio. India's tax to GDP ratio has not moved up from around 10 percent levels over the last decade and this is a primary factor in weakening the government's finances. The party should have a target of an increase in the tax-GDP ratio of 1 percent every year. Taxing wealthy agriculturists should be the first priority of the party given that big landowners misuse tax-free agriculture income.

The party should not tolerate high fiscal deficits. Fiscal deficit of below 3 percent of GDP is manageable for the country. AFP

2. Decrease in subsidies as a percentage of GDP. Subsidies as a percentage of GDP are on the higher side at levels of over 2 percent of GDP. Subsidies do not go where they are meant to go and as a percentage of GDP they should be brought down. A sustained reduction in subsidies every year will help bring down the fiscal deficit.

3. Make public sector units accountable to shareholders. Public sector units that make profits are used as a cash cows by the government while units that are unprofitable are allowed to run through cash infusions and bailouts. Companies like Air India are a vast drain on resources (taking Rs 30,000 crore of public funds as bailout) while companies such as ONGC are used for subsidising fuel prices.

4. Allow railways to function as a well-run company. The Indian Railways is a monopoly and should be making good profits. The Railways are misused for political gains and this misuse should be stopped. Railways should have a corporate structure with accountability to the public to bring it back into the black.

5. Improve transparency in government dealings. Government allocation of any scare resource is the primary reason for crony capitalism. All transactions involving natural resources should be done on an e-platform with full transparency and accountability. Results of the transactions should be placed for public consumption.

6. Reallocate resources to education and healthcare. Resources that are much needed for basic literacy and healthcare are not available due to many other unwanted socialist schemes. Primary education and healthcare delivered in a corruption-free manner ( it is sickening to see corruption in mid-day meals for children) will go a long way in improving the conditions of many Indians.

7. Strengthen regulators of financial markets. The financial market regulator, Sebi, requires more strength to pull up manipulators. Market manipulation leads to lack of confidence amongst aam aadmi investors. Sebi should be given SEC like powers to punish wrongdoers.

8.Enforce independence of the RBI. The monetary authority should be given completed independence from government interference if it has to conduct monetary policy to benefit the country.

9. Root for growth without unwanted side-effects. The unwanted side-effects of high economic growth is inflation, rising rich-poor divide and environmental degradation. The party should stand for quality economic growth and not quantity economic growth.

10. Allow a competitive market place to function. Entry barriers in an economy prevent optimum use of scarce resources. The economy should be opened up to competition to make the country globally competitive.

Arjun Parthasarathy is the Editor of www.investorsareidiots.com, a web site for investors.