Rupee crash may lead to bigger crisis than in 1991: Mohandas Pai

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New Delhi, August 29, 2013: Critiques of the Manmohan Singh government are growing by the day, but few have stuck their neck out to blame the government for the current crisis. TV Mohandas Pai, former Infosys director and now chairman of Manipal Global Education, is not the one to mince words though.

In an interview to NDTV, Mr Pai said the current situation is scarier than 1991 and there’s an absence of leadership to give a sense of direction and confidence to people.

"In 1991 we had a very small economy... the rupee was not convertible and only 10-15 per cent of India’s GDP was globalized. Then we could squeeze demand, but now we cannot do it. We have rising aspiration in the middle class," Mr Pai said.

Mr Pai’s comments come at a time when the Indian rupee has crashed to a record low and is the worst performing currency in Asia. Stock markets have turned extremely volatile and economic activity seems to have come to a standstill.

The government says the situation is not a throwback to 1991, when India was on the brink of default, with forex enough to cover just three weeks’ worth of imports.

Mr Pai said certain decisions taken over the last two years like retrospective amendment of tax laws and transfer pricing norms have meant that no company wants to invest in India. He also criticized the government’s recent decisions such as the one on hiking tax on gold, which he said has led to increased smuggling.

"What we need is a new set of policies and a decisive government. We need someone to stand up and implement strong polices instead of a kneejerk reaction," he added.

Mr Pai compared the government to that of Pakistan and said it was "living in denial". The government knew the deficit was rising, manufacturing was slowing and we didn’t have export surplus, he said. Besides several court decisions meant India had to import iron ore and coal in the last fiscal, he added.

"These have been coming all the while, but the government has been in denial," he said.

Mr Pai also listed several measures that he thinks can pull the country out of the current crisis. Allowing resident Indians to sell gold without having to pay capital gains tax, accelerate decision making with regards to coal, road and power sectors, take back the retrospective tax decision and controlling government costs will help boost sentiments, he added.

He said the government is "vindictive" towards the business community, which has led to further worsening of investment climate in the country.

"I have not seen such fear in the last 20 years. People don’t want to talk...stand up and say what is wrong. Business is showing the action by not investing in the country," he added.

The biggest challenge for the government currently is not recession, but 60 million youths coming to the job market at a time when there are no jobs, he said.

"It’s a demographic nightmare right now and the government doesn’t have slightest idea what to do with them," Mr Pai added.

However, beleaguered Finance Minister P Chidambaram came in for some praise. Mr Pai said he is somebody who can restore confidence in the Indian economy.

"We have a strong finance minister, who last year cut Rs. 1 lakh crore in the planned budget to reduce fiscal deficit. This year too, he will cut because revenues are down, he will take action," Mr Pai said.