Grease pole economics.

The government has announced a number of incentives to spur exports and a 2% interest subsidy scheme, which was to expire in March 2013, has been extended for another year. Why? Because exports have fallen by 5.95% between April and November to a total of $189.2 billion while the trade deficit has jumped to $175.5 billion between January and November. If the deficit is not reduced quickly our credit rating could be reduced to junk status. TOI 27 December. " With these measures, we should be able to give a push to our exports in the last quarter of this financial year. The objective is to stabilise the situation and try and move from the negative territory to positive," said Commerce and Industry Minister, Anand Sharma. We would like to ask what he was doing in the first 3 quarters. The same minister is on another page this time saying," In a month's time, that is by January end you can expect the revised or the new SEZ guidelines which will  definitely be a positive mood booster for the investors." The government had imposed Minimum Alternative Tax and Dividend Distribution Tax on these Special Economic Zones or SEZs. They are also thinking of imposing income tax but giving some tax relief on investments inside these zones. Earlier the zones were exempted from almost all taxes and the imposition of duties has seen a drop in exports from these zones. The government is also working on how to reverse the retroactive taxes imposed under the General Anti Avoidance Rules or GAAR introduced in the last budget without losing face. This was designed specifically to claw $2 billion from Vodafone on its purchase of Hutch telecom from Hutchison Whampoa in 2007 after the government lost the case in the Supreme Court but had such a negative effect on Foreign Direct Investment that they panicked. Why does the government impose taxes and then announce their withdrawal while pretending to do something clever? Because it is caught in a trap of its own making and does not know how to get out of it. This all stems from the measures taken in 2008 to win general election in 2009 when the Congress forgave all loans to farmers, increased salaries of worthless civil servants by 80% and started the NREGA scheme which pays the rural poor for fictitious work. The effect was 10% inflation and zooming fiscal deficit. The RBI reacted by raising interest rates 13 times, increasing borrowing costs for industry, but has failed to control inflation. To contain deficit the government increased taxes indiscriminately worsening inflation and hampering exports. Falling exports led to rising Trade and Current Account deficits so they panic and want to cut taxes. The impression is akin to the monkey we read about in school that climbs 3 feet up a greased pole and slips back 2 feet. This with the World Class Economist in charge. Absolute disgrace!