Economic fundamentals favour a stronger rupee, reforms needed for higher growth: Economist Surjit Bhalla
New Delhi, May 31
Economist and author Surjit Bhalla has said that India's strong economic fundamentals favour a stronger rupee and that policy reforms are needed to attract investment and boost growth.
In an exclusive interview with ANI, Bhalla said India's low current account deficit and low inflation should have supported the rupee.
"The fundamentals of the rupee were in favour of the rupee, not for depreciation," he said, adding that the key issue is the lack of investment despite strong economic growth.
Bhalla said policy uncertainties continue to discourage investors and affect the rupee's performance. "The fundamentals are in favour of a stronger rupee," he said.
Calling for immediate reforms, Bhalla urged the government to permanently rule out retrospective taxation. Describing the practice as wrong morally, wrong in principle, he said such measures hurt investor confidence and private investment.
He also advocated reducing taxes on foreign investors, particularly capital gains tax. According to Bhalla, India has higher tax rates on foreign investors than many competing economies, making the country less attractive for global capital.
"We have super high tax rates on foreign investors....make it competitive. You want to attract them. We need them," he said.
Referring to efforts to position GIFT City as an international financial hub, Bhalla said the initiative has not achieved the desired results because taxation on capital gains remains high.
On agriculture, Bhalla called for greater trade openness and implementation of farm sector reforms proposed by the government earlier. He argued that agricultural reforms are necessary to improve efficiency and boost long-term growth.
Bhalla also said vested interests, rather than small farmers, often stand in the way of trade reforms in agriculture.
Highlighting India's growth prospects, Bhalla said the economy should be expanding at a faster pace than its current growth rate of around 6 per cent.
"It should be much more... our potential growth rate is closer to 8 per cent," he said, adding that structural reforms are essential for India to achieve higher and sustained economic growth.
— ANI
Reader Comments
As an expat working in India, I can see both sides. The economic fundamentals are indeed strong, but the perception of unpredictable policies keeps many investors cautious. Bhalla's point about retrospective taxation is spot on - that practice has damaged India's reputation. However, I also think we need to be careful about opening up agriculture too quickly without proper safety nets for small farmers. Reform is needed, but with balance.
Bhalla sahab is absolutely right about agriculture reforms! For too long, we have been protecting inefficient middlemen in the name of small farmers. Look at how APMC mandis work - it's a cartel that exploits both farmers and consumers. The farm laws were good but the government buckled under pressure. We need to separate the real interests of farmers from those of vested interests. Stronger rupee will benefit everyone - cheaper imports, lower inflation, and more investment.
I agree with most points but have a concern. If the rupee becomes stronger, it will hurt our exports and also the IT sector which earns in dollars. Our IT companies have already been struggling with margins. The reality is that the rupee has been undervalued for years, which helped our exports. Maybe we need a gradual appreciation rather than a sudden one. But yes, the basic logic about attracting investment through better policies is sound.
From a global investor perspective, India is definitely an attractive market but there are some real hurdles. Bhalla is correct about the capital gains tax being too high compared to peers like Singapore or Dubai. But I would add that regulatory approvals and ease of doing business still need improvement. The GST has helped but compliance is still complex. Good to see an economist speaking honestly about these issues rather than just cheerleading.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.