Economic
Highlights
New Delhi, 24 December 2018
Loan Waiver Populism
REDO ECONOMIC MATHS
By Shivaji Sarkar
The Indian economy is going through a piquant
phase. On the one hand, there is competitive politics on giving succour to the
farmers through loan waivers and on the other private economy is slowing down.
This calls for looking at the economy through a new prism. It cannot simply be
a piecemeal approach.
The basic fault is that since 1991’s
Manmohanomics the farmers have been in disarray. The rural economy is in a
quandary. The country is keen on GDP growth without realising that figures,
though important, do not reflect the ground reality.
The loan waivers may earn votes but it is leading
the public sector banks to a brink. Their NPAs are growing because the
governments take four to five years to clear the bank dues and this is making
the banks apprehensive about giving further loans. A “good act” may not be that
good. The farmers certainly can ask if the industry could sit tight over their
loans, why should there be such a hullaballoo about them. They forget that
unlike them, once a farmer gets a waiver he is marked ineligible for fresh
loans.
Such acts are grinding bank lending to a
halt. The politics of waivers is creating a culture of morality. The Reserve Bank
of India in its July report said that the waivers are making farmers complacent
about repayment. It is being seen as a dole and impacting the public sector
banks.
Undoubtedly, populism is growing and everybody
is keen on taking the kudos. Union Finance Minister Arun Jaitley has aptly
warned against the populist policies like waivers. The bank depositors too are
a worried lot as they feel their deposits are in danger. The latest numbers are
worrisome. And perhaps this also reveals that the nation is finding it difficult
to understand economic development.
The Government is seemingly obsessed with
fiscal deficit and so is on a spree to fill up its coffers. Coercion is built
into the system either through tax terror or through levying of compulsive
charges on various facilities, increasing fuel prices and consequent free hand
to the big businesses to hike prices in the name of freedom to the market.
The country is in the throes of a severe
crisis of conviction. The political parties that one time criticised waivers are
today promoting these. About Rs 1.9 lakh crore has been waived by eight States
since the Uttar Pradesh elections in March 2017. About 1.47 lakh crore are to
be waived in Rajasthan, Madhya Pradesh and Chhattisgarh. Loans are mere symptom
of the disease. All, however, are silent on diagnosing the malaise.
Farmers need relief. They need remunerative
prices. But farm price is the key to economic growth. If it is too high, food
prices would be rising and could create a political turmoil other than affecting
the growth.
In reality, growth, to speak in a sober way,
is moderating, euphemism for a slowdown. This is revealed by the July to
September GDP figures. The growth during the period fell to 7.1 per cent as
against 8.2 per cent. However, there is a catch. The economy had grown at a
slower pace during the same period in 2017 at 6.3 per cent. The present figures
are on that low base. So the actual growth is less impressive.
Another interesting aspect is that the
non-government or private part of the economy grew at 6.4 per cent per year,
during the period which was much slower than the overall economy. The
non-government part of the economy is calculated by subtracting the government
expenditure number from the overall GDP number during the period. This is crucial
as it indicates how the less fortunate are doing.
This fall in economic growth was clearly
visible in other economic indicators such as car sales and two-wheeler sales.
Domestic car and van sales during the period July to September 2018 fell by 2.42
per cent during July to September 2018. Two-wheeler sales grew by 4.9 per cent,
after having grown by 24.8 per cent between January and March 2018 and 13.9 per
cent between July and September 2018.
This means that despite the National Green
Tribunal’s quixotic order for junking 10-year and 15-year-old vehicles, the
sales are not going up. So why not scrap such quixotic orders? More so, as it suggests
that the purchasing power of the people has been gravely affected and they are
away from the market.
Therefore, all of this calls for a detailed
study. It is also a reflection that despite higher direct tax realisation,
overall income is not rising. It is an indirect indicator of falling job
opportunities as well. The recent RBI study on impact of demonetisation has
volumes to say on this kind of stagnation.
One may boast that it has fattened government
coffers but at what cost? The collections during the last two financial years
have made the government richer by Rs 90,000 crore. The gain in revenue collection
comes at a cost more than Rs 1.05 lakh crore. The expense towards tax
administration is 35.75 per cent more cost of tax collection and anti-tax
measures account for 4.32 per cent in 2018-19.
This is also a reflection on the policies. It
looks nice to say that gross income-tax collection has increased, but it is
also a reality that these are mostly people at the threshold level. It
indicates that those low-earning persons, including those in businesses, who
earlier may have been making minor savings on tax payments, were contributing
to the economic growth.
As the country is moving towards a major election,
it is necessary to look deeper. On an average as the direct taxes are tailored,
even at the lowest slab, one would be losing about three months’ earnings in
filling the government coffers. This is just impoverishing them. This is
affecting growth. Taxes are meant to add to the growth, and if it is not so, it
calls for a relook at having such a tax system.
It is also difficult to comprehend that while
oil prices since 2014, except for a brief patch, have continuously been
falling, the public sector oil companies have been increasing the domestic
prices continuously. The minor cuts during the State polls were a deceptive
technique. Had oil prices been in sync with international prices, the growth
pattern could have been different. That oil companies are earning huge profits
is apparent from the doles they paid -- about Rs 3000 crore for erection of
some statues!
Let us redo the arithmetic not only of the taxes
but of all the waivers, fees, charges and road tolls, et al. Strategies have to
be worked out for overall development and just for pacing up the economy.----INFA
(Copyright,
India News & Feature Alliance)
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