Economic Highlights
New Delhi, 7 January 2019
Boosting Economic Confidence
BANK MERGERS, CESS NO SOLUTION
By Shivaji Sarkar
The Indian economy is poised to grow to over 7 per cent in 2019 –
a momentum it has established during the past few years despite slowdown in
2016-17. The growth at macro level is not the country’s problem. Its micro-economic
managements which are creating inequality, stymieing job growth and crisis in
the banking sector. Even people with good qualification have not been able to
manage properly paid jobs.
The private sector from education to industry is sustaining by
offering low-paid jobs to teachers, engineers, management experts or any other.
While the problem is there in the major metros, where salaries are
paid at 30 per cent of the government stipulated norms, a little away even jobs
in higher education or any level of private employment hovers around less than Rs
5,000 to Rs 30,000 (if so).
The managements of private sector admit the fact. They also say
that their earnings are also low. The enterprises are struggling to stay afloat
by slashing their charges, fees or cut on expenses. In such a scenario, they
find that provisions and penalties of the GST impact their activities.
Both the Central and State governments’ operations are becoming
expensive. They go on increasing taxes despite GST. Since new levies could not
be called tax, they name it as cess. The latest to be added to the list is the
“cow cess” in Uttar Pradesh. It was already there in Punjab and Rajasthan.
While technically indirect tax after GST is coming down, with the highest slab
being 28 per cent, various levies are adding to the problem.
Even income tax has about 3 per cent cess. On the part of the States,
various cesses, profession tax and increasing tolls remain as unseen and less
discussed taxes. Even municipal levies are rising. So the inequality is
growing. The poor loses more of their income to such levies further
impoverishing them.
Oxfam in its 2018 reports says, “In the
context of the acceleration of growth rate of Indian economy, the rise in
inequality raises issues of the distribution of gains from the growth.” Its report concludes that since 2010 till now, more and more of the
country’s income is going “to the top 10 per cent and top 1 per cent of the
population.”
The Credit Suisse’s Global Wealth Report Gini co-efficient for
wealth points to an overall inequality. It has risen to 0.854 in 2018 from
0.804 in 2011 and 0.83 in 2017. The closer the Gini value gets to 1.0, the more
unequally distributed is an economy.
It is a public perception that inequality is a political choice.
It acts through the hold of powerful lobbies over government policy. They do no
miss an opportunity to increase levies in any name and the latest is the
environment. In the name of environment, car lobbies acting through government
organisations are forcing people to abandon their working vehicles and
increasing various charges on industry and for parking as in Delhi. The citizen
loses on their income and lobbies maximise profits.
Even the 2016 demonetisation for mopping up black money turned
into a nightmare for the poor and small businesses. India remains even now a
cash-based economy. Digital transfers are not accepted even at government-run
highway toll booths. This apart the rationale of toll, leading to more corrupt
practices, is being questioned as every Indian is paying a fuel cess for road
construction amounting to Rs 1.13 lakh crore a year.
In an election year, when the government traditionally, not
constitutionally, is supposed to present an interim Budget, no new proposals
should normally be there. But the government has the opportunity to avail of
the window to reduce many levies and abolish atrocious cess and tolls. It would
be a great relief to the people, increase their income and also pave the way
for growth. Lower levies also could be an incentive for the enterprises to
employ more.
The 2008 to 2010 loan bonanza to the industry, flight of
defaulters like Vijay Mallya, Nirav Modi and Mehul Choksi, led to the severe
NPA crisis of over Rs 12 lakh crore. A mere Rs 50,000 crore has been realised. The
recent mergers of five SBI subsidiaries and now Vijaya Bank and Dena Bank into
Bank of Baroda (BoB) are not being seen as a solution. The SBI merger led to
depressed operating performance and its bad loans surged. It is found that the
mergers increase costs.
The latest mergers into BoB have shaken the stock market. It
saddles BoB with Dena Bank’s Rs 16,140 crore stock pile of bad loan. The merger
of Air India and Indian Airlines has led to the virtual collapse of the public
sector entity. Though bank mergers were done for good, finally it may cause
many hiccups for the economy in 2019. More job losses in the banking sector are
also predicted. Dena Bank alone has 13,440 strong work-force. The mergers are
now being touted as unwise. Saddling one’s losses on another is not wise.
One reason for high banking cost is stated to be over 30 crore
Jandhan Accounts. Though conceptually they are fine, compulsion has added to
the cost for the banking system and problems for those who were forced to open
accounts.
Around 7.5 million youth join India’s job market each year. As
government encompasses all activities, not providing jobs or remunerative
prices to the farmers is seen as problem of the government.
It is leading to the waning of business confidence.
The October 2018 Global Business Outlok survey of 12,000
manufacturers and services by HIS Markit spells concerns of political issues,
cost pressures and currency stability. In fact, business sentiment in the
country was weaker than the average in emerging markets as well as globally.
Despite this India is poised to grow. Its exports increase over 20
per cent to $221 billion till August 2018, PMI at 51.7 shows expansion, I-T
collection touches Rs 10.03 lakh crore, companies raise Rs 21,000 crore IPOs,
FDI equity inflows reach $389.6 billion, IIP output rises by 7.1 per cent,
primary goods production rise by 3.7 per cent and capital goods by 16.4 per cent.
But the country has to rethink on bringing all activities under the
government. This is against the concept of “less government”. It is adding to
administrative, financial, economic and functional problems. If this is solved many
inequities could be addressed.---INFA
(Copyright, India News
& Feature Alliance)
|