Economic
Highlight
New Delhi, 19 August 2019
Turbulent Economy
GOVT MUST BE FLEXIBLE
By Shivaji Sarkar
The Rs 100-trillion investment in
infrastructure, promised by Prime Minister Narendra Modi is inspiring. It
should change the economy, which is in a turbulent phase, though not acknowledged.
The past five years have seen many investment
proposals in building modern ports, highways, railways, airports, hospitals and
educational institutions, et al. And some of this has been in the road,
airports and rail sectors too. However, given the impact it has vis-à-vis the
country’s population, controlling it as suggested, should not be an official
agenda, for it is often misused.
Modi, many would say has the capacity to do ‘magic’
and its happening. But he has also to contend with the global slowdown. Germany
shrank by 0.1 per cent as its exports are hit. Dow Jones indicator tumbles 800
points or 3 per cent after bond market flashes a recession amid the US trade
war and Chinese yuan manipulation.
Additionally, weak economic data across the
world has unnerved investments. Indian stocks are doing no better, with these slumping
everyday with some exceptions. The Sensex touched 36958 on August 14 from a
high of 40,000 on May 23. Will Modi’s promises change destiny? It might, but if
we listen to former Reserve Bank of India Governor Bimal Jalan it can take as
long as two years, which is closer to another election cycle.
Jalan indicated that the private sector is
still not investing, “may be due to post-demonetisation effect”. This means for
the past three years, whatever growth at present, even 6.8 per cent from 7.2
per cent last year, is primarily due to the push by the government. In fact,
this is the slowest GDP growth since 2014-15. The previous low was 6.39 per
cent in 2013-14, following which the Narendra Modi government came to power in
2014.
This is straining resources and the pain is
visible. Except for perhaps retail loans given by banks, there is a contraction
in all other parameters which measure consumption in different ways. Last month
the International Monetary Fund (IMF) and the Asian Development Bank (ADB) cut
the country’s growth forecast to 7 per cent, citing global and domestic
headwinds.
And this is at a time when the people as says
Modi are becoming aspirational and more demanding. A good indicator alright, but
if not supported by action, it can lead to problems. Jalan says that mere
public investment is keeping the morale high and it comes at a cost to the
revenue collection. It rose by a mere 1.4 per cent or Rs 4 lakh crore last
cycle! The demand is high, as despite realising the need, the government is
unable to give the necessary tax cut benefits to the people.
This has made the much-hyped ‘one nation one
tax’ or the GST a burden for the entrepreneurs and start ups. There are many
instances when start ups, having a sale of Rs 560 or so, ended up paying over
Rs 20,000 as penalties. The GST law imposes compounded penalties on those who
do not file returns every month.
The law fails to take into account that small
ventures subsist on low margins and it equals to the tax demand. In other
words, they are supposed to survive on no profit but face high tax demand and
compliance.
The thinking behind the law seems to be that
everyone is a thief and must be punished. This is ruining small businesses,
entrepreneurs and start ups. Another consequence is high NPA for small MUDRA
type loans, which is clogging public sector banks. For the government to
achieve its motto of promoting entrepreneurship, it should impose no GST or any
other tax up to a limit of Rs 25 lakh or more.
At the same time, it needs to do away with
monthly returns for GST payers and annual returns for nil income taxpayers. This
would undoubtedly be a great help to the informal sector which keeps the
economy floating.
There are many similar bureaucratic mistakes which
have deviated from the government’s policies. A person, who is not supposed to
pay a single paisa as income tax, has to take the rigours of filing return with
the help of someone he has to pay. This, obviously burdens the department with
millions of unnecessary returns and crores of refunds. In these non-exercises,
the nation loses billions in terms of money, manpower and business transactions.
The big question is, can’t the nation do away with it?
It is strange that the bureaucracy on simple
issues awaits instructions from the top. Multiple taxes on sought-after foreign
portfolio investors lead to the stock market crash. Why cannot this be visualised?
Similarly, the auto sector is reeling under 23.3 per cent fall in sales, the
biggest contraction since 2004. It impacts tyre, steel, ancillary industries,
closes down dealerships and has thrown 2.3 lakh people out of jobs.
The reasons are mainly two: Owing to NGT’s
quixotic order of scrapping 10 and 15 year-old cars, the secondary market,
which encourages new car purchases, has collapsed. Worse, is the newly enacted
Motor Vehicle Act, wherein the buyers are shaken as they fear that car purchase
is a bad investment as even the best maintained car has to be sent to scrap
yard for no fault of theirs.
Therefore, the NGT order has to be scrapped. Nowhere
in the world has such a rule existed. And the MV Act needs a review. Heavy
taxes, parking charges, tolls have to be cut to put the industry back on rails.
More so, as it is killing the secondary market, that creates demand in the US
and Europe. It affects the industry and yes, even for this, the Prime Minister
may have to intervene.
That agriculture is not in a happy shape is
indicated by 14.1 per cent fall in tractor sales. The Rs 6000 annual dole may
have some impact next year. But the farm sector is still in a bad cash
situation. It wants reversal to cash economy, which they say is more pious than
the slow digital trend. The FMCG is also in crisis.
Let the government intervene least and keep
economy free of shackles. India has resilience. It would have survived the 2007
western sub-prime crisis but for the intervention of the UPA government that
messed up the banking sector with over Rs 12 lakh crore of NPAs. But
notwithstanding this, it can bounce back provided the rules are eased, businesses
are allowed to breathe, policy is stabilised and liberal atmosphere prevails.
Prime Minister Modi has shown flexibility. A
dialogue with the industry, chambers, small biz groups and farmers would
embolden them to open up. And last but not the least the tax man must be put at
bay. ---INFA
(Copyright,
India News & Feature Alliance)
|