Economic
Highlights
New Delhi, 30 September 2019
Induced Inflation
POLICY OVERHAUL
CRITICAL
By Shivaji Sarkar
India needs to look at its falling demand,
rising bank, power and fuel charges, high tax and toll rates. This is an
induced inflation, whatever the indices might say, amid perceptible slowdown.
The nation forgets that commodity prices are on the rise, incomes are falling
and policies like the new MV Act, atrocious banking policies and transport
tariff, whatever the officials may say are adding to the aggravating situation.
The rising power charges in States like Uttar
Pradesh are causing price rise and slowdown, even in agriculture. The
non-banking NBFCs, key lenders to MSME are in a crunch owing to massive loan
default by the road toll collectors of IL&FS. Officially it lost Rs 91,000
crore in 2018. Though this is less discussed it has severely affected many
micro-financing institutions.
The latest PMC bank virtual closure exposes
the cooperative sector as well. The modus operandi is almost similar to the
IL&FS. The latest Asian Development Bank assessment further brings down the
growth rate to 6.5 per cent against the official estimates of 7 per cent. In
the last quarter it touched 5 per cent, lowest in six years.
Prime Minister Narendra Modi is trying hard
with the US CEOs and others to lure investment. It is taking time to get
translated on the ground. Even the nation’s richest are melting, according to
Hurun India Rich List 2019. Their cumulating wealth dropped by Rs 3,72, 800
crore. It says 344 individuals or almost a third witnessed wealth reduction and
another 112 could not meet the cut-off of Rs 1,000 crore, about half of last
year.
It finds the richest Ambani rising by 3 per cent
and upcoming Adani by 33 per cent. Shanghavi of Sun Pharmaceutical lost 20 per cent
wealth. LN Mittal of Arcelor Mittal lost 6 per cent. Eight other super rich
also saw decline in wealth. The list indicates tough competition among the rich
as also that they are hit by the slowdown. This also indicates that their
overall decline is the result of the industries they are having. In short, the
slowdown is more encompassing.
The Finance Minister despite defending
policies agrees to cut corporate tax rates from 35 per cent to 25 per cent. It
is welcome but a bit too late. In fact, it is admission of a faux pas. With
depreciation and other adjustments, the corporate for the last over two decades
have not been paying more than 22.5 per cent in income-tax.
The supposed relief of Rs 1.45 lakh crore is
mere academics. Overall the Indian corporate had been paying 48.3 per cent
taxes, according to OECD, including tax on dividends it pays to its
shareholders, who also pay another tax on it. This is tax on tax and it
continues.
Only 18 countries of the 94 in OECD database
in 2018 have rates over 30 per cent. It was 58 in 2000. Indian corporate
despite present cut would pay over 38 per cent as taxes. They were paying 48.3
per cent now.
The problem is that individuals still have
the highest rate of 42.5 per cent. With other indirect taxes, even after GST,
an individual pays over 70 per cent of their income as taxes. Could the economy
do better with less than 30 per cent of earnings citizens are left with?
Atrocious tolls, parking charges, passenger
taxes add to the woes. There are also extortions on the road -- it is by the
insurgents in Nagaland and some other North-Eastern States or “suvidha shulk”
by law enforcing authorities in other places. Somewhere the country is unable
to understand its economics. The government expenditures increase and business
gasps for its inability to recover the basic cost.
Despite easing of norms, no poor can dare do
a simple business unless he can create the warmth for the law enforcers --
municipal, panchayat or State. This is despite efforts being made by Modi to
root it out. The sufferers say that his stringency has only led to rise in
rates as “risk for perpetrators grow”. Even the corporate or even small
businesses or educational institutions are not free from it.
Naturally the crisis continues. The latest
RBI annual report 2018-19 (FY 19) confirms the difficult path. The GDP growth
rate has slipped to 5 per cent in the April-June first quarter. The collapse of
automobile, textile and diamond industry, thaw in IT sector, rising NPAs,
tightening of banking charges and norms, failing manufacturing sector and
sluggish consumer demand lead to deceleration.
There is cash crunch and it is affecting the
rural, farm and wholesale sectors. The forced government rules of transacting
through banks is delaying deals and adding to the cash crunch. India does not
learn from either European or the US sub-prime crash of 2007-8. When we move
through banks, simply loans, perceptible volume increases but actual suffer as
there is no cash quantification, which is fast as well as check on hyped up
transactions.
The system needs cash lubrication, which in
the wake of demonetisation has been drying up. The Chief Economist of Yes Bank
Subhada Rao recently says that people need to have cash for the supply-side
changes to yield benefits. She says that spree of job losses and high
unemployment has led to the demand fall. It is a key reason for the slowdown.
As eight core sector growth slows to 2.1 per cent,
the wage losses have increased. The farm sector, MSME, transport and jewellery and
retail also thaw. Low demand for trucks has made life difficult for about two
crore workers. Small jewellery sector in Surat employs 66,000, MSME about 11
crore and farm sector over 54 per cent of total workers. The solution is not in
rate cut but deciding a floor interest rate of 9 per cent for depositors.
Expecting a demand boost in such a scenario
is a dream. It requires a mix of short and long-term measures for demand pick
up. The mix has to include easing of taxes as also a discussion with all
stakeholders, including the Opposition and the common man. The only risk is the
Opposition and particularly the Left, who have little understanding of the
economics and crisis. Mere government bashing would not do.
The NITI Ayog has to take a lead in
generating new thoughts and formulate a people-oriented policy. If it forms a
group its Member Secretary should be from the industry to reflect the actual
deliberations. The situation is difficult. But it should be the bottom. Deliberations
and proper not euphoric, publicity-oriented actions may begin the trajectory
for growth.---INFA
(Copyright,
India News & Feature Alliance)
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