Open Forum
New Delhi, 2 October 2019
Reviving Economy
OVERHAUL, A LONG WAIT?
By Dhurjati Mukherjee
In recent times, the
Government has been taking various steps to revive the economy. More so, as
there are unmistakable signs of slowing down and growing nagging misery -- low
demand, absence of private investments, rising unemployment and stagnating
production in many sectors of the economy, including the agricultural sector,
where wait farmers are in acute distress. But the big question remains: how
soon will the revival take place?
As part of the
process, one of the boldest initiatives has been taken-- a massive Rs 1.45 lakh
crore tax bonanza, which will see the tax rate come down from 22 per cent
(effective 25.17 per cent with cess and surcharge) from over 34 per cent at
present, while manufacturing companies can opt to pay only 15 per cent (17.01
per cent effective) if they don’t avail exemptions and incentives and start
production by March 2023.
Another significant
move has been the directive to banks to organise loan melas in 400 districts
across the country to ensure that everyone who seeks a loan gets it. In the
first phase, till 29 September, 200 districts were to be covered and the rest
are expected to have the melas from October 10-15. Not since Congress Minister
of State, Janardhan Poojary, launched his infamous loan melas in the early
1980s has anything similar taken place on a massive scale. It is understood
that melas will cover retail customers, agriculture and micro, small and medium
enterprises sector.
Recently, Union Finance
Minister Nirmala Sitharaman has asked infrastructure ministries to prepare
their capital expenditure for the next four quarters and fast-track pending
payouts to various agencies to boost capex in the economy. The move is, no
doubt, a welcome development as it comes amid concerns that the government’s
capital expenditure could be lowered due to the revenue loss on account of tax
cut.
Though a small
section of conservative economists believe that the market system can, given a
little bit of time, recover automatically from its ailment of unemployment and
low levels of output. There are other economists who believe that this process
could take a long time to return to good health. But given the fact that
expansion is not taking place to the desired extent and investment is far below
expectations, there can be no doubt that economic revival, if at all, will take
longer than expected.
Meanwhile, there are
reports that banks are sitting with a huge loan fund kitty which is indeed
difficult to disburse. The Finance Minister has committed a large infusion of
fresh capital into the banking system, which is borrowed from the Reserve Bank
of India.
Insofar as concessions
to business houses in bringing down corporate tax is concerned, the questions remains
how will this be compensated? Will the government go for expenditure cuts? It
must be ensured that the burden must not indirectly fall on the masses. Thus,
it is certain that the government will overshoot the fiscal deficit targets
with former governor of RBI pegging it closer to 4 per cent, cautioning that
this deficit cannot be overlooked and every effort has to be made to adhere to
the target of 3.5 per cent.
Obviously, the
concessions will benefit a certain segment of the population – which indeed is
very small – and one cannot expect any effect on the masses. However, it
remains to be seen whether the increased profitability of the business class
will be channelised for fresh investment. The question whether investment will
increase is doubtful too and economists are sceptical about this, at least in
the current fiscal though limited success may be achieved. Investment is
usually a function of capacity utilisation and that is still stuck around 75
per cent for the manufacturing sector.
A recent report by
Edelweiss found that tax cuts could boost GDP growth by 0.4 to 0.7 percentage
points as corporate profitability increases. “With the government aiming to pay
two instalments of PM-KISAN by September -- releasing Rs 30,000 crore of
pending dues and Rs 5000 crore of
pending MSME returns -- spending is expected to be significantly higher”, the
report stated. Whether this has been done, is also another question.
It is not intended to
point out that GDP growth may not be up to desired levels and will obviously be
lower, say at around 6 per cent, but actually will be 2 per cent lower as
rightly pointed out by Dr. Arvind Subramanian. As is generally agreed, the
methodology the government uses is opaque, even arbitrary and faulty, and
cannot be independently verified. If despite this, GDP growth rate has dipped
recently, this is a cause for alarm.
It is necessary to
refer here to the setting up an inter-ministerial task force (on September 7)
to identify infrastructure projects and be included in the Rs 100-trillion plan
for the sector in the next five year which, no doubt is a significant decision.
The Finance Ministry said the task force will draw up a plan for the ‘national
infrastructure pipeline’ from 2019-20 and 2024-25. The challenge is to step up
annual infrastructure investment so that lack of infrastructure does not hold
back the Indian economy and, in turn, generate jobs at all levels.
Creation of jobs is
indeed a difficult proposition given the inexorable march of automation and the
disruption in the labour market. Jobs becoming obsolete are expected to surpass
the new jobs that would be created. The latter will be only for people with high
cognitive skills and analytical abilities.
Then there is the rural
distress, which is another area of concern, whether it is of the farm sector or
other areas. Reviving the rural economy is critical at this juncture for only
then can self-employment be generated and migration to urban centres be
controlled. There is need for setting up institutions of higher learning in
each sub-division or even at the block levels so that the rural folk can get
access to better and diverse areas of education, which has a direct connection
with employment, whether in industrial units or in farm-related activities. The
emphasis on entrepreneurship has been a right step taken by the government and
this has to be encouraged by making available bank loans and other necessities.
In addition to the
measures being taken, it is necessary to reduce expenditure not on development
projects but in the realm of administration, both of the Central and State
governments. In this connection, the merger of banks can be considered a
welcome step and may yield dividends after a year or so.
However, the entire scenario
as of now is not at all encouraging and even optimists believe that it would be
quite some months to see the results, i.e. positive indicators. Thus, the much
touted claim of the nation reaching the $5-trillion mark may just seem
political gimmickry with no sound economic logic. The government will have to
move cautiously and judiciously with better governance and efficient
management, right from Delhi to the panchayat levels, to ensure success of its
plans.---INFA
(Copyright, India
News & Feature Alliance)
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