Economic
Highlights
New Delhi, 16 November 2020
3rd
Stimulus Package
EASE TAXES, PRICES
INSTEAD
By Shivaji Sarkar
Post Bihar election, a new stimulus package
was being awaited. Its impact would be felt in the next three years though it
may gradually give a boost to the housing sector and some others that have been
linked to production-linked incentive.
The raucous Bihar poll discussion on the economy,
jobs and serious financial problems of the poor has forced the government to
announce yet another package of Rs 2.65 lakh crore aimed at creating jobs,
boost demand, augment infrastructure and ensuring growth back on track.
However, it needs to be understood that not much money actually would flow in
from official coffers. The Rs 1.2 lakh crore guarantees to the sectors would be
given only to loans that had an outstanding limit ranging from Rs 50 crore to
Rs 400 crore as on 29 February 2020.
The additional budgetary burden would remain
limited to Rs 1.2 lakh crore with which Finance Minister Nirmala Sitharaman
wants to achieve all that she is aiming at.
It would have been a welcome package in a no-COVID-19
lockdown situation. Though it’s not unwelcome now either, this form of ‘homeopathic’
dose would show time to reflect on the economic growth. The country needs some
immediate steps and some of the euphoria being shown on the rise of purchasing
manager index (PMI) and GST realisation is a bit too premature. The rises look
great in the face of virtually no activity till two months ago.
The government needs to pay more attention on
easing its rules on GST penalty, issuing reckless number of high value
unnecessary traffic challans, irregular power metering in many States, COVID-19
rent seeking and similar other harassment of the people, the brunt of which is
borne by the businesses also.
Another issue that has hit the common man is
the sharp rise in prices of vegetables, food grains and other commodities. Prices
have gone at a six-and-a-half-year high. Food inflation at 7.66 per cent has
emerged as major policy concern. For 13 months in a row, it is above the Reserve
Bank of India’s 4 per cent inflation target and breaches the 6 per cent tolerance
level for successive seven months, the Care Ratings says.
Sitharaman quotes Moody’s Investor Service’s
projection of revised contraction (not growth) of 8.9 per cent from the earlier
9.6 per cent. It may elate the officials but it would cause little improvement
at the base level. She says that together with RBI the total package announced
is of Rs 29.8 lakh crore. It looks big but actual budgetary costs would not be
that high. Most of the brunt is to be taken by the banking sector as most outgo
would be on credit account.
This lowers the gains of PMI as actual
purchasing power is reduced by the inflation numbers. Though it may reflect in
figures, the gains to producers would be far less.
The loan guarantees are given for 26 stressed
sectors, including power, construction, iron & steel, roads, real estate,
consumer durables, aviation, wholesale trading, logistics, hotels, tourism and
mining identified by the KV Kamath-headed committee and healthcare sector.
Earlier, the guarantee was limited to small businesses. Now it has been
extended all stressed sectors irrespective of turnover till March 31, 2021. New
loans availed during the lockdown would not be covered by it. According to SBI Chief
Economist SK Ghosh, it might help 40,000 units but if the overall cost is
around Rs 3 lakh crore it could be a constraining factor.
Strangely enough, the Kamath committee has
not said that the banking sector is stressed. In reality, India’s finances are
critical as deposits are receding with policies of taxing deposits, interest
accruals (not earning) and levying of charges even on realisation of money
through cheques and creating other disincentives, including lower interest
rates.
Keeping deposits is like a sitting duck to be
preyed on continuously by the income tax and GST. The government needs to
consider banking being kept away from GST as well as tax-deduction at source.
It is the most stressed industry and the waivers given to companies like DHFL
hits the balance sheet more.
As inflation is likely to remain elevated,
hopes for a rate cut by RBI is unlikely. In reality, the rates are below the
threshold. To match with the rising prices, interest rates should be raised to
keep the economic direction on right path. Low rates are further detrimental to
banking health and should be a key concern.
While it is nice to see that the government is
keen on giving relief to road and construction sectors, it also needs to
consider relief for the users. High tolls and many other levies are making road
travels expensive further retarding growth. In fact, the road sector cess and
charges are the highest in the world. It appears that in pursuit of revenue
realisation and profits, the government overlooks the fact that how unrealistic
the charges are. The continuous increase of levies cause economic retardation
as it adds to inflation.
So the 20 per cent relief that the government
wants to give on circle rates is welcome. It also means that circle rates are
unrealistically high. The prudent action would be to reduce the circle charges.
This way it would neither need to tax people nor a package needs to be
proffered. It is an unnecessary rigmarole.
The pandemic itself has been given an extra
stress. The lockdown itself could not have been so stringent. The stimuli are
becoming more cosmetic with the government itself taking a hit. Atmanirbhar
Bharat needs freedom to function and shed all COVID-19 restrictions to let the
society come back to normal, including educational institutions.
The NSO data show industrial production rise
by 0.2 per cent in September against 8 per cent contraction in August. The October
data indicate improvement in auto output, electricity generation, GST largely
led by the festive season. The market still is not having the normal footfall.
Growth of Coal India and non-oil exports looks positive. But doubts are
expressed at sustenance beyond the present festivities by Principal Economist
of ICRA ratings Aditi Nair.
The government has fine intentions but such
stimuli may have limited effect. Once again it must sit with all to decide on a
policy for course correction that can ensure sustained growth for the next
three years.---INFA
(Copyright,
India News & Feature Alliance)
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