Economic Highlights
New Delhi, 8 August
2022
Govt In Rs 155 Tr Debt
CASH MUST FOR SMALL
BUSINESS
By Shivaji Sarkar
The government must
come out of the perils of cycle of debts to ensure growth amid high multiple
taxes and little corporate investment. The large business houses get the sweet
pill of Rs 19.18 trillion loan write-off bonanza since 2013, even as the nation
gets into a borrowing mesh. India’s inflation may not be just because of the
rising prices. High national debt, loan write-offs and tax burdens may have
contributed to it, indicates the second major Reserve Bank of
India 0.5 per cent rise in interest rates.
Total borrowings at Rs
155 lakh crore (trillion) is set to add Rs 11.5 trillion more in 2022-23. Interestingly, as
a percentage of GDP, the Centre’s liabilities are set to increase to 60.2 per
cent in 2023. An emerging view is that the government cannot be the driver
of the economy and continue lubricating it for the benefit of big loan
defaulters. The small, medium and tiny sectors are becoming restless. More cash
use can reduce poverty and boost up small business. This would reduce
dependence on shearing bank deposits, high NPAs and resorting to manage
finances through large deficits.
Finance Minister
Nirmala Sitharaman recently re-emphasised that India’s long-term growth
prospects are embedded in public capital expenditure at the meet of Finance Ministers
and Central bank Governors at Bali in Indonesia. She was hopeful that this
would spur private investments. The Bretton Woods bodies promote it.
Now it needs a review,
as figures indicate that the Narendra Modi government’s hopes are ditched by poor
large-house investments. The government is being forced into a vortex of
borrowings for too many high-funded infra projects, such as roads, high-speed
railways and the power sector. It’s borrowings is to rise to Rs 11.6 trillion
from Rs 9.7 trillion in 2022-23. Since 1950s different houses have enormously
benefitted from this approach.
The RBI has now
moderated GDP growth to 7.2 per cent, Nomura to 4.7 per cent and expects
inflation to remain at 6.7 per cent, higher than its tolerable limits.
Interestingly enough, the Manmohan Singh government also did the same post-2008
the Lehman Brother meltdown by incentivising loans, most of which turned into
NPAs and were written off.
Private Equity-Venture
Capital (PE-VC) investments, contracting since 2012, decline 25 per cent during
the April-June 2022, at $11.3 billion across 315 deals; 2021 had
$15.2 billion invested in 264 deals. The RBI, in May 2019, observed that
2017-18 was the seventh consecutive year of annual contraction in private
sector capex. It was Rs 1,65,000 crore in 2016-17. The RBI found it declining
from Rs 94227 crore in 2020-21 to Rs 68649 crore in 2021-22.
The government has
taken the load off the private sector for spurring economic revival. The Union
Budget 2022-23 has increased the capital expenditure (capex) target to Rs 7.5
lakh crore, a 35.4 per cent jump from the budget estimate of Rs 5.5 lakh crore
in 2021-22. The revised estimate for capital expenditure in 2021-22 came in at
Rs 6.03 lakh crore. Capex accounts for 19.02 per cent of the government’s total
expenditure at Rs 39.45 lakh crore for 2022-23.
The high government
expenditure has not spurred job creation, domestic consumption and capacity
expansion of private sector for a decade. Instead, it has led to severe 7 per
cent plus consumer inflation and almost 15.9 per cent wholesale inflation, too
much burden on a government that is extending free food to 80 crore poor. It
has added a mere 7.2 lakh government jobs and the private sector, except IT,
none.
The private sector
though has large profits, benefitting from Rs 10.83 trillion lakh crore loan
write-offs till 2018 and Rs 8.35 trillion after that, as per the Lok Sabha
answer, cause high NPAs. Some individual houses alone have over Rs 2 trillion
NPAs. This has impacted the rupee slide below Rs 80 to a dollar causing severe
balance of trade issues. The trade deficit in April-July has surged to $101.25
billion or Rs 7865 crore, says BVR Subramanyam. For stabilising the rupee the
RBI is losing dollar reserves shrinking $571 billion from over $620 billion two
months back.
This calls for looking
at small businesses and SMEs for real economic growth. The SMEs need to grow
independently and not as lackey of large business. A few years back the
country’s tiny sector, thriving on cash, is piqued by many curbs. Let people
earn and spend transparently. It would lead to more inflow of money, more
investments, spur other sectors and if they want to buy gold let them do it.
Let citizens thrive and help the nation grow.
Cash circulation in
six years has doubled to Rs 32.2 crore. But the small businesses are too much
under constraints. Let these be removed, let them deposit in banks any amount
they want without a demur. Explanations can be given at their annual return.
Remember, cash has been the strength of this society.
Easy rules would
revive the trades shut during the covid. This would help the government in many
ways. It is not only the working classes who have been dependent on the
enormous food dole but smallest businessmen as well. It would be a great boost
to the Prime Minister Modi’s atmanirbharata, self dependence. The
small sectors, if have affordability, would not themselves seek free food, a
great contribution to the government’s effort at minimising expenses.
The small traders also
are feeling the pinch with stringent GST rules and penalties that surpass the
actual taxes due. Nobody listens to the reasons why they delayed tax payments.
The 28 per cent rise in GST collection to Rs 1.49 trillion in July may have
many sordid stories. The government has to make the rule humane and reduce the
taxes on food and essential items. It would stop entrepreneurs’ flight to
become traders and spur growth. It may earn a few crore less but would add to
the people’s happiness. In a year’s time, politically crucial for the
government, it would bring in a sea change in the economic pattern of overall
development, growth and happiness.
A government concerned
of the rising prices may have many easy solutions if it changes its approach to
the commoners in different spheres. These need minor adjustments that would
more than pay back for it. It would also provide opportunities on infra
investments and many high-speed projects.
Like small touches
through a painter’s brush, the economy would change enormously. It does not
need large efforts but a mere small Midas touch to change the Indian economy,
may be as a harbinger of m(M)odification to the world economy.---INFA
(Copyright, India News
& Feature Alliance)
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