A Press Information Bureau (PIB) note on twitter issued to commemorate the first hundred days of the Narendra Modi government’s second term in office, promptly retweeted by the Finance Ministry, lists out four measures to achieve higher economic growth.
These measures, tagged under the economy sector, are in the following order: 1) Corporate social responsibility (CSR) violations not to be treated as a criminal offence. 2) Withdrawal of angel tax provisions for startups and their investors. 3) Additional credit expansion through public sector banks (PSBs) and banks (not clear what is the difference between PSBs and ‘banks’) to effect timely rate cuts and lastly online tracking of loan applications by customers of retail, MSME, housing, vehicle, etc.
Economy Sector: Measures to achieve higher economic growth.#MODIfied100
— PIB India (@PIB_India) September 8, 2019
If this is the best sample list of the government's plan of action to get the economy out of a deep slowdown phase, one needs to worry about the plan of action. The first two—decreminalisation of CSR violations and the withdrawal of angel tax provisions for startups and their investors—are simply the reversals of earlier decisions taken in the budget just about two months ago. The third makes sense—expanding credit to productive sectors through additional lending. But the problem here is that this wouldn't happen immediately.
The Rs 70,000-crore capital infusion announced this year would prove to be inadequate to give a significant boost to the credit growth because the banks need to set aside money for non-performing asset (NPA) provisioning and reserve required as well. Also, the public sector banking industry is in the middle of a major consolidation process. It will take a while before these entities can get back to high-value aggressive lending post-integration.
Even if the banks are willing, demand for project-related loans is low on account, not economic slump. It will require private investments to get back the activity back, which is so far absent.
The fourth measure announced to boost higher economic growth is a joke. How on earth online tracking of loan applications would contribute to higher economic growth? Loan growth depends on banks’ capital strength and demand from the borrower. Also, already most banks and lending institutions have the technology to provide real-time tracking of loan application status to their customers. That begs the question — What is the real purpose of listing online tracking of loan applications as a measure to boost economic growth?
It is quite understandable that the government wants to inspire confidence among investors and the common man by making a statement that it is aware of the economic situation and will do the necessary to get the economy out of the deadly course.
But if that is the idea, it needed to outline solid measures not rather empty statements intended to create headlines. Firstly, at a time when the economy is slowing and business confidence is low, the government did a serious mistake by introducing criminal charges on CSR violations and imposing levies on startups. It's good that Finance Minister Nirmala Sitharaman reversed the decision within a few weeks post the public backlash. But listing that reversal decision as a measure to achieve higher economic growth is meaningless.
This is a point when the whole economy and its stakeholders look up to the government for a stimulus measure to rescue from a deeper problem. The auto industry is in a major mess with sales declining month after month and even biggies like Maruti Suzuki cutting down production and investments.
Fast-moving consumer goods (FMCG) companies are facing tough time too on account of demand slump. Logically, layoffs across sectors are turning widespread.
More than 3.5 lakh contract employees in the auto sector and component manufacturing industry have been shown the door. In the larger economy too, unemployment figures are rising. This is a time when the govt should take bold steps and not publicise band-aid solutions.
Having said that, the fact that Sitharaman is addressing the media almost every week to talk up the economy and spell out some measures to allay investor concerns is a good sign; it shows that the government is finally acknowledging the real state of the economy — that is in a worryingly off the course — and is willing to work on remedial measures.
The government should take NITI Aayog vice-chairman, Rajiv Kumar’s warning that economy is in peril and "out of the ordinary steps" are required to rebuild the lost trust in the financial system with utmost seriousness. There is a need to work on a well-thought-out economic stimulus package and a significant reduction in tax rates. The major thrust should be given to investing more in infrastructure building, not just through public spending by also luring private investors. What the economy doesn’t require at this point are empty statements and band-aid solutions.
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Updated Date: Sep 09, 2019 16:27:46 IST