By Shivaji Sarkar
The Rs 100 trillion investment in infrastructure, promised by Prime Minister Narendra Modi is inspiring. It should change the economy, which is in a turbulent phase.
The last five years have seen many investment proposals in building modern ports, highways, railways, airports, hospitals and educational institutions. Many of it has happened in the road, airports and rail sector too.
But the population control should not be an official agenda. It is often misused.
Modi has the capacity to do a magic. It is happening. But he has also to contend with the global slowdown. Germany shrank by 0.1 percent as its exports are hit. Dow Jones indicator tumbles 800 points or 3 percent after bond market flashes a recession amid US trade war and Chinese yuan manipulation.
Weak economic data around the world also unnerved investments. Indian stocks are doing no better. It is slumping everyday with some exceptions. Sensex touched 36958 on August 14 from a high of 40,000 on May 23.
Will Modi’s promises change the destiny? It may but if we listen to former RBI governor Bimal Jalan, it can take two years. That is closer to another election cycle.
Jalan indicated that the private sector is still not investing, “may be due to post-demonetisation effect”. This means for the past three years whatever growth at now even 6.8 percent from 7.2 percent last year is due to push by the government.
This is the slowest GDP growth since 2014-15. The previous low was 6.39 per cent in 2013-14 following which the Narendra Modi government came to power in 2014.
It is straining resources and the pain is visible.
Except for perhaps retail loans given by banks, there is a contraction in all other parameters which measure consumption in different ways.
Last month the IMF and Asian Development Bank (ADB) cut the country’s growth forecast to 7 percent, citing global and domestic headwinds.
This is at a time Modi says the people are becoming aspirational and becoming more demanding. A good indicator but if not supported by action, it can have problems.
Jalan says that mere public investment is keeping the morale high. It comes at a cost to the revenue collection. It rose by just 1.4 percent or Rs 4 lakh crore last cycle. The demand is high as despite realizing the need the government is unable to give the necessary tax cut benefits to the people.
It has made ‘one nation one tax’ or the GST a burden for the entrepreneurs and start ups. There are many instances when start ups having a sale of Rs 560 or so ended up paying over Rs 20,000 as penalties. The GST law imposes compounded penalties on those who do not file returns every month.
The law fails to take into account that small ventures subsist on low margins and it equals to the tax demand. In other words, they are supposed to survive on no profit but face high tax demand and compliance.
The motto of the law seems to be that everyone is a thief and must be punished. This is ruining small businesses, entrepreneurs and start ups. Another consequence is high NPA for small MUDRA type loans. It is clogging public sector banks.
The government to achieve its motto of promoting entrepreneurship should impose no GST or any other tax up to a limit of Rs 25 lakh or more.
It also needs to do away with monthly returns for GST payers and annual returns for nil income taxpayers. It would be a great help to the informal sector which keeps the economy floating.
There are many similar bureaucratic mistakes that has deviated the government policies. A person is not supposed to pay a paisa as income tax. But he has to take the rigours of filing return with the help of someone he has to pay. It burdens the department with millions of unnecessary returns and crores of refunds.
In these non-exercises the nation loses billions in terms of money, manpower and business transactions. Cannot the nation do away with it?
It is strange that the bureaucracy on simple issues awaits instructions from the top.
Multiple taxes on sought after foreign portfolio investors lead to the stock market crash. Why cannot it be visualized?
Similarly the auto sector is reeling under 23.3 percent fall in sales, the biggest contraction since 2004. It impacts tyre, steel, ancillary industries, closes down dealerships and has thrown 2.3 lakh people out of jobs.
Two major reasons are there. Owing to NGT’s quixotic order of scrapping 10 and 15 year-old cars, the secondary market, which encourages new car purchases, has collapsed. Worse is the newly enacted Motor Vehicle Act. The buyers are shaken as they feel that car purchase is a bad investment as even the best maintained car has to be sent to scrap yard for no fault of theirs.
The NGT order has to be scrapped. Nowhere in the world has such rule existed. And MV Act needs a review. Heavy taxes, parking charges, tolls have to be cut to put the industry back on rails.
It is killing secondary market, that creates demand in the US and Europe. It lubes the industry. Yes, even for this prime minister may have to intervene.
That agriculture is not in a happy shape is indicated by 14.1 percent fall in tractor sales. The Rs 6000 annual dole may have some impact next year.
But the farm sector is still in a bad cash situation. It wants reversal to cash economy, which they say is more pious than the slow digital. The FMCG is also in crisis.
Let the government intervene least and keep economy free of shackles.
India has resilience. It would have survived the 2007 western sub-prime crisis but for the intervention of the UPA government that messed up the banking sector with over Rs 12 lakh crore of NPAs.
It can bounce back provided the rules are eased, biz are allowed to breathe, policy is stabilized and liberal atmosphere prevails.
Prime Minister Modi has shown flexibility. A dialogue with the industry, chambers, small biz groups and farmers would embolden them to open up. Yes, last but not the least tax men need to be put at bay.
By Shivaji Sarkar