The press conference addressed by the Finance Minister Nirmala Sitharaman yesterday (Aug 23) is an indication that finally, the government acknowledges that the economy is crumbling and nearly hitting the rock bottom. That a 5 trillion dollar bubble can burst within two months of announcing it in the Union budget would be a record set for a long time to come!
So many reports of joblessness and a slowing down economy, retrenchment in many industries and concerns by economists did not stir up the government as much as the comments from some corporate sector leaders, ending with the Niti Aayog Vice Chairman Rajiv Kumar’s comments that the “ongoing stress in financial stress is unprecedented in the last 70 years”. One can only hope that these leaders will start speaking early enough next time and do not wait until we hit the bottom.
But the Minister started the press conference, explaining through a graph, that India’s growth is way far ahead of rest of the world. Apart from the fallacy of comparing the 2.6% growth of a 20 trillion dollar economy and 7% growth of a 2.7 trillion economy, one wonders if the economy is so rosy and “comfortably positioned” why did the Minister hold a press conference in a panicky mode and announced slew of measures aiming to revive the economy.
The Minister repeated time and again that the government “respect and honor wealth creators”. Sounds good. But who are the wealth creators as identified by the Minister? The corporations. Nobody else.
What about the informal sector, whose back was broken by demonetisation, where this crumble began? The sector contributes over 54% to the GDP and employs over 80% of India’s workforce.
Or agriculture, which has the potential to revive the economy, which contributes 15% to the GDP and around 600 million people directly or indirectly dependent on farming. There was nothing in Minister’s kitty for the sector.
Instead, pinning hope only in the corporate sector, the Minister reassured the Ease of Doing Business measures to continue, including self-certification and faster environmental clearance to projects.
With tax concessions and sops to the corporate sector and super rick – like withdrawal of angel tax for start-ups, withdrawal of enhanced surcharge levied on short-term and long-term capital gains and additional liquidity in non-banking financial companies (NBFCs) for sale of houses, vehicles and consumption goods (which is otherwise stagnant now) – the Minister expects a miracle from the sector to spinout a magic to revive economy.
When the government is pushing so much for the corporate sector and its welfare, once cannot but recall the Oxfam inequality report released earlier this year. It said, “Billionaire fortunes in India increased by 35 percent last year – Rs 2200 crore a day – while 13.6 crore Indians who make up the poorest 10 percent of the country continued to remain in debt since 2004.” It also said, “Last year, the wealth of top 1 percent in India increased by 39 percent whereas the wealth of bottom 50 percent increased at a dismal 3 percent. Getting the richest one percent in India to pay just 0.5 percent extra tax on their wealth could raise enough money to increase government spending on health by 50 percent.” It takes a lot of insensitivity and miscalculation to believe that by helping the already wealthy 1%, some of them known to stack-up their profits in tax heavens, the economy can be revived and there is not even a pretention that the government is concerned about the “bottom 50%”.
Interestingly, after her predecessor claiming to crack a whip on tax evaders, probably because of the criticism her government received after the suicide of Siddhartha of Café Coffee Day, the Minister was singing a different tone, pacifying tax evaders. Any life lost is tragic, but one cannot forget that despite over 120 people dying because of demonetisation, there wasn’t even a whimper from the government, but a complete denial of it.
It’s a bit comical that the prescription the Minister had to boost demand and by which to revive the auto industry was to lift the government ban to buy vehicles for their departments. Seriously? If that’s a solution, maybe increasing consumption of vegetables by government officials may help the agriculture sector, more meat dishes may help meat industry and a glass of extra milk per day will help the dairy sector!
The banks are assured of a capital infusion to a tune of Rs. 5 lakh crore, which “will benefit all corporates, retail borrowers, MSMEs and small traders” as the Minister said. The Minister was silent on the whopping Rs. 10 lakh crore non-performing assets (NPAs) accumulated the past nearly 8-10 years because of excessive and unbridled lending. Over 70% of the NPAs are caused by corporations and top 12 corporate NPAs cost exchequer twice as much as farm loan waivers. Without any measures to check the slide of NPAs, pouring in more money into banks to augment the lending will only deepen the pit where we are already. Besides, there was nothing in what the Minister said, indicating recovery of bad loans from defaulters. By ensuring more lending and no commitment to recover bad loans, the Minister was sending a wrong signal, which will further choke the banking sector, and compelling to pump in more public money to help them survive.
Minister, the diagnosis of what is ailing the economy was wrong and hence it was the wrong steroids you injected yesterday.