Can the Indian economy get out of its funk? A funk made worse by the Coronavirus?
The devil always lies in the details in any announcement. While addressing the nation, Prime Minister Narendra Modi promised the country and its citizens a big economic stimulus package worth Rs 20 lakh crore to boost its economy and ensure self-reliance as lockdown 4 is set to be implemented for an indefinite time from May 17. Even if India puts in 10 per cent of its Gross Domestic Product (GDP) to lift its economy, there will be a lot of questions that need to be answered. The most obvious one would be: Where will the money come from? Many commentators have argued that the Government must “print” more money. Of course, this is fraught with some issues because as the Chief Economic Advisor said, “There is no free lunch.” Although in these times when people are struggling to eat, any lunch, even one where a huge payment is due later, would be a smart one. India should also expand its balance sheet by issuing more Government bonds and possibly look at opening up that to the public as well. Those individuals, who have surreptitiously salted away funds in foreign jurisdictions, must be allowed to bring their money back with lower or zero penalties and be allowed to invest in Government bonds with 10 or 20 year tenures. The Government could raise a few billions like that.
The details, therefore, announced by the Finance Minister are welcome. The move to redefine medium and small scale sector enterprises and the relief offered to them is a huge positive. Whether it is the collateral-free automatic loans, the relief on employees provident fund or the support for Non-Banking Finance Corporations, there are a lot of stimulants in the announcements made by the Finance Ministry. But there has been little sign of direct spending by the Government, although some tax revenues have been foregone through lower tax deduction at source. This will give a huge sum of money to companies and individuals to spend. This is also a very positive step that might encourage additional consumption in the second half of the year. Even more tax refunds and a longer time to pay taxes are welcome. But this is just the first tranche of the Government’s economic package to fight the Coronavirus pandemic. Finance Minister Nirmala Sitharaman has made it clear that the announcements will take some time to come as she will cover all sectors of the economy over the next few days. The fact is that almost every industry has its begging bowl out for a handout. The Government will, thus, need to support large industry as well as the smaller ones. The fact is also that the Government will need to ensure job preservation across industries. It has to work towards job creation as India still adds around 10 million new youth to the market every year. Will the present Corona crisis become Prime Minister Narendra Modi’s opportunity to become the next Narasimha Rao of 1991? There are huge opportunities for reforms in labour, industrial law and even taxation. But will they come through? We do not know as yet. What’s sure is that the announcements made by the Finance Minister so far are a positive. Nevertheless, we will still have to wait a while to see what the rest of the details are and how the banks, the tax authorities and the Government implement these changes. A 10 per cent spending of the GDP can have a dramatic effect on the country’s economic growth. The efficacy of the Prime Minister’s big-bang stimulus will be judged not based on the numbers but with the details.
(Courtesy: The Pioneer)