The economy is in the doldrums and nothing the Government is seeming to do is helping. What’s the cure?
This past quarter saw India register its lowest economic growth in over a decade at just 4.5 per cent. With full-year forecasts not being much higher, India’s economic growth for 2019-2020 will almost certainly be under six per cent. In fact, coupled with the value destruction in the real estate sector and, thus, the “black” market over the past eight years, one could cogently argue that the Indian economy has actually been shrinking over the past few quarters. The Finance Ministry and the Prime Minister’s Office are clutching at straws. They do not seem to have a grip on how to get the growth engine restarted. With tax officials on the rampage, can the Government do anything to rev it up? Well, for a start, the Government as well as the tax officials, who are behaving like Cerberus, the hound at the gates of hell, should ease off. The former should not look at every company and citizen as a tax cheat. Sure, India has a very low tax incidence and several steps taken by this Government, including the damaging demonetisation, were at the end of the day attempts to improve tax collection. Trying to reform the system overnight has been far more damaging to growth than what Prime Minister Narendra Modi and his economic honchos thought. Yes, improving tax collections was important but as economic growth has dropped off and led to the consuming classes holding onto their cash instead of spending it, jobs have disappeared. With a million new youth joining the job market every month and now unable to find employment, that and not a desperation to increase tax collections should be the concern.
The way to solve this is to increase spending. As car sales in the festive season proved, consumers have money to spend if they are incentivised. One easy way would be to get them spend the cash that they have been hoarding. Simply put, relax the requirements for quoting your income tax Permanent Account Number (PAN) when making purchases exceeding two lakh rupees. Making that limit five lakh rupees might lead to more cash flow into the economy as would encouraging people to spend with income tax cuts. India desperately needs to create new jobs and those can only come through improving consumption. India’s consuming class remains abysmally small compared to the population. Most importantly, the Government needs to bring in experts from across the board to think of ideas, even individuals it may not like. Diversionary tactics like discussing the rights and wrongs of Nathuram Godse might keep the economy off the headlines for a day or so but the fact remains it has been the biggest headline maker in 2019 and Modi and Finance Minister Nirmala Sitharaman seem to have no clue what to do. Whether they like it or not, what they do now will define their legacy for decades to come.
(Courtesy: The Pioneer)