Scapegoats for the economic contagion will be found, but that there is a problem remains a fact
To be fair to Indian policy-makers, it is true that the economic slowdown is impacting countries across the world, and they could potentially use that as a crutch to explain away India’s current problems. That would be wrong, because while global issues do impact India, particularly Indian exports, the fact is that the Indian economy is more self-contained than most people imagine. Besides many of our problems have been created by a combination of poor policy, poor implementation and poor management. It is also true that a lot of the current trouble with reduced credit offtake can be traced back to the profligacy of banks during the UPA era, with politically connected people getting loans at extremely favourable terms. However, the task of fixing the mess has meant that the banks are now at the other extreme and routinely turn down loan requests even to viable corporations and entrepreneurs as well as private individuals. Yes, the fiasco of demonetisation and the chaotic implementation of the Goods and Services Tax (GST) have a role to play in the situation that India finds herself in, but it is the extreme reticence of banks to lend money that is causing the contagion to worsen. Banks are rightly scared, and they will need assurance from the Government and the bureaucracy that they will not be punished for business failures. Now the RBI Governor’s statement that our service sector is sluggish and the trough is a combination of multiple factors only deepens the sense of foreboding.
A lot of reassurance will need to come from smart policy makers, and there is seemingly a lack of smartness when it comes to economic and industrial policy. Half-baked ideas, such as the talk of abolishing income tax, a wet dream of certain ‘economists’ are being talked about. On the other hand, half-baked ideas such as additional surcharges on income tax for high income earners became a reality in the budget but papers lack details on having sums unaccounted for. The Economic Survey in parts reads like a theological text rather than what it was meant to be. The Government really needs to bring in some proper experts, even if those people might be opposed to some of the policies followed by the Government in other areas. There is no doubt that the Indian economy is a challenge, we have a lot of poor people and they have to be taken care of. However, the best way to do that is to ensure employment and grow the economy so that incomes rise across the board and social sector spending can also improve. It is a challenge that requires the cumulative brainpower of thousands of economists, statisticians and social scientists. The alacrity with which this government is dealing with national security issues is welcome but frankly it needs to show that concern for a sputtering economy and the fallout of lower growth, or perish the thought, a recession, could be more severe than any of us can imagine.
Writer & Courtesy: The Pioneer