A silver lining in Sitharaman’s
short-cuts to revival

Malladi Rama Rao

Trappings of panic under market and political p r e s s u r e notwithstanding, the fourth mini Nirmala - budget has a silver lining. The corporate tax cut now on offer – amongst the lowest in Asia - undid the JNU inspired muddled Fabianism the April budget inflicted on the nation; it offered a good incentive to foreign firms not to shy away from India and ‘gifted’ an additional saving of ₹ 37,000 cr to top 1,000 listed firms. This is a booster dose for job creation undoubtedly but it is defies quantification with question marks on the time frame particularly. Near term will see Sensex in pink of health to the relief of Bhakt Bhajan Mandali.
Modi 2.0 should have hit the road at galloping speed when the first signs of recession appeared. It did not. Instead it played with three mini-budgets dubbed as packages to front load expenditure and comfort investor sentiment. The Reserve Bank (RBI) on its part has come up with rate cuts and pumped massive liquidity. These measures were neither here nor there. Naturally, therefore, the growth rate has sunk to a six-year low; the official assertion that it is not a bad show in a global environment steeped in gloom under the shadow of US- China trade war had no takers.
The country needs investments. These are not yet in sight despite Mega Modi shows overseas. There is no blueprint for jobs despite Employment Minister Gangwar’s assertion “India’s problem is not jobs but few skilled personnel.” The Minister has since clarified that his remark was limited in context – unemployability of youth from North Indian states. Well, this clarification by itself is a frank admission of the failure of Modi’s FiveYear- Old Mega Plan for skilling India.

The message is clear. The government which has been voted in for a second fiveyear term is at sixes and sevens. The person in the hot seat is Nirmala S i t h a r a m a n . Squirming with unease, she has come up with a two-fold shortcut to economic nirvana.

One is ‘loan melas’ in 400 districts, in what is a return to the Janardan Pujari days of nightmares to government bank managers. For the saffaronite, these are not melas; these are loan festivals with the banks clearly told to take along NBFCs and advised not to treat outstanding MSME loans as NPAs for the present.

Second plank is Shopping Festival.

“We will hold an annual mega shopping festival in four cities by March 2020 to stimulate demand.” It will follow the model of Dubai’s annual shopping festival with a difference.

Unlike Dubai’s, which is famous for heavy discounts on popular brands across sectors, Sitharaman’s festival with different themes in each of the four selected cities will focus on sectors like gems and jewellery, yoga, tourism and textiles and leather “to showcase products that India has to offer,” and “to give a booster shot to exports of micro, small and medium enterprises.” We are told the government expects a “mass on-boarding” of artisans across the country as a result.
What a brilliant idea, Madam, to aid a pick-up in economic growth ! “In spite of all the worries... we see a clear sign of revival in the first quarter of 2019- 20 and up to Julyend... revival signs are very, very consistent,” the minister said as her ministry went to the town with a booster dose of sorts for two flagging sectors of the economy- exports and housing—in a bid to reverse what the government concedes as deepening downturn.

These are priority sector tag for export credit and an overhaul of tax refund schemes for exporters (a new scheme, Remission of Duties or Taxes on Export Product to replace Merchandise Exports from India Scheme that would cost the exchequer about Rs 50,000 crore per year) and around Rs 20,000 crore corpus for last-mile funding of affordable housing projects (an estimated 3.5 lakh dwelling units that have almost become Non-Performing Assets).
Good talking points, no doubt like the recent decision to merge a few more PSU banks. But these measures are unlikely to have a significant impact on Indian export growth, which responds more to global demand, and on the housing sector which is plagued by demand slump as well.Moreover, the realty market requires a broad economic upturn to recover, and the exports a competitive edge.

Already, the unemployment rate is at a 45-year high of over 6 per cent . We are primarily an agrarian economy, which provides livelihood to almost sixty percent of the people but agriculture is in bad shape, and this has hit rural consumption, which is the summum bonum for the FMCG sector.

No surprise, the main opposition party, the Sonia-Rahul Congress is unsparing in its criticism. The party termed the new measures as cosmetic, and said the government is “clueless” on the economy front.

“We expected the government would take steps to resuscitate the economy, increase investments, create jobs, and address issue of exports. But Sitharamanji did not announce any measure that would address the current economic situation,” said AICC spokesman Anand Sharma, who had held the Commerce portfolio in the UPA saga, minutes after Sitaraman concluded her presser. His verdict: “The BJP and its ministers lack a vision to revive the economy.”

The Marxists are no less harsh in their denouncement of Modinomics. “The emphasis on targeting private investment in the realty sector and the effort to boost exports cannot succeed. Global trade volumes are shrinking and houses are not being purchased because of sheer lack of purchasing power among the people. The Rs. 70,000 crore worth of packages instead should have been put to use in increasing public investment and paying the arrears of the MNREGA which would have boosted the purchasing power in rural India”, the CPI(M) politburo said.
From all accounts, the Modi government sees no magic wand that can reverse the “ d a n g e r o u s l y protracted” slowdown that is as much “cyclical” as “structural” in nature. And by all means the problem can’t be fixed with knee-jerk solutions. But if this situation is not reversed, job creation, which the country’s youth are looking for will be the worst hit.
Already, the unemployment rate is at a 45-year high of over 6 per cent. We are primarily an agrarian economy, which provides livelihood to almost sixty percent of the people but agriculture is in bad shape, and this has hit rural consumption, which is the summum bonum for the FMCG sector.

The urban consumption scene is no better with steep fall in corporate investments under Modi raj. Massive urban migration is swelling the ranks of jobless youth in slums. Unemployment rate reached 34 per cent among the 20-24-yearolds in the first quarter of 2019 — it was 37.9 per cent among the urban lot, says CMIE data.
According to the Economic Survey 2018-19, and various other estimates,the overall size of working age population will keep growing till at least 2041 with the annual increase at around 9.7 million.
The North Block and the Mint Street have diagnosed correctly that lack of credit is the key culprit. And have loosened the purse strings of public sector banks. Also offered a bail out of sorts for the NBFCs, which are the shadow bankers “that are choked,” according to several economists.

There is still no clear road map for public and private investment which will stimulate key job intensive sectors like textiles, auto, and electronics. Instead we find the government on the horns of a dilemma on whether to concede the auto sector’s demand for a stimulus package with a steep GST cut.

Finance Minister Sitharaman has not helped her case by blaming the Ola and Uber for the crash in auto sales. “Millennials prefer using Ola and Uber to buying a vehicle,” she said in an off-the cuff remark.

As the Twittereti point out India is going to be the home of millennials, with the youngest population for the next 25-30 years. “Millennial mind-sets will drive the world going ahead. Blaming them is bad, even more so from GOI.”

Undoubtedly, the Indian auto industry is in a bad shape with sales declining by as much as 30 per cent. This led to pink slips to an estimated 3, 50,000 workers since April last. A Reuters report says that at least five companies have recently cut or plan to cut hundreds of jobs, mainly from their temporary labour force. Will a GST cut assuming that the states will be persuaded to forgo their revenue help boost car sales?

R C Bhargava Industry veteran, R C Bhargava is frank enough to concede that temporary GST cut will not help. He admits two reasons for car industry’s bad days. One cars have become expensive and therefore unaffordable. Two the sector’s penchant for obscene salaries to the top management.

Arvind Panagariya Columbia University Professor, Arvind Panagariya, who headed the Niti Ayog in its formative days is also against any new deal to the auto industry. “Its claims are entirely not credible,” he wrote in an op-ed recently while on what must be done for economy, and making a case for moderate inflation at rates such as 5-6 per cent.
What India needs is not luxury car sales. Not more Ubers and Olas. But good public transport system. Introduction of e- buses is a good beginning. India urgently needs quality growth, not merely high growth rate. As the French expert on India, Prof Christophe Jaffrelot insists, skilling India will help address the employment crisis, which Minister Gangwar has admitted exists today. More government spending on education and training will address the issue.

India cannot rest on the present ranking (77th place) on World Bank’s Doing Business 2019 report. What good such a ranking is when sector after sector remains in the underperforming zone. This calls for reforms at the local level not only at the state but at the municipality level which is the real cutting edge of the economy beset with growth pangs. This is what the economists term as micro reforms.

Political will is the demand of the day.Not headline hunting, through packages, tax raids and money laundering arrests through mid-night drama. If the action starts now the 2019- 20 fiscal may end on some happy note. Hopefully!