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Growth path correct says IMF, India dithers on ‘reforms’ to unrest

By Nagaland Post | Publish Date: 8/12/2018 12:12:14 PM IST

 The International Monetary Fund has lauded India for recovering from disruptions caused by teething troubles of GST and some other activities.

The IMF projected a growth rate of 7.3 percent in 2018 and 7.5 percent in 2019 making it the fastest growing among major economies. The latest projection is slightly less – 0.1 percent in the current fiscal and 0.3 percent in 2019 – than its April projections. But it is way ahead of the projections of 6.7 percent made in 2017.

As one of the world’s fastest growing economies, accounting for about 15 percent of global growth, India’s economy has helped millions out of poverty and help boost global growth. A major benefit for India is its young population who would continue to lead its growth for the next three decades, till 2050, when working age population is projected to decline.

The finance ministry, however, has reservations on some of its prescriptions. A critical suggestion is to cut subsidies at 0.5 percent for the next four years with a 0.3 percent cut in fertilizer subsidies, elimination of fuel subsidies, some more cut in food subsidies. It has called for further “reforms” and continued measures to raise tax collections to help fiscal consolidations.

Such fiscal consolidation is possible only if there is substantial rise in tax-to-GDP ratio. The IMF prescription certainly does not suit a country which has one of the highest tax rates despite GST. The central government wants to include petrol, diesel and other fuels under GST. Being a politically sensitive issue, as the states do not want any further cut in their revenue realizations, this does not seem feasible now.

The centre itself has increased fuel cess to 8 percent from 2 percent to negate the impact of subsuming excise in GST. Various kinds of other kinds of taxes including tolls on highways, cities and village panchayats and continuing state excise under different names is adding to the tax burden.

The IMF suggestions are not taking the issue of rural distress, agrarian crisis and various social unrests, like the farmers’ or protests by groups which were considered well-off and influential like the Marathas, Jats, Patidars and others.

The finance ministry apparently differs with IMF on reduction of debt level to 60 percent of GDP by 2022-23, an essential for increasing government funded development. The government in the budget 2018-19 has said that it would achieve the target with a two-year delay in 2024-25. The ministry wants to delay such fiscal consolidation.

 India has a fast-paced growth. But there are groups within like the Swadeshi Jagaran Manch, which is vocal, and others which are professing balanced inclusive growth for benefit to the marginalized. Such groups also still have conservative approach on FDI and are not happy at creations of monopolies like the recent merger of Walmart and Flipkart. 

The income tax department is happy at such developments as it is to accrue substantial capital gains tax. The department is not bothered about its impact in the retail market, which the parliamentary standing committee on commerce has noted.

Various subsidy cuts have made fuels expensive, rise in railway and transport fares and many other services. This has led to an inflation rising to 5 percent beyond the tolerable limit of Reserve Bank. These are politically sensitive issues. 

The global trade war is also hitting current account deficit – higher import bill. The standing committee on commerce on July 26 notes that anti-dumping problem against China “runs deep and the industries affected are not able to reach directorate general of anti-dumping & allied duties (DGAD) on account of high cost involved in moving the applications”. 

The anti-dumping measures also suffer from lax implementation, under-invoicing, misclassification and routing goods through least developed countries (LDCs). It also notes that delays in quality control orders (QCO) helps China monopolise dumping of its low quality goods.

Even ease-of-doing business is helping China and hitting Indian manufacturing. The committee has called for changes in Customs Act and other prudent steps to help Indian manufacturers. Something the IMF does not want.

If India adheres to its internal assessments it would be contrary to IMF prescriptions.

The task is complex. The government has increased minimum support prices for many crops. The World Bank and WTO unfortunately consider it subsidy. Despite anti-dumping duties on Chinese goods, these continue to flood the market. 

Rising global fuel prices and weakening currency is making it difficult for government to keep the discontent under check. The US sanctions on Iran is also causing problem. It is being viewed as a measure to boost the sales of US shale oil and weakening of Asian economies. The unipolar world has its problems, which countries like India are finding difficult to match with.

India is concerned at such actions as ultimately it hits the employment figures, an issue that is socially and politically sensitive. If IMF suggestions are implemented it would not be comfortable. A straight rejection is also not prudent.

The government is virtually facing a critical situation. It has to boost economic activities and take anti-dumping and restrictive measures without letting it look like that. It has to strengthen rupee, cut on its fuel import bill. It is also under pressure to increase the threshold limit for taxing income in tune with rising inflation.

India has a problem that rising inflation and high taxes are constricting purchasing power of the people. The IMF has no suggestion on these issues. The economy cannot be only about fiscal consolidation and higher taxes – a sure prescription for social unrest.

The IMF projection about India accounting for 15 percent of global growth is good news. India has the capability to attain it. It can, however, not ignore other issues like growth for all of its people and its reflection in the happiness index.

India is for a balanced growth. It has taken the right step in not following IMF prescriptions blindly. It has to reduce tax burden on its people, ease investment climate, increase exports and lead access to the world market – an effort that is being helped by whirlwind tours of Prime Minister Narendra Modi, external affairs minister Sushma Swaraj and now President Ram Nath Kovind. 

Launched on December 3,1990. Nagaland Post is the first and highest circulated newspaper of Nagaland state. Nagaland Post is also the first newspaper in Nagaland to be published in multi-colour.

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