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Rs 1.2 lakh cr stimuli impact in 3 years

By Nagaland Post | Publish Date: 11/15/2020 1:59:14 PM IST

 Post Bihar poll, a new stimulus package was being awaited. Its impact would be felt in the next three years though it may gradually give a boost to the housing sector and some others that have been linked to production-linked incentive.

The raucous Bihar election discussion on economy, jobs and serious financial problems of the poor has forced the government to announce yet another package of Rs 2.65 lakh crore aimed at creating jobs, boost demand, augment infrastructure and ensuring growth back on track. However, it needs to be understood that not much money actually would flow in from official coffers. The Rs 1.2 lakh crore guarantees to the sectors would be given only to loans that had an outstanding limit ranging from Rs 50 crore to Rs 400 crore as on February 29, 2020. 

The additional budgetary burden would remain limited to Rs 1.2 lakh crore with which Finance Minister Nirmala Sitharaman wants to achieve all that she is aiming at.  

It would have been a welcome package in a no-covid19 lockdown situation. It is not unwelcome now either but the homeopathic dose would show time to reflect on the economic growth. The country needs some immediate steps and some of the euphoria being shown on rise of purchasing manager index (PMI) and GST realization are a bit too premature. The rises look great in the face of virtually no activity till two months ago.

The government needs to pay more attention on easing its rules on GST penalty, issuing reckless number of high value unnecessary traffic challans, irregular power metering in many states, covid19 rent seeking and similar other harassment of the people, the brunt of which is borne by the businesses also.

Another issue that has hit the common man is the sharp rise in prices of vegetables, food grains and other commodities. Prices have gone at a six-and-a-half-year high.  Food inflation at 7.66 percent has emerged as major policy concern. For 13 months in a row, it is above the RBI 4 percent inflation target and breaches the 6 percent tolerance level for successive seven months, the Care Ratings says.

Sitharaman quotes Moody’s Investor Service’s projection of revised contraction (not growth) of 8.9 percent from the earlier 9.6 percent. It may elate the officials but it would cause little improvement at the base level. She says that together with RBI the total package announced is of Rs 29.8 lakh crore. It looks big but actual budgetary costs would not be that high. Most of the brunt is to be taken by the banking sector as most outgo would be on credit account. 

 It lowers the gains of PMI as actual purchasing power is reduced by the inflation numbers. Though it may reflect in figures, the gains to producers would be far less. 

The loan guarantees are given for 26 stressed sectors, including power, construction, iron & steel, roads, real estate, consumer durables, aviation, wholesale trading, logistics, hotels, tourism and mining identified by the KV Kamath-headed committee and healthcare sector. Earlier, the guarantee was limited to small businesses. Now it has been extended all stressed sectors irrespective of turnover till March 31, 2021. New loans availed during the lockdown would not be covered by it. According to SBI chief economist SK Ghosh, it might help 40,000 units but if the overall cost is around Rs 3 lakh crore it could be a constraining factor.

Strangely enough the Kamath committee has not said that the banking sector is stressed. In reality, India’s finances are critical as deposits are receding with policies of taxing deposits, interest accruals (not earning) and levying of charges  even on realization of money through cheques and creating other disincentives, including lower interest rates. Keeping deposits is like a sitting duck to be preyed on continuously by the income tax and GST. The government needs to consider banking being kept away from GST as well as tax-deduction at source. It is the most stressed industry and the waivers given to companies like DHFL hits the balance sheet more. 

As inflation is likely to remain elevated, hopes for a rate cut by RBI is unlikely. In reality, the rates are below the threshold. To match with the rising prices, interest rates should be raised to keep the economic direction on right path. Low rates are further detrimental to banking health and should be a key concern.

While it is nice to see that the government is keen on giving relief to road and construction sectors, it also needs to consider relief for the users. High tolls and many other levies are making road travels expensive further retarding growth. In fact, the road sector cess and charges are the highest in the world. It appears that in pursuit of revenue realization and profits, the government overlooks the fact that how unrealistic the charges are. The continuous increase of levies cause economic retardation as it adds to inflation.

So the 20 percent relief that the government wants to give on circle rates is welcome. It also means that circle rates are unrealistically high. The prudent action would be to reduce the circle charges. This way it would neither need to tax people nor a package needs to be proffered. It is an unnecessary rigmarole.

The covid19 itself has been given an extra stress. The lockdown itself could not have been so stringent. The stimuli are becoming more cosmetic with the government itself taking a hit. Atmanirbhar Bharat needs freedom to function and shed all covid19 restrictions to let the society come back to normal, including educational institutions. 

The NSO data show industrial production rise by 0.2 percent in September against 8 percent contraction in August. The October data indicate improvement in auto output, electricity generation, GST largely led by the festive season. The market still is not having the normal footfall. Growth of Coal India and non-oil exports looks positive. But doubts are expressed at sustenance beyond the present festivities by Aditi Nair, principal economist of ICRA ratings.

The government has fine intentions but such stimuli may have limited effect. Once again it must sit with all to decide on a policy for course correction that can ensure sustained growth for the next three years.

Shivaji Sarkar

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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