“The economy is in a tailspin and we are heading for a depression,” said Dr Subramaniam Swamy, the Bharatiya Janata Party’s (BJP’s) maverick leader and member of Parliament (MP), in an interview last week. He said that India’s real economic growth is lower than what the government claims and, if nothing is done quickly, banks may collapse and factories would start closing. The country’s GDP had fallen to a three-year low level of 5.7% in the first quarter of 2017-18. This is a shocking decline from expectations of double-digit growth after the BJP surged to power in May 2014. Dr Swamy’s concerns have resonated with a lot of people.
The mood of the nation has changed. There is a sense of anger about botched opportunities, disappointment that the promise of ‘achche din’ has been derailed by a series of rash decisions, including demonetisation. Three years ago, the economy was at the takeoff stage, riding on a good monsoon and incredible optimism about the changes promised by Narendra Modi (economic reform, war on corruption, more jobs, better governance, less government and ease of doing business). We are in a self-created crisis. Every top economist is advising the government to do whatever it takes to push public and private spending to kick-start the economy. Can this be done without re-capitalising banks in a big way at the cost of the exchequer? And won’t this, effectively, put end the effort to recover bad loans?
Dr Swamy, who taught economics at Harvard University, has several out-of-the-box ideas for the prime minister (PM), including the abolition of personal income-tax. The government has ignored them. Instead, finance minister Arun Jaitely, after consultations to revive the economy, has come up with a push for ‘affordable housing’ as the solution. The government has announced eight PPP (public private partnership) options, including six for promoting affordable housing with private investments using government land. Recapitalising banks again is another.
Affordable housing is last year’s idea—31 December 2016 to be precise—as part of the PM’s address to the nation. The Union Budget followed up with an attractive package to promote housing for all; but, barring a few developers (Tata, Godrej, Mahindra, Rahejas, Sobha and Piramal), almost all others are in deep trouble. They are unable to deliver apartments paid for by customers; many have spent time in jail; some may be headed there soon. At a time when home-buyers are struggling to get their fully-paid apartments delivered, talk of affordable housing sounds like a joke. In 2008, the bailout offered by lenders to realty firms was misused to keep property prices high. Affordable housing should not be a catchy new tag; it should be about reducing real estate prices in our cities to reasonable levels.
Similarly, infrastructure spending to boost the economy cannot be about showpiece projects like a bullet train of questionable utility (it is not even connecting Delhi-Mumbai). With the economy in a shambles and the promised job growth nowhere in sight, here are a few issues that could trip up the government, if it is not in listening mode.
• Demonetisation Failure: People went through untold hardship in support of the PM’s effort to mop up black money. After a long silence from the Reserve Bank of India (RBI), we discover that the crooked have laundered all their money and 99% of the banned notes have come back to the banking system. The government’s claim that its tax machinery will go after money in the banks sounds lame; we simply do not have the manpower and resources to go after every person who deposited old currency; most of them will probably escape by striking deals with corrupt tax officials.
• Taxes: While the war on black money is a flop, there is no reduction in tax harassment. True, the system is more efficient and refunds are faster; but cases of tax scrutiny being unleashed on honest taxpayers and illogical questions raised by assessment officers have increased manifold. Aggressive demands for payment of advance tax are beginning to rankle, especially when targeted at small and medium entities that pay tax diligently. It makes you wonder why tax sleuths are not entirely focused on enormous funds deposited into Jan-Dhan accounts during demonetisation. There is no transparency on how deposits into those accounts are being dealt with. Since the government likes bold decisions, why not experiment with Dr Swamy’s radical suggestion to abolish income-tax? He argues that we have a large and expensive tax machinery to collect tax but so few people pay it anyway; instead, abolition of income-tax would boost savings and restart the investment cycle.
• Goods and Services Tax (GST): Envisaged as a single tax rate (one country, one tax), what we actually have are multiple taxes and multiple rates that are changed all the time. A video of Arvind Datar, senior counsel of the Supreme Court of India and an expert on taxation had gone viral before the introduction of GST. He had warned the government about the dangers of hasty implementation and had strongly advocated a pilot project to bring a few products and services under GST to test the radical new system. But the government chose the drama of a midnight launch in Parliament over prudence. The daily collapse of the GSTN network is causing untold harassment to lakhs of persons and businesses. Exporters and traders complain about massive funds and working capital being blocked up and the high cost of filing multiple returns through chartered accountants. The date for filing returns is being constantly extended in the hope of fixing glitches. The impact on the ordinary person is an increase in costs across a large swathe of products and services (restaurant bills, repairs, utilities, housing societies, etc). All of this is bound to impact the economy and perception about this government.
• Interest Rates: Another suggestion from Dr Swamy is the reduction of key interest rates for small and medium industries, to about 9%, and increase in interest rates on fixed deposits (FDs) to 9%, to encourage savings. One assumes this refers to interest paid by banks on FDs. Dr Swamy has not explained how banks will manage this, since they are already gouging consumers for all services, including deposits and withdrawals, even when they enjoy a hefty spread of 6%+ between deposit rates and lending rates.
• Aadhaar: The relentless and unlawful push to force people to link their Aadhaar numbers to bank accounts, telephones, and furnish them for every engagement with government, may be the government’s last big blunder before elections. Disregarding a Supreme Court (SC) stay on making Aadhaar mandatory for government services only justifies fears about its misuse to target people. Moreover, although the Aadhaar database is flawed and unverified, the government stridently dismisses all reports about fraud and hardship encountered in reading biometrics as aberrations or propaganda. There is also the issue of costs. Aadhaar is only a number until authenticated by UIDAI (Unique Identity Database Authority of India) and each instance of authentication is planned to be charged. The cost and infrastructure required to do this, and to keep Aadhaar centres alive for updating changes is sought to be pushed on to banks. This cost is most likely to be recovered from customers. Denial of government services, ration, subsidies and the inability to read biometrics is bound to unleash fresh harassment which cannot endear the government to the public.
The last time around, the National Democratic Alliance (NDA) lost an election, despite a booming economy, largely because of hubris and a self-congratulatory ‘India Shining’ campaign. This time around, there is real hardship inflicted on people, declining growth and no sign of achche din. Will the absence of an alternative be reason enough to give the government another term? We will wait and watch. There is still time for a course-correction, provided the government is willing to listen and act.
Modi govt is in power for last 3 yrs
Instead , ask congress what they hve done in last 65 yrs in power for railways
GDP hasn't fallen, Growth Rate of GDP has gone down, but GDP still growing.
Article covers the issue with arguments from one side only ( though those arguments not wrong). Wish she has accommodated some counterarguments also.
One fact is sure that Arun Jaitley is the only person who can bring Down Modi & working steadily in that direction.
Dr. Subrahamanium Swamy must replace Jaitley ASAP.
This part of the country makes the narrative. OK.
So are achche din not visible in other parts of the country?
Let me put it this way, I travel a bit by train and road, and there are two parts of India where despite everything, hope stares back at you from the faces of people and the way they walk, talk and dress. One is the South, and the other is the North-East. The Gangetic Belt is pretty much where it was, Punjab is in huge flux, Gujarat tends to play its cards to its chest
But it is another aspect altogether - what is going unobserved is the big darkness as Aravind Adiga used to say, that part of India in the middle, and the rapid way in which missing train line linkages or broad gauge conversions are opening routes for people and produce and not just coal or iron-ore, which no longer require big metro cities and their costs for people to prosper.
In these parts of the country, the Aadhar card is considered a boon, probably the first time that people have held an identity in their hands with a Government chop on it which can not be seized or confiscated. Most of us will not understand this simple fact of life because if our driving licences or passports are seized, we know the right people, but you have to understand what it meant for millions of others whose ration cards were in perpetual custody of the visible symbol of government - the PDS outlet.
In these parts of the country, the new age banking means something else altogether again - the end of centuries of serfdom at the hand of the sahukaars and the rulers, and the way our online portals are reaching out and sourcing from there is to be seen to be believed. If Himachal was the early outlier example of this, with almost 100% power and huge empowerment of women, then the middle parts of India are rapidly catching up.
Or just ride a train from Mumbai to Delhi, preferably one that does the middle parts in daylight, so not the Mumbai Rajdhanis. Take one that leaves Mumbai late at night or leaves Delhi early in the morning. See the prosperity that has arrived, again, at what were wastelands, the barren districts in the middle. But that's not the real story - the real story is that the people there, surprise, surprise, do not need Mumbai or Delhi to trade from. See all the inland container terminals on this route, international and domestic, to understand why achche din are moving directly to and from.
I could go on and on, but all I can say is - the view from Mumbai is certainly not good.
But then, Mumbai is not a reflection of India at all anymore.
The international experience with GST is that prices go up initially for a couple of years and come down eventually as the economy begins to adjust. Some slowdown in the economy was expected given that GST would hit the unorganized sector adversely. This was known beforehand. Since all political parties supported the GST, it can be said that we as a nation have taken a call to go through the pain, for the purported long term benefits that the new tax structure offers. It was also the collective wisdom of all that an imperfect GST is better than no GST.
Disgruntlement from those who were able to evade taxes earlier but are finding it difficult to do so now is expected. Economists and politicians have talked for decades about ‘widening the tax base’ but the talk went nowhere beyond taxing the middle class and the corporate sector. One should now appreciate that Modi has taken an unpopular step in larger national interest.
Of course, this is not to say that everything has been executed to perfection. The timing was probably driven by political expediency - the earlier the better, giving more time for things to settle down before the next major elections. Complaints such as software glitches could have been avoided. But these are minor issues in the larger scheme of things, and will get resolved eventually. If the government was not fully prepared, it is equally true that many businesses too did not prepare adequately and kept the matter pending till the last moment. Those who prepared in time have faced no major issues.
While one can say with hindsight that there was a better way to execute, I think excessive media pessimism is unwarranted. In any case, GDP growth rate is a very short term focused, imperfect and overrated statistic whose limitations also should be kept in mind.
PS, this does not apply to crooked traders who purposefully evade taxes.
The method was this. The sales tax office would issue tons of notices to traders and other business owners for non payment of dues or underreporting of sales. These were mostly not valid, but they were sent nonetheless. The CTO/ACTO would summarily reject the replies given to these notices and pass orders to recover the amounts.
The next option of course was to go for n appeal, because why would you pay for something you haven't don't? Now, when you file an appeal, you have to submit 25% of the order amount before your case will be heard. The disposal of the case, usually in the favor of the traders would take at least 3-6 months and the state government would get interest free funds. Brilliant, right?!
I fear that Modi will now try to distract the people by stoking divisiveness, promoting fear of lawlessness, etc. The brunt of this will fall on the minorities and dalits. His base will be happy to oblige by engineering riots.
If only we had a credible opposition! One wonders why Congress leaders, who have a strong base of their own, don't defect from the Sonia-Rajiv Party and form their own party.