More stimuli for growth, but it is still not enough

Finance Minister Nirmala Sitharaman came up last weekend with a new stimulus package to arrest the worrisome slowdown of India’s economy. It was her third package in as many weeks.

These packages testify to her determination to accelerate the growth rate to a level high enough to achieve the government’s ambitious goal of a $5 trillion economy by 2024. But is she on the right track?

Corporate India cheers every stimulus package but economic analysts remain sceptical about the adequacy of the measures announced so far. The first stimulus package aimed at reviving the automobile industry, which has been going through a slack period, and improving the investment climate.

The second package was designed to strengthen the banking sector which has been labouring under the weight of bad loans and gross mismanagement. It provided for merger of state-owned banks.

The new package contains a set of measures to boost exports and help revive the real estate sector which has been in the doldrums for some time. It envisages allocation of Rs 360 billion to Rs 680 billion as export credit to the priority sector.

The measures to help the real estate sector include relaxation of the guidelines regarding external commercial borrowing and allocation of Rs100 billion for what the Minister described as “last-mile funding”.

The government estimates that the latter scheme will help complete nearly 350,000 dwelling units in incomplete projects. Projects involved in bad loan cases or insolvency proceedings will not come under the scheme. This means a large number of middle income people who put in hard-earned money in such projects will not get the benefit of the scheme.

Like the earlier packages the latest one too has been formulated without taking into account the factors that led to the present situation. Many of the current ills of the economy are direct consequences of two decisions taken by Prime Minister Narendra Modi in his first term: demonetisation of high value currency notes and introduction of a goods and service tax regime.

Demonetisation was announced ignoring warnings by experts. From day one problems cropped up and the government found it necessary to amend the original notification repeatedly. It caused much personal hardship to ordinary people. Worse still, it ruined small and medium industries across the country.

The new GST regime was something that could not be put off indefinitely. The previous Congress-led government, headed by Manmohan Singh, was going slow on it in view of anticipated difficulties. Eager to impress all concerned with his zeal for reform Modi pushed the scheme through. It added to the woes of small and medium businesses.

The proclaimed objective of demonetisation was unearthing of black money believed to be held in high denomination notes. But it failed to reveal any huge stocks of hoarded money. The new GST regime was expected to raise tax collections substantially. This, too, did not materialise.

These sad experiences do not seem to have persuaded the government to approach issues realistically. Typical of the superficial approach of the decision-makers is the Finance Minister’s attribution of the ills of the automobile industry to the millenials taking to online car hire operators.

According to the skewed official data, the annual GDP growth rate is now five per cent and it needs to be pushed up to eight per cent to reach the target set for 2024. No one takes the official figures seriously any longer. Independent studies indicate the actual growth rate may be between three and four and a half per cent.

In that event the growth rate will have to be pushed up to at least ten per cent for Modi to end his second term with the image of the builder of a $5 trillion economy. Such growth as has been achieved has come without creating commensurate employment.

At best the stimulus packages will help arrest loss of existing jobs. They will not create new jobs. Nobel Prize winning economist Paul Krugman has been warning for at least a year that India is headed for mass unemployment. So far the warning has fallen on deaf years.

It is time for the government to go deep into the causes of the economic slowdown and devise measures that go beyond meeting the immediate needs of businessmen in distress.