Bharat: The government has taken a few measures to revive the economy. The country’s GDP growth rate crashed to 5% In April–June, which was a 6-year low. This is due to the worst hit manufacturing growth of 0.6%, sluggish financial services, slowdown in farms and construction sector. Financial experts have expressed doubt about achieving USD 5 trillion economy by 2024. Credit growth is at a low 13.24%, lower by 8% than that of FY18.
About 1,900 companies were admitted for bankruptcy resolution. Only about 50 cases have got resolved successfully so far.
Damages to the economy have been due to a number of factors. GST, though good when it comes to the concept of ‘one-nation-one-tax’, has multiple rates of taxes up to 28%. The problem areas are of 1-day default, fear psychosis amongst entrepreneurs, cleaning of bank balance sheet, and debt monitoring even considering the debts as fraud though eaten by the losses including capital of promoter.
There is addition high rate of income tax imposed on the super-rich and less money in the hands of the masses for spending, saving and investment. In fact, the job losses happening across sectors, has resulted in a negative sentiment and consumers are reluctant to spend anything beyond necessities even for necessities. This has shrunk consumption to a large extent.
The 28% GST on cement has pushed up the housing cost. It has also affected the poor and middle classes when it comes to repairing and building small houses in rural areas. Housing is a major problem in rural areas. All three – roti, kapda and makan - are concerns of rural India. Owners of old houses in urban areas are unable to get houses repaired due to high rate of corporation taxes and their income dwindling and number of dependent increasing.
Now the Reserve Bank of India (RBI) and the government are working to increase consumption to boost the GDP. The RBI is also trying to boost private investment. It plans to cut the rate of interest. The RBI should also consider not charging the penal rate of interest and other heavy charges, compounding the interest on manufacturing and other sectors, where the work is already at its lowest in five years.
Transfer of Rs. 1.76 lakh crore by the RBI to government on August 28 may be good provided it is used wisely for capital investment and rescuing infrastructure, housing and NBFCs. It should not be spent on doles and extravagances.
The Finance Minister has asked infrastructure ministries and PSUs to invest and make the payment of the suppliers speedily. In Kolkata, she met the heads of 15 business chambers in one-to-one meetings to know the ground reality of the slowdown of economy and to take their suggestions. She said that there is no need for pessimism as far as 5% GDP growth is concerned. She said that in 2012-13, GDP growth was around that level. She has given assurance to revive growth. All actions are being taken.
Prime Minister Narendra Modi said that Rs. 3.5 lakh crore will be spent for Jal Jeewan Mission (mega water scheme) to provide water to all rural households by 2024.
The task force headed by the Economics Affairs Secretary Atanu Chakraborty will identify and work for Rs. 100 trillion infra projects.
The RBI is working with financial sector regulatory like SEBI, PFRDA and IRDAI to develop a securities lending product. This will help to develop a robust fixed income market to bring in market discipline to augment bank finance.
Proposed mega merger of 10 PSU banks into 4 banks is being viewed by financial experts and economists with concern at a time when the GDP growth is steeply falling. When the need of the hour is to speed up credit disbursal to fuel growth, the merging banks will be forced to spend a lot of time and energy in ensuring integration of processes, technology and adjustment of diverse cultures. The customers will have less choice. Wisdom and advice and spot knowledge of a number of directors will also be reduced. The merger will not help to meet the capital requirement. It would have been a much better move to privatise some of the weak banks, or even better to merge them with some of the stronger NBFCs. This would have been the most logical step as these well-functioning NBFCs deserve to become banks and a move like this could have also addressed the liquidity problem of these NBFCs. However, the government will infuse capital totaling to Rs. 55,000 crore in PSU banks. Actually, it will go down.
All the 10 banks could have come up with capital issues to meet the capital requirement and this could have resulted in the government could have reducing its holdings which is as high as 90% without affecting its majority. The merger route will give only the scale of operations. Overheads may not come down. Growth in economy requires credit expansion. Mergers may make it difficult.
World: Many American economists expect recession in 2020-21. US President Donald Trump had given a tremendous tax-cut to give the money to the consumer, so that people have the money to spend. But such tax-cut induced boost to the economy seems to be fizzling out now. As Bharatwasi have habit of imitation, we can follow USA President Trump for tax rates to boost the economy.
Coal import is rising. It has risen 12.9% to 235.2 million tonne in FY19 over 208.2 million tonne in FY18. India spent almost USD 26 billion in importing coal in FY19. Supply of coal to power sector by Coal India; declined by 2.6% to 80.9 million tonne in the first two months of the current fiscal. The mining sector can boost the GDP growth and create large employment for both blue and white collar workers. Private sector should be involved in mining sectors. Many power plants are closed due to no supply of coal. It is a pity that Bharat is not harnessing its natural resources for elevation of poverty and inclusive and sustainable growth. It is depending on import. Mining and exploration policy should be simplified. There should be speedy approvals. Contribution of the mineral sector to the GDP had come down to 1.53% in 17-18 from 1.93% in 12-13. The Supreme Court had cancelled the coal mining license earlier in 2014. The cost of importing is higher. Indian private firms had gone to Australia and other countries for mining. They had been quite successful. In their own motherland, they are being treated differently. The government has now allowed 100% foreign direct investment (FDI) in coal mining and sale of coal, thus opening up the sector to private companies, both Indian and foreign. Although it will be a while before the dominance of Coal India Ltd. gets challenged, nonetheless it is a positive step. However, any progress in augmenting coal production would be futile if distribution sector reforms in power sector do not get implemented.
The RBI said that deep reforms are required to boost the economy. There are still structural issues, and problems related to land, labour, and agricultural marketing. The RBI’s Balance Sheet size increased by 13.4% to Rs. 41 trillion the year ended June 2019. NBFCs’ funding to commercial sectors have fallen by 20% in FY2019.
The average annual growth rate in India’s agriculture sector in the last five years between 2014 and 2019 has been approximately 2.89%. The deficient/erratic monsoon impacted crop output. Despite higher production of food grains and pulses, imports have continued. Inventory is piling up. Buffer stock has reached 75 million tonne against requirement of 27 million tonne. Larger imports crushed prices of pulses affecting farmers.
Bharat has great potential for tourism. It covers many segments: festival, religious, medical, historical, mountain, ocean, jungle desert, adventure sports, cruise, nature & wellness, art & culture, cuisine, eco-tourism, rural India, sports, and spiritual and enlightenment. Incredible Bharat has something to offer for every category of tourist and for all age groups. The government is promoting “Incredible India” and “Atithi Devo Bhava” campaigns. The Ministry of Tourism functions as the nodal agency for the development of tourism. The government has also launched the “Incredible India” mobile app. It has been making efforts to boost investments in the tourism sector.
Tourism contributes close to 10% of the GDP. It is the third largest foreign exchange earner for the Nation. Foreign tourists increased 5.2% year-on-year to 10.56 million in 2018. But there is a booming market for domestic tourism. It has great employment potential as well.
Tour operator and hotel industry have a numbers of problems to deal with. Security to tourists, especially women, on highways, rural India and even in urban areas is a big problem. Rates of GST in these sectors should not be more than 5 to 12%. Overseas tourists would like to travel to places which suit their budget with maximum comfort. It has been found that there are a number of scenic places at a lower budget than that of India.
Bharatwasis are proud of the close to 100% success of the Chandrayaan-2 Mission. Congratulations to ISRO Chairman K. Sivan and his team for their passion, dedication, and hard work with devotion. Moon is 3,84,400 km away. The Vikram hard landed on the Moon. Let us not treat this as a failure. With new vigour, we have to achieve the mission.
Bharatwasi leaders have to take holistic practical actions. Reduce tax rates to enable larger collection, better compliance and less tax terrorism. Reduce manifold structures and rates of GST. Encourage investments to create wealth for generating employment and to boost growth. Minimise criminalisation of commercial and tax laws, at least for minor irregularities and lapses. Increase public investment in rural housing, ponds, cattle rearing, hatcheries, and fishing. Banks should give recourse to insolvency in cases where potential of recovery of units is not good only after due investigation by independent body. Through insolvency process, banks have to take haircut up to 70% and sometimes even more. In the normal way, haircut will be towards high rate of interest, compound interest, penal interest, fines and miscellaneous charges. It is essential to boost economy. NBFCs should be allowed to accept public deposits. Large NBFCs should be given license for private banks. On the basis of market valuation of their assets which is even low, they don’t have mismatch of liabilities and assets. They may be in liquidity crunch for the time being. The USA President had cut tax rates to boost the slowing economy. India should do tax cut to boost employment and growth.
Dr. H.P. Kanoria
Editor in chief
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