By Shivaji Sarkar
India keenly awaits demand and production boosting central budget for all-round happiness.
It is a wait for new tax policies, public and private investment in industry and agriculture, growth and how the government takes a stride with the new currency.
There would be aspirations as to how the Narendra Modi government breaks from the past and steers the country through a low-price, low inflationary high paced path. The corporate are also dreaming of a budget that would increase production by raising demands. They also want a mix of cash and other modes of transaction for resuscitating the economy.
The budget has also to relook at GDP data. Chief global strategist of Morgan Stanley Ruchir Sharma says the figures are overstated and wants the budget to correct it.
Referring to the black money scenario, the RBI Financial Stability Report (FSR) released on December 29, 2016 says the best way to contain this menace is to improve governance, quality of services, avoid excessive regulations and have a compatible tax structure.
Many in the country have the misconception that once black money is removed, somehow India will be magically transformed into El Dorado. The money comes back to the same government system that is the source of embezzlement.
The RBI has set a tall order particularly as it also lowered growth projections by .05 percent. The budget has to take care of each of these moves. It has to present a soft budget.
Modi has to consider RBI prescription. He has shown that he could take independent path by initiating the process of having floor bank deposit interest rate at 8 percent for the senior citizens. Later it may happen to all deposits. The cut in interest rates for housing upto Rs 12 lakh is likely to give a boost to the housing sector and demand for construction workers.
The country has accepted tough demonetization for two reasons – it will be the end of Manmohanomics and also usher in the low tax regime, a promise the BJP manifesto made in 2014. The people have high expectations. They want an end to personal income tax, highway tolls, end to raid raj, simplification of indirect taxes and ease of business.
It is true that Indian economy was earning kudos from IMF, World Bank and other international observers. IMF chief Christiane Lagarde said on March 16, 2015, “India is the bright spot in the global economy at the moment”. On March 12, 2016, hailing the Modi government’s Make in and Digital India campaign she said, “India’s star shines bright with the promise of more reforms in coming days”.
Niti Ayog deputy chairman Aravind Panagariya has written to the prime minister to end the income tax raids as it stifles growth.
Chief executive of largest $ 10 billion IT company, Infosys, Vishal Sikka has warned its employees of challenging times of the company. Chairman of the third largest software services, Wipro, Azim Premji told his employees that events in 2016 had raised questions and obstacles that could not be ignored.
The Nikkei/market Services Purchasing Managers’ Index (PMI) shows the numbers in November at 46.7 and in December at 46.8. A reading above 50 indicates expansion and a figure below that indicates contraction. “Indian service economy ended 2016 on a grim note, with the average PMI activity index for October-December the lowest since early-2014,” said Pollyanna De Lima, economist at IHS Markit and author of the report.
Overall industrial index figures too were not bright. It registered a growth of (-0 1.9 percent in October 2016 with manufacturing at (-) 2.4 percent; mining at and electricity at (-) 1.1 percent. The cumulative IIP registered a growth of (-) 0.3 percent during April to October 2016. It indicates stagnation in industrial growth and consequent fall in jobs.
The banks face a new problem. Flush with deposits of Rs 14.96 lakh crore deposits (in the wake of Rs 15.44 lakh crore demonetized) since Nov 8, the banks face significantly high interest payouts. They face poor loan demand meaning they have sit idle on the huge pile.
Meanwhile bad loans of banks have shot up to 9.1 percent in September from 7.8 percent in March 2016, according to the FSR of RBI. The RBI says the NPAs of public sector banks may soar to 12.5 percent as asset quality of large borrowers deteriorated significantly. The total NPAs may cross Rs 12 lakh crore – meaning that much of depositors’ money is at stake.
The security agencies have told the government that e-push is fine but cops do not have skills to thwart fraud.
Larger fiscal deficit is possible as it has already touched 86 percent of the estimated Rs 5.33 lakh crore during April-November.
The problem is how soft it could be on taxes though it is imperative for future growth and a favourable political climate. It should raise income tax ceiling ideally to Rs 25 lakh by 2018 and immediately to Rs 10 lakh to give a high push to the demand and growth. It is, however, possibly be limited to around Rs 4 lakh income, that is unlikely to pep up the market.
Another thing that it can do is to give up inflationary unpopular moves like the dynamic train freight/fare, which is increasing rail losses as people are either opting for air for long distances or road travel for short distances apart projecting the government as greedy.
Similarly, it needs to cut highway tolls or at least abolish it for private and farmers’ vehicles to encourage movement.
The government has to stress agricultural investment. Farmers need storage, warehouses and cold chains. Big houses have not invested. Past governments have talked about it but not much has been done. The government can promote big farmers to invest. It can provide them soft loans so that farmers do not have to sell their produce in distress.
Agri-biz also needs to be given a boost through value addition and the cluster-village mode. The government can assist farmers have funds through easy loans. Farmers should also be incentivised – may be given the most despised subsidy - to invest.
The moves would increase rural investment, raise demand, jobs and bolster rural economy. The tack has to change from urban-industry orientation. That can be panacea for overall development the budget pines for.
By Shivaji Sarkar
Shivaji Sarkar is a senor journalist, writes on socio-politico-economic issues and is a well-known media academician who has made significant contribution to journalism, and media studies.