SEPTEMBER 29, 2017

By Naresh Minocha, Consulting Editor

"THIS government now realises that they need a boost of Viagra to do something about the economy. Now they want Rs 40,000-50,000 crore to inject into the economy. No nation can survive like this," stated eminent lawyer-cum-Congress leader Kapil Sibal. He said so while mocking Modi Government's loud thinking on economic stimulus.

Mr. Sibal is right because Viagra is addictive. It can hook the economy to 'Yeh Dil Mange More' mania. Recall UPA Government's experience. It was forced to sustain the 2008 stimulus necessitated by the global meltdown for too long. It thus hit fiscal prudence for a six.

Risk to fiscal health aside, economic stimulus often serves as fig leaf for crony capitalism. The Government of the day readily succumbs to lobbying by influential companies and sectors. It ends up doling out tax incentives and makes additional expenditures to bail them out of their own cup of woes.

Prime Minister Narendra Modi should get an in depth study on post-budget stimuli given to one sector or the other by different regimes since Independence. It would certainly be an eye-opener for all.

Is the talk of economic stimulus a ploy to bail out hand-picked sectors such as the influential telecom services providers that operate as elite clique called COAI?

One of the COAI members is Airtel, which overloaded itself with debt to fund expensive acquisitions abroad. Recollect how it survived and grew out of Atal Bihari Vajpayee Government's telecos bail-out package that left exchequer bleeding with revenue forgo of Rs 50,000 crore as estimated by public interest petition filed with Delhi High Court.

Analysts should thus start identifying potential beneficiaries of economic stimulus to drive home the need for rationale for any dole-outs whatsoever.

The cost of stimulus is ultimately borne by the public.The sacrifices are thrust on the citizens & organizations as a new cess or surcharge or as hikes in the existing imposts. The poor share sacrifices as reduced/subdued budgetary outlays on healthcare, education and rural development schemes.

Modi Government must thus ensure that economic stimulus is drafted in a transparent manner and is injected end-to-end across the economy. It should not be used as tool for wooing certain category of voters with an eye on 2019 LokSabha elections.

Such an exercise should be preceded by debating a few fundamental issues: 1) Does the economy need a post-budget Viagra? 2) Is the annual budget not an economic stimulus in itself? 3) Would monetary stimulus not be a better alternative? 4) Or does the economy need both fiscal and monetary stimuli? 5) Does it make sense to undo the damage caused by bad governance with post-budget sops? 6) Why has the Modi Government not thought of a zero-cost good governance stimulus – a win-win for all?

The answer to the first question is categorical 'No' if one goes by showers of praise heaped on Mr. Modi for the perceived tsunami of positivity triggered by demonetization and goods and service tax (GST).

BJP National Executive Committee (NEC), for instance, lauded demonetization as: "This one major decision has secured unprecedented success in paving the way for strengthening the foundations of a transparent economy, it has also paved the way for honest. Digital cash transfer for schemes such as MNREGA, Gas Subsidies, scholarships, pensions & other social welfare schemes has facilitated transparency in the lives of the beneficiaries. This systemic transformation has led to huge rise in the income tax payers base in the country."

As for GST roll-out, BJP NEC's political resolution dated 25th September 2017 says: "Implementation of GST has increased ease of doing business in the country by resolving the problems faced by the trader community. Besides bringing in ease of business, the burden of taxes on items of day to day use has been considerably reduced. The Government is consistently resolving the difficulties being faced by the people and the traders during the initial period of the implementation of this tax".

This positivity gets punctured like a balloon if one hears reports from diverse quarters including ground zero. With GDP growth sliding to three-year low of 5.7% in Q1 2017-18 from 6.1% in the preceding quarter, experts are revising their projections for the whole year.

Asian Development Bank (ADB) has pruned down its GDP forecast to 7% from its earlier projection of 7.4%. Two Indian experts foresee GDP growth in the 6.3-6.5% range in 2017-18.

"Today, the economy is in a tailspin. Yes, it can crash. We need to do a lot of good things to revive the economy. Even a tailspin can be made to steady. If nothing is done, we are heading for a major depression. There will be mass scale… banks might collapse, factories might start closing," BJP stalwart Subramanian Swamy reportedly told a TV channel.

In his scathing analysis of economic woes, Yashwant Sinha, ex-FM and sidelined BJP veteran writes: "Nobody has a magic wand to revive the economy overnight. Steps taken now will take their own time to produce results. So, a revival by the time of the next LokSabha election appears highly unlikely. A hard landing appears inevitable. Bluff and bluster is fine for the hustings, it evaporates in the face of reality".

It is already happening. Both political confidence index and business confidence index are sliding prominently under National Council of Applied Economic Research's (NCAER's) Business Sentiments Survey (BES).

According to NCAER, Business Confidence Index (N-BCI) registered 2.5% decline in July 2017 over April 2017 on a quarter-on-quarter basis. NCAER conducted Business Sentiments Survey in June 2017, that is, before GST roll-out. It says that "N-BCI has shown large swings since demonetisation was implemented on November 8, 2016".

Several companies have mentioned lingering effect of demonetization and messy implementation of GST as major growth retardants.

These, coupled with policy flip-flops, blow-hot blow-cold political outbursts and judicial activism on policy and regulatory turf, have heightened business uncertainty. Factor in Rich-Poor Divide speeches of Modiji in which rich are portrayed as exploiters of poor and the cause for miseries of the poor. Whipping up passions against the rich to project himself as Messiah of the poor has in fact become trump card for Modi in electoral battles.

It is easy for PM to win such battles by vitiating business environment. It has been polluted further by lawlessness in general and cow vigilante in particular. The dairy sector and leather industry have received crippling blows. The Government's decision to expand price controls on a few industries and retain on others has compounded the business risks.

The Government has imposed deemed price control of sorts over the entire economy by framing anti-profiteering rules under GST law in June 2017. This flies in the face of Modi's description of GST as good and simple tax.

Revenue Secretary Hasmukh Adhia strongly delivered the threat of price controls across the entire spectrum of goods and services in May 2017. Mr. Adhia reportedly stated: "The machinery for the anti-profiteering authority may not be ready at present but any change in prices will be called into questioned." He added: "We expect companies to cooperate. We hope we don't have to use the weapon (of anti-profiteering authority)," he said.

The subject of anti-profiteering is already dealt by Competition Commission of India. What is Modi Government trying to achieve through multiple statutory price controls including the ones under Essential Commodities Act? Scare away investments?

Similarly, ministerial speeches have heightened business uncertainty. A case in point is Road Transport Minister Nitin Gadkari's open threat to send automobile companies' out of business, if they do not switch to electric vehicles or biofuels.

Earlier this month, he reportedly stated: "I will bulldoze. Petrol diesel banaanewalonkaa band-baajaabajaanaahai (We will take the makers of petrol/diesel engine vehicles to task)".

And all these dark clouds of uncertainty are freezing or reducing to trickle future capital investments that generate growth, jobs and wealth. Modi Government's biggest achievement has been reducing the prospects for revival of private investment cycle. Companies largely borrow to repay previous loans or to meet operating expenses.

Uncertainty is also pushing businesses towards downslide, ultimately leading to sickness. Economy and businessmen today urgently require government initiatives that make business environment certain.

Modi Government should thus bring out Price controls policy, specifying areas where these would not be threatened. The Government can easily rein in industries resorting to exploitation of consumers by opening floodgates to competition including imports.

Prime Minister should also discipline ministers who have propensity to threaten industries. They should not be allowed to make off-the-cuff policy pronouncements that contribute to uncertainty.

The Government should also consider five-year tax freeze in changes in both indirect and direct taxes to make business environment stable.

Moreover, the Government must bite the bullet on expenditure control by taking decisions tough decisions on control of non-capital expenditure. A case of such wasteful expenditure is PM and President flying in separate aircraft to pay home age to Tamil Nadu Chief Minister J Jayalalitha. Remember President had to return to Delhi from mid-way to change his aircraft as the original one had developed some snag.

Instead of repeatedly accusing the rich for hardly doing anything for the poor, the leaders of ruling alliance NDA should opt for freezing of their salaries for five years. Ministers, MPs and MLAs should cut down expenditure on air travel and lavish events. They should give up bungalows, shift to luxury apartments and plough the freed resources for providing houses, healthcare and population control facilities to the poor.

Mr. Modi can unleash biggest reform in development economics by linking Aadhar with the size of family. All welfare benefits including caste reservations should be limited to two-child norm through Aadhar.

The New India that Modiji and his predecessors have dreamt and talked of would have arrived long back had Nehru Government accepted a similar suggestion made by B. K. P. Sinha, a Member of Parliament during May 1962.

Participating in budget discussion in RajyaSabha, Mr. Sinha stated: "whatever we do, whatever efforts we make, the abnormal rise in population nullifies much of the efforts that we put forth.... Is it not possible, cannot the Finance Ministry work out fiscal proposals, frame fiscal proposals in such a way that the growth of large families is discouraged, I feel some effort must be made in this direction, and in my opinion, unless this abnormal rise in population is checked, all our developmental activities will not produce the results that we expect them to produce".

All such good governance initiatives would not cost the exchequer even one paise. They can be clubbed together as zero-cost stimulus to the economy.

Mr. Modi has to now decide whether he wants to ruin the economy or put it into double-digit growth trajectory.