December 25, 2019
The doors to domestic corporate investments may be closed
Also, the GST is to be rolled out later in the year, the crucial details of
which have not yet been hammered out. Whatever Modi might say, the economy he
inherited from the UPA government was nowhere near as bad as the one P. Will
Modi-Jaitley take the big step?India is not out of the shadow of Demonetisation
— DeMo, for short — yet, but the Modi government is already set to embark upon
the next experiment — this time, the all-important Budget exercise, set to be
presented on February 1.
The government will also do well to realise that in
2017, and perhaps even next year, private investments by big companies are
unlikely to pick up, even if cheaper credit is now available thanks to the cash
that has been deposited in the banks. By then, the government will also have a
better idea of how long it will take to replenish the cash it sucked out of the
economy, and perhaps even of how long a recovery of sorts might take.
Meanwhile,
the start-up sector, except for fintech companies, has seen funding dry up.At
the same time, small industries, which China
aluminum Household step ladder were doing pretty well on credit offtake
until recently, have been badly hit by DeMo and are going to take some time to
recover.But if Modi-Jaitley must present it on February 1 regardless, then one
must pray that they will at least do so acknowledging that the currency supply
is not going to improve until at least the second half of the fiscal, neither
will the digital economy pick up sufficient scale to fill in the gap. For the
latter, a little loan recovery scheme, just like the black money amnesty scheme,
wouldn’t be out of place, though.0? While the consensus among economists in
India and abroad is that demonetisation may have quashed any chance of a Budget
that can fit that bill 25 years after former PM P.
Narasimha Rao quietly ushered
in Liberalisation 1. Also, the Chinese export model of growth is not available
to India; and after DeMo, neither is the domestic market, at least for the
coming year.The big push for investments and jobs will have to come from FDI.By
the end of March, it will also know the full extent of the banking crisis, due
to bad loans, it has on its hands.0, it’s only fair to say, all bets are off
when anticipating what Prime Minister Narendra Modi may pull out of the
proverbial hat next.These are fundamental, because returning cash supply to
pre-November 8 levels is key to reviving economic activity in the sectors that
have been hurt by DeMo.
As even the Election Commission has said with a level of
exasperation, "heavens won’t fall" if the government presented a Vote on Account
on February 1 and left the Budget for until after elections. He simply tore down
the entire economic system and rebuilt it. The DeMo exercise has been done and
the government already has, in any case, its hands on the money —our money — in
the banks, which it can use to save the banks, it would now be prudent to wait
to know exactly how bad the problem is before making provisions for it.The one
trick that the government can resort to is, of course, loosening the fiscal
strings to compensate for the monetary contraction, and pump money into
infrastructure — this seems to be the recommendation of the Niti Aayog, calling
for China-style coastal economic zones — but availability of funds is not the
only reason why many projects have stalled.Doing so would allow Prime Minister
Modi to gauge the real level of popular support he has for DeMo, partly via the
election results.
Narasimha Rao inherited 25 years ago. Having rushed into one
large exercise without thinking and preparation (and claiming that to be a
virtue) and having put an entire nation to unnecessary hardship and uncertainty,
it would be prudent for the government to not do the same with the Budget.A
budget made now will be full of assumptions — about what exactly the DeMo
exercise has turned up, about GDP growth prospects, about banks’ bad loan
numbers, about the time needed to put cash back into the system, about the
extent of damage DeMo has done to the economy — especially to the informal
economy, which is the bigger, more reliable driver of economic activity and
jobs, and which has been badly hit by the cash ban. Most large companies and
conglomerates are still too deep in debt, but have been let off the Raghuram
Rajan hook. No such demand is being made of Modi, and he should craft an
economic policy with a cool head, drawing on the knowledge of expert economists.
Rao did not whine about it on television.
A conspiracy theorist would, in fact,
read this as one of the motives behind the government’s push to destroy the
informal sector!The time for needless, heedless, politically or ideologically
motivated tinkering or, equally worse, making changes merely to show one’s
strong leadership credentials is over. Prime Minister Narendra Modi (Photo: AP)
Is finance minister Arun Jaitley really set to unveil a Budget that’s being
described as Liberalisation 2. Today, we call him Half-Lion.The big push for
investments and jobs will have to come from FDI.While the government seems
adamant on presenting the Budget just three days before a round of crucial
assembly elections begin, experts believe it may be wiser on its part to put it
off to until after the elections, perhaps choosing instead to present a Vote on
Account for now. A Budget for the vegetable vendor, the kirana trader and the
like, rather than one for Adani and Ambani.What’s more, the government is making
significant changes to the Budget itself, both symbolic and substantial: its
presentation has been advanced to February 1 (and the fiscal year will
henceforth be reckoned from January to December, rather than April-March); there
will be no separate Railway Budget as was the case hitherto, and there will be
no Plan and non-Plan expenditure distinctions. It may be the right time to bring
in multi-brand retail to draw in big bucks, create jobs, and help realty and
construction recover.
The doors to domestic corporate investments may be closed,
but a window to FDI is open, especially in multi-brand retail, with the
potential to create the most important effect — jobs.Perhaps, therefore, this
year’s Budget will do well to focus on the farm and rural sector, pumping credit
to the informal sector in general. Bottomline: the formal economy is unlikely to
perk up this year.V. After all, he would not want to be looking back at his own
legacy and be called anything but a full man !(The author is a Bengaluru-based
economist and commentator).V
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