Redo Economic Maths

Loan Waiver Populism

By Shivaji Sarkar

The Indian economy is going through a piquant phase. On the one hand, there is competitive politics on giving succour to the farmers through loan waivers and on the other private economy is slowing down. This calls for looking at the economy through a new prism. It cannot simply be a piecemeal approach.
The basic fault is that since 1991’s Manmohanomics the farmers have been in disarray. The rural economy is in a quandary. The country is keen on GDP growth without realising that figures, though important, do not reflect the ground reality.
The loan waivers may earn votes but it is leading the public sector banks to a brink. Their NPAs are growing because the governments take four to five years to clear the bank dues and this is making the banks apprehensive about giving further loans. A “good act” may not be that good. The farmers certainly can ask if the industry could sit tight over their loans, why should there be such a hullaballoo about them. They forget that unlike them, once a farmer gets a waiver he is marked ineligible for fresh loans.
Such acts are grinding bank lending to a halt. The politics of waivers is creating a culture of morality. The Reserve Bank of India in its July report said that the waivers are making farmers complacent about repayment. It is being seen as a dole and impacting the public sector banks.
Undoubtedly, populism is growing and everybody is keen on taking the kudos. Union Finance Minister Arun Jaitley has aptly warned against the populist policies like waivers. The bank depositors too are a worried lot as they feel their deposits are in danger. The latest numbers are worrisome. And perhaps this also reveals that the nation is finding it difficult to understand economic development.
The Government is seemingly obsessed with fiscal deficit and so is on a spree to fill up its coffers. Coercion is built into the system either through tax terror or through levying of compulsive charges on various facilities, increasing fuel prices and consequent free hand to the big businesses to hike prices in the name of freedom to the market.
The country is in the throes of a severe crisis of conviction. The political parties that one time criticised waivers are today promoting these. About Rs 1.9 lakh crore has been waived by eight States since the Uttar Pradesh elections in March 2017. About 1.47 lakh crore are to be waived in Rajasthan, Madhya Pradesh and Chhattisgarh. Loans are mere symptom of the disease. All, however, are silent on diagnosing the malaise.
Farmers need relief. They need remunerative prices. But farm price is the key to economic growth. If it is too high, food prices would be rising and could create a political turmoil other than affecting the growth.
In reality, growth, to speak in a sober way, is moderating, euphemism for a slowdown. This is revealed by the July to September GDP figures. The growth during the period fell to 7.1 per cent as against 8.2 per cent. However, there is a catch. The economy had grown at a slower pace during the same period in 2017 at 6.3 per cent. The present figures are on that low base. So the actual growth is less impressive.
Another interesting aspect is that the non-government or private part of the economy grew at 6.4 per cent per year, during the period which was much slower than the overall economy. The non-government part of the economy is calculated by subtracting the government expenditure number from the overall GDP number during the period. This is crucial as it indicates how the less fortunate are doing.
This fall in economic growth was clearly visible in other economic indicators such as car sales and two-wheeler sales. Domestic car and van sales during the period July to September 2018 fell by 2.42 per cent during July to September 2018. Two-wheeler sales grew by 4.9 per cent, after having grown by 24.8 per cent between January and March 2018 and 13.9 per cent between July and September 2018.
This means that despite the National Green Tribunal’s quixotic order for junking 10-year and 15-year-old vehicles, the sales are not going up. So why not scrap such quixotic orders? More so, as it suggests that the purchasing power of the people has been gravely affected and they are away from the market.
Therefore, all of this calls for a detailed study. It is also a reflection that despite higher direct tax realisation, overall income is not rising. It is an indirect indicator of falling job opportunities as well. The recent RBI study on impact of demonetisation has volumes to say on this kind of stagnation.
One may boast that it has fattened government coffers but at what cost? The collections during the last two financial years have made the government richer by Rs 90,000 crore. The gain in revenue collection comes at a cost more than Rs 1.05 lakh crore. The expense towards tax administration is 35.75 per cent more cost of tax collection and anti-tax measures account for 4.32 per cent in 2018-19.
This is also a reflection on the policies. It looks nice to say that gross income-tax collection has increased, but it is also a reality that these are mostly people at the threshold level. It indicates that those low-earning persons, including those in businesses, who earlier may have been making minor savings on tax payments, were contributing to the economic growth.
As the country is moving towards a major election, it is necessary to look deeper. On an average as the direct taxes are tailored, even at the lowest slab, one would be losing about three months’ earnings in filling the government coffers. This is just impoverishing them. This is affecting growth. Taxes are meant to add to the growth, and if it is not so, it calls for a relook at having such a tax system.
It is also difficult to comprehend that while oil prices since 2014, except for a brief patch, have continuously been falling, the public sector oil companies have been increasing the domestic prices continuously. The minor cuts during the State polls were a deceptive technique. Had oil prices been in sync with international prices, the growth pattern could have been different. That oil companies are earning huge profits is apparent from the doles they paid — about Rs 3000 crore for erection of some statues!
Let us redo the arithmetic not only of the taxes but of all the waivers, fees, charges and road tolls, et al. Strategies have to be worked out for overall development and just for pacing up the economy.—-INFA