Establishing The new normal

Any debate on real issues of economy is always welcome, instead of manufactured and imaginary issues like intolerance. In this light, we welcome Yashwant Sinha’s concerns on the state of economy, though his deliberations seems to be motivated and with many technical flaws. We should bear in our minds that there are no free lunches in economics. There is always a trade off in resource allocation and the government has to ensure that they are allocated in the most efficient manner.

Current government is the most proactive government the country ever had. We are never in a denial mode. Prime minister has acknowledged that first quarter GDP figures are a cause for concern. Economy has some problems like private investments, financial institution’s distress and employment, but we have to look into what the government is doing.

One can always be critical of the government and have own contrarian view  and get statistical data to back it up. It is, therefore, not surprising that Sinha chose the wrong figure of Rs 65,000 crore as input tax credit demand under GST, although the returns for input tax credit claim has not yet been filed. All these assumption of demand of tax credit are based on IGST figures alone and, therefore, wrong

estimation.

Secondly, the negative impact of demonetisation was due to initial liquidity crunch. With fresh currency in circulation by June end 2017, this remained a short term pain. Also, currency does not have shades of black and white.  Black money is determined only on the basis of ownership. With identity now clearly established, tax evasion will be in check and black money traced.

Demonetisation has pushed people to move business transactions to banking channels, establishing audit trail. This has been a prerequisite for successful implementation of GST. Once the benefits of GST, such as input tax credit and removal of the cascading effects of tax into maximum retail price (MRP) are implemented, consumer prices will come down. With better tax compliance, government can also lower indirect tax rates. This indication has already been given by Union finance minister.

The complete online structure of GST Network, after full implementation, in December 2017, will bring ‘ease of doing business’ (EODB). Once initial transaction are uploaded into the system, other informations will be transmitted automatically. With online registration, returns, assessment and refund without tax personnel intervention, the day to day life of businessmen will become hassle free. Similarly, more processes and permissions, including e-tendering and risk assessment in case of farmer’s insurance claim are being done online through technological innovation. So, Sinha’s question of raid raj gets limited to only tracking black money and corruption cases.

The criticism with regard to change in base year in GDP calculations can be explained. Base year is periodically shifted to relate to current market prices. We are now calculating GDP at market price instead of factor costs, more alligned to international norms.

First time, there has been concerted approach of the government to enhance manufacturing in India with EODB. World bank has recognised 20 economic reforms of the Modi government to be considered in this years’ international ranking. This will significantly improve India current EODB ranking. Helping in attracting highest Foreign Direct Investment (FDI) across world, it is already at an all time high of $62 billion. People don’t put their hard earned money if they don’t have faith in the future of the economy.

 

Major criticism of previous UPA government was policy paralysis and lack of ownership of problems. Current government is very active on all fronts. Prime minister is personally overseeing stalled projects in infrastructure, power and steel under the pro-active governance and timely implementation (PRAGATI) initiative having three-tier system (PMO, Union government secretaries, and chief secretaries of the states). Till now, 20 such meetings of PRAGATI have seen a cumulative review of 183 projects with a total investment of Rs 8.79 lakh crore.

It’s common knowledge, that the backbone of our financial institutions was broken by UPA government’s unprecedented credit loot, by way of compromising loans from our public sector banks (PSB). Present government has inherited the NPA problem along with several macroeconomic de-stablising factors such as high inflation hovering around double digit, fiscal  deficit of more than 4.5 per cent of GDP (in addition to declared defict, many expenditures were pushed off budget by UPA II), falling GDP growth rate etc. Government is now identifying NPAs’ and resoluting them by means of PRAGATI, Insolvency & Bankruptcy Code and Benami Properties Act, which was passed 28 years back but was not notified, it has now been enacted. The result of all these actions are clearly visible in many cases such as Misa Bharti and Karti Chidambaram.

Indian economy is one of the fastest growing economies in the world. It is the seventh largest economy by nominal gross domestic product (NGDP) and the third largest by purchasing power parity (PPP) (World Bank, 2015). But the benefits of this growth were not evenly distributed. As per the Global Wealth Report, 2016, top 1 per cent of our population has more than 58 per cent of the total wealth of the country. Large-scale corruption is the main cause of this uneven growth.

Curbing corruption and elimination of black money are the important mandates of present government. Prime minister has put in lot of efforts to fight this menace, starting from setting up of a special investigation team (SIT), Foreign Assets Declaration Scheme, renegotiation of bilateral treaties on Double Taxation Avoidance Agreement (DTAA) with Mauritius, Cyprus and Singapore, Income Disclosure Scheme (IDS) I & II, Benami Transactions (Prohibition) Amendment Act (2016), Demonetisation, deregistration of Shell Companies and GST. These efforts have helped in establishing clean business environment.

The gloomy picture that some wants to paint is nowhere in sight, what with healthy foreign exchange reserves, current and fiscal deficit under control, stronger rupee, healthy tax collections boosting  government revenue, corruption and crony capitalism under check, leakages proof and targeted delivery machanism for financial participation and proactive government committed to structural reforms.

Modi can never be accused of doing nothing, he may be criticised for squeezing too many reforms in a smaller time span. He believes in accountability, has created performance matrix, setting up very tough targets for himself. His commitement to doubling farmers’ income by 2022, providing 5 crore low cost housing, electrification of all villages, electricity to every house, bullet train, corruption free business ecosystem, self-employment, rural roads, regional low cost air connectivity, 2 lakh km of optical fibre connectivity etc. points towards his pro poor and business friendly targeted approach.

Modi will not sit on his laurels and is impatient to accomplish goals. His proactive approach will overcome whatever hurdles come in the way. The question is, has he raised the bar too high? But then, he was never voted to power to manage things, but to change the status-quo and create a new normal. That is what his government is doing.
(The writer is national spokesperson BJP on economic affairs)