COMMENTARY
Finance Minister Nirmala Sitharaman has announced several economic packages to boost the sagging economy. What is noteworthy about them is that each of them is aimed at benefitting the corporate sector. Huge tax exemptions have been announced and those will amount to a revenue loss of Rs 1.45 lakh crore. It is quite obvious that forgoing taxes will mean curtailing of Budget allocations on different heads. Since the Modi Government is a corporate-friendly government, it can be safely assumed that cuts will be made on rural development schemes, money paid for work under the MGNREGA will be reduced, the allocation on public health is likely to be also curtailed. The actual effect of revenue loss will be known only at the end of the present fiscal, when the Union Budget for 2020-21 is presented.
As we have observed, the package will benefit the corporate sector. The corporate sector will have more money to invest, more money to increase production. Here lies the rub. The present crisis is not due to low production, but low demand. The common man does not have enough money to buy things which are absolutely essential. It is not only the middle and lower middle classes that have been hit, but the affluent upper middle class also. Car manufacturers have curtailed production and retrenched or laid off thousands of workers because cars are not being sold. The showrooms are bursting at the seams with unsold cars. Will more money to the car manufacturers mean more money to those who buy cars? Obviously not.
In fact, in a recession-hit economy the only way to stimulate demand is to raise the purchasing capacity of the people. But the government is doing the exact opposite of it. By reducing interest on bank deposits, including those of the senior citizens, by reducing interest on post office deposits and due to inflation, there is less money in the hands of the people. How can demand pick up in these conditions? Many other indirect taxes could have been reduced to boost demand. Declining consumption is aggravating the crisis.
There is a basic flaw in the government's thinking. On the Independence Day, August 15, Prime Minister Modi had said: “Wealth creation is a great national service. Let us never see wealth creators with suspicion.” By 'wealth creators' he meant the corporate bosses, the captains of industry. Here lies the fallacy. Wealth is not created by factory owners. Wealth is not created in the Stock Exchanges. Wealth is created by the farmer who ploughs the field.. Wealth is created by the worker who works at the machine to produce consumer goods.
Taking the cue from the Prime Minister, the Finance Minister has said: “The intention of the Government is not to go on the prosecution route. The Union Government is going for the more human route.” She went to say that violation of the corporate social responsibility (CSR) law will no longer be treated as a criminal offence but a civil liability instead. Summons by the Income-Tax Department will now go through a centralised system, beginning October 1. There will be no “tax terror” by the IT Department people.
It sounds like irony when all critics of the government are being branded as anti-Indian, anti-national and guilty of sedition and are at the receiving end of state terror. Draconian laws like the UAPA and the Public Safety Act are being indiscriminately applied against them. The fact cannot be denied by even the staunchest supporter of the government that when the Congress lost power in 2014, the economy was in a far better shape than what it is today. The Modi Government has opened every sector of the economy, including the highly sensitive defence and telecommunications sector, for foreign investment. But investments are still not coming. Who will invest his money in a recession-hit economy? The economy is yet to absorb fully the double whammy of demoneti-sation and a thoughtless imposition of the GST. Incidentally, it may be borne in mind that the tax rates under different slabs in the GST are being continuously reduced, revealing that both the original decision and the manner of its imposition were arbitrary.
One effect of falling exports and rising imports, together with the steady fall of the rupee against the dollar will be a rising current account deficit (CAD). This, in turn, will upset all the a priori calculations of the government to limit fiscal deficit to 3 to 3.5 per cent. New estimates suggest that the actual fiscal deficit will be between 3.7 and 4 per cent.
Over and above all these, there is a far larger danger—that of irreversible climate changes leading to alternate periods of heavy rain and severe drought. This impact of climate change is already visible and has to be tackled on a long-term basis. Otherwise it will play havoc with our food production and plunge the country into a deep crisis. Does the government have a long-term strategy to deal with the crisis being created by climate change?
Rabble-rousing by demagogy is easy. But the hard problems of the economy are far difficult to grapple with and resolve. This government does not seem to have a holistic view of the deepening crisis on different planes. Therein lies the real danger. Elections may continue to be won and the divided and querulous Opposition decimated in State after State. But the economic crisis will continue to stare in the face and deepen. No demagogy can solve it.
The author was a correspondent of The Hindu in Assam. He also worked in Patriot, Compass (Bengali), Mainstream. A veteran journalist, he comes from a Gandhian family and was intimately associated with the RCPI leader, Pannalal Das Gupta.