Sops fine, structural reforms needed more

The government’s willingness to respond to the concerns expressed by various sectors of industry brings more than a sliver of hope to the economy that has been facing a serious downturn. The slew of measures announced by the finance minister may lead only to minute cuts in revenues and the Centre must be prepared to do even more to bring about the rise in consumption without which the economy seems doomed to a downward spiral into a low six per cent range or worse.

Whether the measures are sufficient to bring the world’s fastest growing economy to levels that would benefit a nation of such size is moot. Seeing the fall in economic growth over the last two years, it is easy to conclude that all is not well and basic structural reforms may be necessary for India to grow and truly aim for the ambitious $5 trillion mark highlighted by the Prime Minister in his Independence Day speech.

The stock markets may be derided as “satta”, which is a form of gambling, but markets are about sentiment and act as indices of confidence in investors. If that sentiment tanks for any reason, the fall can be precipitous. The measures announced are not only for industries but also for the stock markets where the withdrawal of tax on capital gains and foreign investors might just convince them to come back to an economy that is still growing within a global economy that is shrinking.

When the outlook seemed so bad that people were not buying biscuits in India’s villages and urbanites were squeezing the toothpaste tube harder to make it last a few days more, the government had to step in. Particularly so after the disastrous Budget of July 2019 seemed to take a punitive view of wealth creators to the extent that even CSR (corporate social responsibility) activity was to invite criminal action. The holier-than-thou attitude had to change and it is to be welcomed that India was not standing on prestige.

The cry for sops will be heard more frequently now. The deepening crisis in the automobile sector was met with concessions by way of liberal depreciation rates and the commitment on the part of the government to modernise their fleets. It may, however, have been better if the government was willing to bite the bullet and lower the applicable GST rates for consumption to really grow. But then concern for one sector alone cannot be allowed to rule as there are also other sectors sitting on powder kegs like real estate where a gigantic liquidity crisis can blow up anytime.

The recapitalisation of banks and the assurance that lending rates would reflect the drop in the repo rate may help. Where the real problem lies is in access to credit without which the dynamos like MSMEs (Micro, Small and Medium Enterprises) would not be serving as well as they could. The government has shown some magnanimity in being able to bend and it is upto India Inc. now to show what growth it can achieve in a more liberal environment.