Have you heard about Bamboo tree, it grows to a height above 80 feet. It takes roughly five years and three months to reach that height. For the first five years all you can see is a tiny shoot but in the next three months it grows rapidly. Sinha saab, aren’t the economic policies just brought by the government are like the bamboo tree? Chidambaram sir, Relax its not UPA government so there is no scam in cooking. Kejriwal sir, no need of an RTI. The tree is strengthening its base root network to support the tall shoot that is about to come.
One cannot say that nurturing tree during those five years is waste of effort. How can we come to conclusion that economy is headed for a collapse after looking at data for just one quarter without considering the conscious shocks given to it.
Most of those who are making a hue and cry about the economy say that demonetization and GST are economic disasters. We knew that a large part of our economy is unaccounted for. And we all agree that we had the most complex indirect tax system in our economy. Then what do you expect any government with a long term growth vision to do?
Demonetisation and GST will act as building blocks by bringing in formalisation in the economy which in turn will yield multiple benefits. Demonetization in India is one of the smoothest possible replacements of currency itself. The bone of contention with demonetization is that most of the money is back into the system and hence it didn’t serve the intended purpose. Unfortunately, in terms ofcompliance most of us are known for Jugaad and this has been our bane. People did jugaad and converted their black money to white. But remember that this government is capable to smash their jugaad by bringing such people to books. The process is on. Let’s not forget that the extra Rs 3 lakh crore deposits which most of us thought would not come into banks are expected to fuel a productivity of Rs 18 lakh crore.
For a country with most complex tax structure, isn’t it necessary to simplify it? VAT took years to stabilize. Why is the opposition party so eager to label GST as a failure just within three months of implementation when the GST collections are satisfactory, when the GST implementation is monitored 24*7 and when necessary changes are made time to time to give immediate relief to people ?GST is not invented by the present regime. GST is a reform coveted by the governments of the past and the present. It’s a reform adopted by India and by 150 other countries of the world. Experiences from other countries inform us that prices fall in long run as the GST rate comes down because of widening tax base.
Any economics student can understand the term politician dilemma, i.e, growth and inflation. One can either have high growth and thereby high inflation or have decent growth rates by controlling the fiscal deficit and inflation. As a Governmentwith a long term quality growth strategy, it preferred the later.Govt is following a low inflation growth model. UPA with a double digit inflation achieved a growth rate of around 7%. Modi Government with an inflation of3 to 4% is achieving a growth rate of around 6%. Undoubtedly, the real growth is much higher in Modi’s regime.
Various policy initiatives such as the trio Jan Dhan-Aadhaar-Mobile (JAM) backed direct benefit transfer (DBT), bankruptcy code, power reforms, subsidy reforms coupled with demonetization and GST are going to create a long lasting impact on economy.
Public investment has been greater than ever, with increased spending on infrastructure, affordable housing, defence, railways, and now rural electrification, beyond the FY17 revised estimates.
Government has ended rep-tapism. Earlier there was a lot of government discretion, which led to corruption. PM Modi has put a full stop to government discretion and left it to market forces. This has made India a more attractive destination.
Rupee is stronger than before. Direct tax figures are 15.7% over and above last year’s figure. GST collections in the first two months have also been on expected lines. Our foreign exchange reserves have increased from $304 bn in 2013-14 to $403 bn now. FDI inflows have grown from $36 bn in 2013-14 to $60 bn in 2016-17. Inflation is maintained at 3 to 4% through out. Because of the priority that’s given to fiscal discipline, a record low fiscal deficit of 3.2% is achieved.
Mr Rahul Gandhi, you said “wings have fallen off the plane nor the plane has collapsed”. Though there is turbulence due to structural reforms, Modi is a capable pilot to make a safe landing unlike Rahul Gandhi who will crash land his party. It’s true that Economics, politics and Personalities are often inseparable. But then one should be rational enough to do politics on economics. When all such fundamentals put India on a safe track for long term growth then why politics? There may be some challenges in the economy but how can one say that economy has collapsed when we see such strong fundamentals?
While the policy initiatives and reforms have gradually started yielding results, the legacy issues are haunting the economy. Bad loans accumulated as NPA’s due to the reckless lending during UPA regime is a huge drag on private investment. Apart from that the intentional shocks to economy in sectors such as steel, credit flow impacted by twin balance sheets problem is hitting the businesses. Over and above Mission Indradhanush to revamp functioning of public sector banks, Government should infuse additional capital into banks on a war footing basis. Rupee should be allowed to depreciate to a point where exports get revived.
India is the one of the major economies after Russia and Brazil with high interest rates. The Central bank can further reduce interest rates to help boosting private investment. As inflation is low, dropping the interest rates may not create problems. The existing market value of all 240 or so Public Sector Companies is about Rs 19 lakh crore. Government should speed up the disinvestment process in public sector companies to further boost public investment.
World bank thinks GST is a “tectonic shift” that may propel India into “8% plus growth rate”. Morgan Stanley believes, India’s digitization drive would boost up GDP by 50-75 in the coming decade and India’s real and nominal GDP to grow at 7.1 per cent and 11.2 per cent compound annually by over the coming decade.
When the whole world is optimistic about the growth prospects of India and when our stock markets are soaring above record levels, these sorts of pessimism will only drag us back. What matters for an ambitious India is not just the pace of GDP numbers in the current financial year but the quality of growth and whether that quality can make the growth sustainable in the long term.