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Economic reforms nowhere

Kashmir Times. Dated: 9/17/2019 11:52:20 AM

Stimulus to economy promised but structural reforms are nowhere in sight for arresting overall slowdown

The markets, investors and a big middle-class, who have been waiting for the announcements from the NDA-government for major economic reforms in view of the severe economic slowdown may have to wait for a little longer for making their dreams come true. The dictum that the ruling establishment is as clueless as common masses about the economic reforms to be announced for bringing the economy back on rails describes the entire situation in the country. Going by the same parameters, Finance Minister Nirmala Sitharaman presented the third round of stimulus measures to resuscitate the struggling economy, but once again these have miserably failed to live up to the initial hype around them. Unfortunately, the previous two rounds of the stimulus plan announced at a press conference in the last few weeks, the Finance Minister focused primarily on reviving the automobile sector, in a bid to boost the confidence of foreign investors, who were spooked by the Budgetary proposals in July, and improving the health of dangerously fragile state-owned banks by doing everything short of privatizing them. But as the ill-luck would have it, the automobile sector has witnessed retrenchments to the extent of over 3.5 lakh employees by the auto majors in the last three months. In fact, more are on the way and announcing closure of their units for manufacture of additional vehicles in their plants. The stimulus did not have the desired impact and more automobile companies announced closure of their units rendering thousands of workers jobless in the days to come. Already the sector has witnessed almost 35 percent decline in their sales and the units are parked in the showroom across the country and the dealers may not order fresh supply at least for the next few months till there is stability in the market. This time around, the major focus has been on helping out the underperforming export and real estate sectors through piecemeal fiscal reforms. Among other things, Nirmala Sitharaman announced a new tax refund scheme and greater priority sector lending for the export sector to incentivise exports. It is expected that the new tax breaks to the exports sector will cause a dent of up to Rs 50,000 crore to the government's revenue. Moreover, external commercial borrowing norms have been eased to make it easier for Indian real estate companies to tap funds from abroad, and funds worth Rs 10,000 crore have also been allocated to aid the completion of affordable housing projects. With lack of demand and major supply-side bottlenecks being the primary issues facing exports and real estate, it is doubtful whether the present measures will be enough to revive these flailing sectors.
Apart from these steps including three stimulus rounds will date, the NDA-regime has been relying on providing fiscal relief in the form of tax cuts coupled with a small amount of government spending, to wade through what appears to be structural crisis in the economy. The government is hoping to revive growth, which is unlikely in view of the cash crunch faced by the people in middle, lower-middle and lower class in the society. But, this is a far cry from what many expected from a government that promised radical structural reforms when it rose to power in 2014. Without enacting any major supply-side reforms like land and labour reforms that can raise potential growth, it is also hard to see how greater spending can raise growth for very long. The central government may believe that the present slowdown, marked by five consecutive quarters of dropping growth, is merely a cyclical one. With size of its victory in two consecutive elections, the government should aim higher by trying to push through long-pending structural reforms that can raise India's growth trajectory to the next level. Besides this, the policy-making needs to focus on reviving the rural and agriculture economy that can push the growth while controlling the inflation of essential commodities. The government has to move fast and make course correction before it is too late and common masses hit the streets in anger and deprivation.