Having bitten more than it could chew, the Modi government is facing a faux pas on the economic front and also probably the 2019 elections. With the BJP’s 2014 clarion call of ‘sabka saath, sabka vikas’ having apparently taken a direct hit with the record three year low Q1 GDP numbers, the government has gone on a damage control mode. Last week, Prime Minister Narendra Modi announced ‘’Diwali before Diwali’’ even as he faced flak from several quarters including several seniors within the party itself.
With this, a hurriedly called meeting between Modi and Finance Minister Arun Jaitley was held at the PM’s residence and the GST Council meeting, which was to be held by late October, was preponed. The Finance Minister announced a slew of roll backs, concessions and rebates in order to cushion the massive shakeup that the economy has suffered following the double whammy of demonetisation and a premature GST roll out.
Amongst a host of concessions have been the extension of filing of GSTR to quarterly from monthly for businesses with turnover of less than 1.5 crore annually, the composition scheme limit being raised from 75 lakh to 1 crore, downward revision of rates of several food commodities to 5 per cent slab and deemed exports exemptions were restored to pre-GST that is VAT regime. A Group of Ministers (GoM) comprising state finance ministers will look into the service tax rates for restaurants which have been alleged to be fleecing customers by imposing 18 per cent GST.
The Finance Ministry also separately revoked its earlier diktat of making Aadhar mandatory for purchase of gold jewellery above
50,000. The government has announced the liquidation of pre-GST stocks for traders till December.
A milieu of mixed sentiments emerged after the GST roll out on July 1. Transporters went on a two day strike protesting GST implementation, even as textile manufacturers decry the imposition of 5 per cent GST on fabric which has happened for the first time in independent India as well as traders in general are finding it difficult to
exhaust pre-GST stocks and the usual glitches in the GSTN network for filing the tax.
Even as Modi emphasised that a larger picture showed that the economy was poised for better growth in the coming months and that the 5.7 per cent figure was just a temporary phenomenon, distractors from his own party and economists have decried the goof up on the economic front. Falling job opportunities despite the 2014 BJP manifesto promising a two crore employment generation annually has been the main concern. In addition, the creeping inflation as well as the rise in fuel prices despite low international crude prices have added fuel to fire. To add to this the failure to rake in any black money after the November 8
demonetisation has added to the voters’ angst.
A perceptible undercurrent of discontent was simmering within the party cadre for a long time, questioning the BJPs hard selling 2014 tagline — ‘Sabka Saath Sabka Vikas’. Now the party’s own
elders like former Finance Ministers Yashwant Sinha and Arun Shourie and party MP Subramaniam Swamy have voiced concerns over the mess up in the economy. They have said that a hasty imposition of GST and an ill-conceived demonetization has resulted in a severe hit to the economy which had come out of the woods post the 2008 Lehman Brothers crisis under UPA-II and emerged as a ‘sweet spot’ in the recessionary global economy leading to many western economies banking on economic markets like India.
Finance Minister Arun Jaitley has been on the defensive while admitting that India’s biggest tax reform is poised to have some teething troubles. Already, the increasing discontent was palpable amongst the masses following the debacle of demonetization and then the GST roll out. This was further triggered by high fuel prices and subsequent indiscreet repartee by ruling party politicians which added fuel to the fire.
Now that the Q1 GDP has shrunk to a three-year-low of 5.7 per cent it puts into a quandary the very claims of India becoming the highest growth trajectory economy in the world. As if the November 8 DeMo was not enough, the hasty midnight July 1 push to GST has proved to be the proverbial last straw.
Now inflation too is raring to go up as Monsoon has left a deficit. Despite an estimation of good rainfall this year, an average 4 per cent deficiency has been recorded.
Hand manufacturing has for the first time in four years derailed, declining by 0.4 per cent in June — both capital goods by minus 6.8 per cnet and consumer goods by minus 2.1 per cent. Instead of adding 2 crore jobs per year as promised by Modi in his manifesto for the 2014 polls, there have been job losses. Even as demonetization has blown the wind out of the unorganised sector, digitisation of payments and subsequent GST has been hamstrung by procedural hang ups.
Private investment has dried up even as credit growth has been hampered by the RBI postponing any interest rate changes in its monetary policy. Last week, RBI maintained a status quo on key policy rates except a minor let up in statutory liquidity ration (SLR). Hence, even as banks are flush with funds there is little credit off take as costs of funds remain high. On the other hand, the private sector is saddled with high overcapacity.
Increased public expenditure has failed to stimulate growth. Since 2014, the government has gone in for larger public expenditure despite enlarging fiscal deficit. Investing in larger infrastructure projects have failed to make an impact as large projects still have credit bottlenecks and the cascading effect takes a lot of time. Despite higher budget allocation to MNREGA, there is a wide gap in its implementation.
The much brandished Mudra yojna as well as the PMs Startup and Standup India programmes have failed to take off. In fact, the much touted Make in India push has also lagged behind with lack of any demand. A hard sell for foreign investments has led only to quick money like FPI which the FIIs invest as fair weathered friends rake in moolah.
Now that the ‘Sabka Saath Sabka Vikas’ has shown signs of cracking, there has been a substantial undercurrent of discontent amongst the voters. While Modi goes all out on mission south it is imperative that his politics needs a relook.
Modi’s cabinet itself needs some reshuffle in the wake of the derailment of the economy. Reviving the economy should be the key priority for the government now. But as fiscal stimulus is being envisaged, would it be similar to that given by the UPA II in the post 2008 Lehman Brother
Crisis? It remains to be seen.