SOMERSAULTS BY THE FINANCE MINISTER (PLAYING WITH THE LIVES OF A BILLION PEOPLE)

SOMERSAULTS BY THE FINANCE MINISTER

(PLAYING WITH THE LIVES OF A BILLION PEOPLE)

By

PG KAMATH

Nation and Arnab are talking about the slowdown of our economy. It has become a fashion to talk about the slow down. It has even been flagged by Mounvrat Singh (MMS); obviously goaded by ‘Nobodies’ in his party. On the TV, he looked like a zombie; his lips hardly moving; appeared as a playback reading. However, the lifeless monotonous voice was a stark give-away that it emanated from the same old fossil. He accused the government that the economy in terrible shape due to manmade blunders such as demonetisation and hasty implementation of GST. He also said that it has caused massive job losses and rural India is in the doldrums. Consumption; he says, is at an all-time low resulting in the dismal growth of manufacturing sector. The GDP is the slowest in the last six years and advised the Government to consult with intelligentsia to take remedial measures.

An opposition is meant to drag the Government to public accountability on its non-performance. They have to wake up the government on teething issues that pain the public. It is not this quality in MMS that I admire but I admire him more for his audacity to come out in public and accuse the government, absolutely unmindful of his own desultory performance. He earned the country; the epithet of ‘Land of Scams’. He had presided over ‘plutocracy’ lowering the status of the PM to an errand boy to the Party President. He ensured that his party was decimated and instead of hiding and spending his life in solitude and repentance for the sordid role he played; he has the gumption to come out in open and cavil at the government. He is indeed a true politician; of course, without a mass base; always entering the position of power due to munificence of Madam Superior.

Now, coming back to our topic of economic slide of our country; like in the 1930s and 2007/11; it is probably a worldwide phenomenon, even this time: Before we come to this conclusion let us see; what happened during the earlier depressions. In the 1930s, Britain rode through the depression by milking and taxing India. There was such a heavy burden of tax on Indian peasants that it became unbearable and there was a surge in the popularity of Congress. The heavy tax on salt resulted in Salt Satyagraha in 1930 by Mohandas Gandhi. It further unified the whole country and gave fresh impetus to the freedom movement. The demand from the Congress grew from Dominion status to complete independence, making Britain pay the price for its ruthless exploitation of Indian masses. It gave rise to cohesive forces within the country; though Britain, by and large, survived the depression.

In 2006; the Great Recession was looming on the horizon but a few in the US government could discern its approach. The real estate bubble burst the next year and the financial landslide took along with it, investment banks and the two behemoths mortgage firms; Fannie Mei and Freddy Mac. Both were the US Government-sponsored enterprises to monitor Mortgaged Loans and Securities, encouraging lenders to empower more people to become house owners. The cumulative effect was the loans were given by Investments banks without scrutinising the paying capacity of debtors causing non-performing assets. Both the Mortgage Firms were taken over by the Federal Government. The Lehman Brothers; the fourth largest investment bank filed for bankruptcy in 2008 due to excessive lending and its inability to recover the loans. The US alone lost 8.7 million jobs and the recession spread to Europe as well. Drastic infusion of funds by the US and European Union tided over the recession. In the US it lasted just over a year and a half and by 2011 the world as a whole overcame the recession.

It was during this time Warren Buffet’s Berkshire Hathaway was on a purchasing spree and anyone who had some knowledge as to; how this financial genius operates and invests should have seen the dark clouds building upon the horizon. However, India, China, Australia, Indonesia, South Korea and a couple of smaller countries survived the recession with minor scratches and bruises without deep scars. Beijing Olympics was also a success as enough capital had already flowed into China to give it survivability. In India, the domestic demand did not wane as the country was not export intensive economy. China and India were anchors that kept the world markets steady enabling the rest of the world to tide over the difficult times.

Now let us look across the world to understand how other economies are faring? Singapore slashed its GDP growth from an estimated 1.5 to 2.5 per cent to 0 to 1 per cent. Bank of France has revealed that the manufacturing sector has plummeted to a six-year low. In Italy, Arcelor-Mittal steel plant at Taranto has let go of 1400 workers for a duration of 13 weeks. British Chamber of Commerce has said that it is facing the most prolonged investment slump in 17 years and business spending has declined by 1.5 per cent. GDP of Euro Area fell from .4 and .2 in the first and second quarters respectively for the current year. The engine of growth of Euro Zone; Germany’s economy shrank by .1 per cent in the second quarter of the year with no hope of recovery. China’s economy has faltered for the first two quarter and continues to falter for the third quarter as well. The GDP growth in the second quarter had slowed to a three-decade low. The US economy has slowed down from 3.1 per cent growth in the first quarter to 2.1 per cent in the second quarter. However, its economic fundamentals have been managed very well in spite of the trade war with China. The tax-cut has increased the consumer spending by 4.3 per cent and government spending has surged by 5 per cent in the second quarter. The unemployment is at an all-time low at 3.7 per cent. The exports have fallen by 5.2 per cent due to trade war with China. It appears the US is going to overcome the present downturn. Belying expectations Japan’s economy continues to grow, however, the fallout of the US-China trade war looms on the horizon.

Coming back to the Indian economy, we have to overcome a self-inflicted injury, as rightly perceived by MMS. The fundamentals of the Indian economy were sound but when you have a self-destruction fuse attached to the economy; what the economy alone can do? After a massive win of the Modi government, the actual budget was passed. It was not a budget but a decree that was menacing and intimidating. The former defence minister tried to deal with the 1.3 billion people in the same way that she dealt with 1.3 million Armed Forces. The mayhem and confusion that she created with the defence of the country were replicated at the national level. The soldiers were able to grin and bear due to their implicit discipline and decorum. During her transition from Defence to Finance Ministry, she also ensured the disabled soldiers were divested from the income tax exemption that was in vogue since 1922. Now, it was the turn of the nation to bear her onslaught. Her budget created a massive negative public sentiment that the Sensex dived 1200 points. Taxing of the rich a typical leftist trend added to their woes. Their effective tax rate was enhanced to 39 and 42.74 per cent for those earning ? 2 to 5 Crores and above ? 5 crores respectively. It disincentivised them from investing more and risk-averse.  At the same time there was no relief for middle- and low-income earners; sapping their purchasing power. The tax on foreign portfolios and higher tax on Long and Short Terms Capital Gains dampened the investment climate in the country: reminiscent of pre-1991 budgets. One of the foolish decrees was to increase the public shareholding of companies from 25 to 35%. It involved promoters who already have more than 65% holdings in the company to offload their excess shares. Such companies numbered more than 1100 and included multinationals, who had invested heavily. What message are we sending to the investors? Also, do not forget the jail term for those in industries, who do not utilise their mandatory 2 per cent on CSR.

The FM is obviously is learning on her job and playing with the lives of 1.3 billion people. A month and a half later after the outflow of FPI worth ? 20,000 crores from the country, she rolls back on the increase in surcharge on income tax of foreign investors. A classic case of closing the stable door after the horse has bolted! When such huge sums are pulled out of the country; it has a cascading effect such as job losses, financial distress of lakhs of households and the consequent reduction in the purchasing power in the hands of people resulting in the fall in demand for FMCG. The negative sentiment engulfed the lower and middle class, who saw dark clouds brewing and restricted purchases, further dampening the demand and spurring recession in the markets. The FM also rolled back criminal culpability for non-utilisation of CSR funds and also withdrew the higher surcharge on Capital gains. Now, Ms FM; if you have to roll it back in a month and a half; why did you introduce it in the first place? Dear PM; you are known to be a sagacious and no-nonsense leader then why are you not holding her accountable for the mindless experiments? Why should a nation tolerate and bear with her experimentation? She has done more harm to the nation and your party than all the opposition parties put together.

After waiting for a month and not able to get favourable winds to blow off the massive mess she has created, she infused ? 70,000 crores in exports and real estate sectors. The money was infused into 21 public sector banks to enable home loans that would spur real estate. Lakhs of rural workers are absorbed in the construction sector in urban areas and this could enable them to keep their jobs. However, one has to see how the markets would respond to this move.

A week later in a move what is considered favourable to economy she cuts corporate tax to 22 per cent for the year 2019-20. The Sensex leapt by 1900 points on a single day and likely to give a further boost due to spending by the general public for the Diwali. The price of Gold will continue to be beyond the reach of the middle class; thanks to the increase in import duty to 12.5 per cent. The aspirations of women of the country were belied that a woman FM will be sympathetic to their needs. The Gold imports have slumped to a three-year low in the month of Aug, rendering thousands jobless in gold and gems industry across the country.

At last, the FM can breathe with some satisfaction as the Sensex has held after its spurt on 20 Sep 2019. It goes to prove the point of MMS that the mismanagement of budget and the inept approach she adopted had put the country in financial turmoil. Though it is too early to validate that the markets would hold but the trial and error approach she has adopted has mauled the economy of the nation and brought miseries to millions besides disheartening market sentiments. This would certainly have an adverse effect on impending state elections. Though BJP would win in both the states: Haryana and Maharashtra, still, it would have been better off without the travails of the budget hit the common man.

These steps would in no alleviate the distress of the common man. She ought to have taken measures to enhance his spending capacity that would have spurred demand for FMCG. She ought to have allocated higher allocation for MNREGA to enhance the purchasing power of rural India. She also provided no relief to income taxpayers and the slabs remained unchanged thus sapping the spending power of the lower and middle class. Has the FM got it right at last? For the sake of our nation I would like to hope that the economy is on the upswing: Only time will tell!