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Dr Manmohan Singh's five steps to economic salvation: Should India take them?

Eminent economist and former Prime Minister Dr Manmohan Singh has dashed off a five-point guide to resurrect growth. But the $5-trillion question is will it work?

Published: 13th September 2019 06:42 PM  |   Last Updated: 13th September 2019 11:38 PM   |  A+A-

Finance Minister Nirmala Sitharaman met former PM Dr Manmohan Singh at his residence on 2 July 2019. (Photo | ANI)

Finance Minister Nirmala Sitharaman met former PM Dr Manmohan Singh at his residence on 2 July 2019. (Photo | ANI)

Express News Service

HYDERABAD: The government is now aware of the economic challenges - it seldom utters the word slowdown - and is addressing them with sectorwise solutions. 

Yet, suggestions are pouring in on how India's flagging GDP growth can be revived. Ask any five scholars, and you are liable to get 10 different responses. 

The latest to join the list is eminent economist and former Prime Minister Dr Manmohan Singh, who dashed off a five-point guide to resurrect growth. Sans these measures, Singh believes, it may take more than a few years to get the Indian economy back on its feet and render the government's ambitious $5 trillion economy a 'pipe-dream.'

So, what are the good doctor's prescriptions and how are experts rating them?

GST rationalisation

Foremost among the former Prime Minister's suggestions is rationalisation of GST rates, even if it leads to revenue loss in the short-term. 

Anticipation on this front had been built up since last year, when the GST Council headed by former Finance Minister Arun Jaitley indicated their interest in implementing a three-tier rates system. But the proposition lost steam owing to a shortfall in tax collections. 

"From an economical standpoint, rationalisation of rates will definitely improve sentiment for the industry. As for collections, they seem lower, but arithemetically not lesser than what they used to be before. The government knows the actual collections. Based on that, considering the economic situation, if they can, they should rationalise rates. It'll improve sentiment. For example, if collections are closer to Rs 1 lakh crore vs Rs 80,000 crore in the erstwhile regime, there's a margin to reduce (GST) up to Rs 10000-15000 crore," Suresh Nandlal Rohira, Partner, Grant Thornton India LLP told Express.

ALSO READ | Will make own independent judgment on growth projections: Finance Commission

He, however, added that the real solution of balancing the economy doesn't lie with tweaking GST rates alone. 

"Overall, the government should carefully look at the construct and the design going forward and they have to do it once and for all, because umpteen times, there have been discussions on rate rationalisation, changes in GST returns...and somewhere it's also giving feelers whether things are being correctly done or not." 

Also Read - Even Rs 5 biscuit packs aren't selling: Inside India's worrying economic slowdown

While Finance Minister Nirmala Sitharaman last month announced faster GST refunds, some important changes like input invoice matching system and returns compliance also need immediate attention.

Boosting rural consumption and reviving agriculture sector

Dr Singh suggested the government to take cues from the Congress' manifesto, which lays down several measures to free up agriculture markets. 

Falling agricultural output and declining rural wages have been a drag on rural consumption, affecting sales of tractors, two wheelers, consumer goods.

Sanjeev Prasad of Kotak Institutional Equities Research echoed these worries in a recent report. "The continued slowdown through August reinforces our long-held view that the Indian economy faces structural challenges in certain sectors (broken business models in agriculture, private and public investment). India's agriculture model is quite challenged with rising supply-demand imbalances leading to stagnant farm prices and incomes, which has necessitated farm income schemes by central and state governments," he noted. 

These problems are magnified by the fact that both private investment and consumption have slowed to a crawl, with much of the deceleration coming from lower consumer spending, especially by urban consumers. 

"This has been worrisome, as Indian consumers have supported growth for the past few years. The slowdown in investment was moderate relative to previous quarter, according to our indicators," said Anubhuti Sahay, Head, South Asia Economic Research (India), Standard Chartered Bank.  

Given that RBI's ultra-easy monetary policy was ineffective, the government nudged banks to link floating rates for all retail and SMEs (Small and Medium Enterprises) loans to an external benchmark so that interest rates reduce quickly for end borrowers. Besides, the central bank on Thursday evening lowered risk weightages on personal loans and other loans, which will allow banks to lend more to customers buying consumer products such as mobile phones, home appliances, two-wheelers and three-wheelers. 

Addressing the liquidity crisis

Dr Singh had stressed on the need for infusion of liquidity into the system.

The Finance Minister is on the job. In an interview with Express, Sitharaman had reasoned that NBFCs' (Non-Banking Financial Company) problems were being dealt with and hoped that her budget announcements in July and the measures announced in August will help sooner or later. 

For instance, last month, she provided an additional liquidity support of Rs 20000 crore to stressed housing finance companies taking the total support from National Housing Bank to Rs 30000 crore. 

In July,  the Finance Minister allowed public sector banks (PSBs) to buy high-quality pooled assets of NBFCs up to Rs 1 lakh crore and provided a one-time six-month partial credit guarantee for the first loss of up to 10 per cent.

The RBI, in lockstep, tweaked norms allowing banks to borrow an additional Rs 1.34 lakh crore exclusively for buying such pooled assets and giving loans to NBFCs. All these measures are expected to prove NBFCs enough liquidity. 

While the government's sectorwise solutions appear adequate, Madan Sabnavis, Chief Economist, Care Ratings said, these are not enough to revive growth. 

"The problem is rural and urban demand is down and we need measures to revive demand. It's a tough call to take whether to go for fiscal stimulus or not. But the government isn't spending more money than what has been already budgeted. The government needs to do something bigger to make an impact. It's (stimulus) a hard choice, but the decision taken right now to not go beyond 3.3 per cent fiscal deficit target is probably because the current situation is already grim with low tax collections," he explained. 

Also read - Worldwide recession months away; is India prepared for the worst?

Besides, the former Prime Minister also suggested reviving job-generating sectors such as textiles, auto, electronics and subsidised housing. He also noted that the government must identify new export markets opening up due to the ongoing trade war between US and China.

Looking into the middle distance, for recent announcements like relaxed FDI norms and banking sector consolidation to have a positive impact on growth timely and effective implementation will be the key. 

"While measures to set up a manufacturing hub to increase economic activity, improve labour force skills, and reform land and labour regulations are likely to be effective over the long term, immediate initiation of these processes will be necessary for good-quality, sustainable growth amid the challenging global environment," Sahay added. 



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  • swa

    No decision works by itself. Everybody with common sense knows this for fact. Constant committed work is essential for any good decision to work. it is a switching operational work. More often than not it is continuous work.
    2 years ago reply
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