Congress calls out the joke on govt’s stimulus

The present government’s fiscal leeway has been so constricted that it has been unable to pay dues to states. It is in this climate that the Union Finance Minister unveiled a set of measures today and termed them as “fiscal stimulus” for the economy which she claimed will stimulate demand and investment.

The Congress party said, “First, we are glad that the FM has had a belated realisation that consumer demand needs to be stimulated in the economy, something that we and almost every other sensible economist have clamoured for, over the last six months. “

The finance minister first announced a hastily designed economic package that has had no impact. It was also a clear admission that the much hyped Rs. 20 lakh crore Atmanirbhar plan announced by the Prime Minister in May is a dismal failure in protecting and reviving India’s ravaged economy.

But evidently lessons from that experience have not been learnt yet. Just because the PM or the FM call these measures an economic stimulus does not mean the economy will obey and get stimulated. The economy cannot be dictated to or swayed by headlines.

Observations made by the Congress:

Government employees already have leave travel allowance as part of their salary. Today, the FM told them that they should now spend this on goods with greater than 12% GST at a GST registered store in non-cash form. Essentially, the FM ordered government employees how to spend their own money and called it a “stimulus for demand”.

It said:

1. We have been vouching for NYAY scheme to be implemented. Only money in the hands of the people can stimulate demand. It should truly be cash in hand and not diversion of cash from one area to another like the government has announced in case of LTC Cash voucher scheme and Festival advance. The FM forgot the most basic lesson about money – it is fungible. Whether it is called LTC or festival advance, money is money for the individual. Unless there is additional money, the individual is not going to spend more. So, where is the question of a demand stimulus?
2. How much more money was given to states? – a paltry 1.3%. FM announced extra Rs.12,000 crores to states for capital expenditure. The states total capital expenditure budget for FY21 is nearly Rs.9 lakh crores.

Overall, the measures announced today are merely that – announcements. There was no extra spending to boost demand and the increase in states’ capital expenditure are paltry and untimely. This is yet another vindication that the Modi government is at its wits’ ends when it comes to managing the economy.

We have three specific questions for the government:

1. What took the government 6 months to realize that low demand is the main problem facing our economy today when instead, the focus of the first package was purely on credit expansion and debt restructuring and why is the government oblivious to the demands of the industry that has been crying out to rationalize GST rates to boost demands for some items like two wheelers (bring down GST rates from 28% to 18%)?
2. The Rs 12,000 crore to states for capital expenditure is a no more than a lame joke on the economy. What effect will a 1.33% increase in capital spending by states have on the economy?
3. A “stimulus” by definition means extra or additional. Did the announcements made by the FM today provide anything substantially extra or additional for the economy?