Congress to corner Modi govt on worsening economic situation as Union Budget nears

The Indian National Congress intends to shift the narrative back to the economy to corner the Modi government as India’s economy goes from bad to worse.

Supriya Shrinate, Congress spokesperson, said that “2020 holds little promise given the precarious state of India’s economic situation. With GDP growth at under 6% and inflation at close to 7.5%, the time for empty talk is over. Starting today, January 27, 2020, a series of special economic press conferences will highlight the red flags and put the spotlight on what should be the key focus areas for the Union Budget.”

Union Budget 2020-21 is being presented at a time when the economy is experiencing an extended slowdown. Even though the government may be in denial mode, the Indian economy is on the verge of leaping from stagnation into stagflation.

The consequences of stagflation are precarious.

It will stoke inflation higher, deepen the slowdown, further stall investments which are presently at just 27% of GDP, erode more jobs (data suggests 3.4 crore jobs have already been lost in the last 5 years across 7 main economic sectors. This will also aggravate the acute rural stress and together all of this will further dampen consumption. This vicious cycle of downward economic spiral is worrisome for India.

“The government continues to be in denial and slowly what was essentially a demand problem is turning into a supply issue as well. The Indian economy can ill afford to bear this double whammy,” Shrinate said.

The official release said:

“FISCAL SITUATION

The BJP government doesn’t believe in data and ridicule those who do. But the drop in direct tax revenue for the first time in 20 years makes the fiscal situation precarious. This drop in direct tax collection is a sign of wage loss and joblessness.

Possibilities of fiscal deficit of over 4.5% by March 31st this year loom large. Growth of under 5% will make the deficit even larger.

Fiscal discipline is important even though the govt may take it very lightly. Credit ratings agencies red flagged fiscal discipline repeatedly. Letting go of fiscal discipline will make them downgrade sovereign rating below investment rate. Experts fear large sums of money to the tune of hundreds of billions of dollars will flow out of Indian markets. After all shareholders don’t allow investments below a certain grade. Higher fiscal deficit will also push inflation higher.

CONSUMPTION

Consumption is 2/3rd of the economy and so when it slows down the govt should have addressed the pain, which it refused to do. The government’s priority should have been to put money in hands of people. Instead, the government brought relief to corporates through corporate tax cuts and forego of RS 1.45 lakh crore in revenue but the needle didn’t move on investment. Budget has to prioritise boosting consumption over all else.

INCOME TAX EXEMPTION LIMIT

Reports of Income tax exemption limit likely to be raised have surfaced. We welcome any relief for the tax payer if it’s coming. But the govt has to come clean on arithmetic of revenue. How much revenue is likely to be foregone and where will it make up for losses? Besides, the budget should also aim to bring relief to crores of those people who all pay indirect taxes by looking to rationalise GST.

INVESTMENT

Capacity utilisation is at 60-70%, power plant load factor is at 50%. Demand for electricity is a clear indicator of economic activity and low production means anaemic economic activity. the budget needs to incentivise investment which will put the virtuous cycle of job creation and consumption back in motion.

EXPORT

No country can grow at a high rate without strong exports. Exports grew at over 20% under UPA, but exports have continued to consistently decline for five straight months. Meanwhile fall in imports is not a good sign either, it doesn’t mean we have become self reliant all of a sudden but this drop is due to low industrial activity. There has to be a clear strategy to boost exports, which is a job intensive space.

AGRICULTURE

This government promised doubling of farm incomes the truth can’t be more ironical than that. Agriculture sector is under stress. Mounting debt and rising cost pressure has resulted in anemic growth for Indian agriculture. A series of schemes that turned out to be mere paper tigers benefited the rich corporates and not the struggling farmers. What can the Budget do to revive India’s farms and bring relief to our farmers?

Curiously enough, the Prime Minister met top industrialists 10 days before budget. What was the purpose of this meeting? Was this just an eyewash because at this late a stage could their suggestions have been included in the Budget given that most of the exercise was over by then. Ironically, Ms Nirmala Sitharaman, the Finance Minister who will be presenting the budget was conspicuously absent from these meetings.

The only thing consistent about this government is the deteriorating quality of budgets over 6 years. We sincerely hope Budget this year will have proposals that have been thought through and not half-baked ones which will be rolled back one after the other like last year. Investors like predictable policy environment. Budget needs to outline vision over the medium to long term and not adopt the mask tape approach the government has consistently resorted to.”

On bank NPAs, Shrinate said, “I am glad you (present government) asked me that question because you were in the Government, I don’t know for how long will I keep blaming the previous regime and for six years you keep saying that you inherited something bad, you may have inherited whatever, you had six years to clean it up, you were nowhere close to the clean up. That is point No. 1 and point No. 2, is there a larger problem and that is not just specific to the banking sector that is to the lending situation in general. The NBFC crisis one of the reason why the consumption is not happening is because NBFCs are facing a huge liquidity crunch, there is no money that NBFCs have. The Government and the RBI together needs to devise a strategy a plan to revive the NBFCs, there is no money for NBFCs to lend and which is why you see such a low consumption.”