(MENAFN- Gulf Times) It's the economy, stupid! Of course it is. Nine times out of ten democratic governments the world over are elected or replaced for economic reasons. Foreign policy, defence, environment and water resources, telecom and information technology, surface and air transport et al can wait, rather all these are one way or other related to the one and only portfolio in a government that matters most, finance.
Now, when finance, or economy, of the nation goes south, that's the time for the opposition to raise the right slogans against the government in preparation for the next elections. All other slogans 0 about intolerance, communal harmony, language and even terrorist threat of one sort or the other pale into insignificance in front of an economic slogan because the question of which side the bread is buttered is relevant only when there is bread in the first place.
No, this is not to say that India is starving or that a famine is round the corner here. The bread is a given. India's grain reservoirs are bursting at the seams. With another good monsoon just winding up, the food situation is not a worry. But economic indicators for the April- June quarter showed a dismal 5.7% growth in Gross Domestic Product (GDP), the lowest in three years. Not just that, the trend had been downward for the last four quarters, making experts warn of a recession or, worse, even a depression.
The job market, according to several reports, has nearly dried up. There are few new hiring, but the firing has apparently picked up speed. HDFC Bank, the country's second largest, has retrenched nearly 20,000 of its staff in the last year while Yes Bank, one of the fastest growing financial institutions, has announced it would cut 2,500 jobs in the coming months. Non-performing assets (NPAs) of most major public sector banks have grown to unmanageable levels.
Manufacturing has also suffered in the past few months despite Prime Minister Narendra Modi's pet schemes like ‘Make in India' and ‘Skill India'. The information technology sector has been going through a very rough patch with thousands getting the pink slips, although that may have more to do with the ‘America First' policy of President Donald Trump than local fiscal issues.
Demonetisation of high value notes in November last year is said to have created havoc in the unorganised sector although the jury is still out on whether such a thing is good for the country in the long run or not. After all, the very fact that millions of jobs are dependent on the 'unorganised sector, meaning small-time traders and entrepreneurs who do not pay any tax, does not befit a 21st century economy.
Decades of unbridled corruption from top to bottom coupled with a lackadaisical approach to regulation had created an entire economy based strictly on cash. Demonetisation, followed quickly by the implementation goods and services tax (GST), has dealt a mortal blow to those who refuse to be part of the organised economy. Yes, some would genuinely be losing out but the general feeling is that in the long run the country would gain.
But jobs generation and GDP numbers may not necessarily have to go hand in hand. For example, the first five years of the United Progress Alliance (UPA) government from 2004 to 2009 witnessed an average GDP growth of 8.3%, considered the best period of Indian economy in terms of sheer numbers. But the same period produced under 3mn jobs compared to the 60mn jobs created in the previous five years when the GDP growth averaged around 5.5%.
'I think the purpose (of demonetisation) was to create bank accounts, get rid of illicit money and it probably served that purpose. It is a bold thing to do. Most countries have not done it because they are afraid of that. It breaks the back of corruption, says Jamie Damon, chairman of JPMorgan Chase.
But then there are those like former prime minister Manmohan Singh who feel demonetisation was an ill-advised and unwarranted move. It was, according to him, 'organised loot and legalised plunder. His prediction that the GDP could be affected by as much as 2% seems to be coming true although the government argues that that's a small price, and a temporary one at that, for the larger gains that could accrue in the years to come.
Be that as it may, the dangers thrown up by joblessness and economic downturn are clear and present and the government has to come up with the right stimulus to cheer up the situation. 'We have taken note of all economic indicators available. The government will take any additional moves which are necessary, says Finance Minister Arun Jaitley who feels revival of private sector investment and the health of banks should be the main focal points for the government presently.
Curiously, the opposition has fumbled once again, focusing their energies on rising fuel prices and demanding their rollback. It is a fact that prices of petrol and diesel have risen by about 15% in the past three weeks. But that was because the government had decided to cut all freebies on oil. During the Manmohan Singh-led Congress government fuel subsidies had reached a whopping Rs.1,500bn a year. Today, not only has the subsidy been reduced to zero but oil prices have been left to the diktats of the market. So, at 6am every day the prices of petrol and diesel will fluctuate.
Newly-appointed Tourism Minister in the Modi government Alphons Kannanthanam, while speaking at a reception in his honour in Thiruvananthapuram last week, defended the fuel price rise saying those who have cars and motorcycles must be in a position to bear the extra burden. All hell broke loose as spokesperson after spokesperson from every opposition party laid into Kannanthanam for his 'unfeeling statement. Columnists like Karan Thapar also criticised Kannathanam for 'trying to squeeze the taxpayers till they squeak.
The Congress Party, reeling under some bad press in the wake of its vice-president Rahul Gandhi's gaffes during his speaking tour of the US, saw it as its chance to get even with Modi and his Bharatiya Janata Party. Former finance minister Palaniappan Chidambaram, in his column in The Indian Express, borrowed from Manmohan Singh to describe the Modi government's fuel policy as 'organised loot and legalised plunder. He cited the price of Brent crude at $109.68 in May 2014 (when Modi came to power) and last week's price of $55.68 and corresponding price of petrol at Rs71.41 and Rs70.52 to illustrate how the government has eaten up all the benefits of the drop in prices that should otherwise have been passed on to the consumer.
But in his heart of hearts Chidambaram will know better. The Rs1,500bn his government had spent on subsidising petrol and diesel could well have been used for development of infrastructure like schools, hospitals, roads and electricity generation. High fuel cost may pinch the pocket of the individual for the short term, or even for an extended period, but then he learns to economise and that not only helps his savings but also leaves a smaller carbon footprint which, in turn, helps improve overall quality of life.
If Jaitley has to inject fresh impetus into the economy, it can be through many ways, including, perhaps reduction in individual income tax. But reducing taxes on petrol and diesel may be a double-edged sword that will only injure from both ends.
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