In an article on the Union Budget, I had predicted that a stimulus would come before November. It was announced in all its glory on August 25. The finance minister the training as an economist she received at JNU. She was possibly taught by Ashok Guha, who in my mind is one of the top experts in the profession. Unlike the budget, which made many promises but allocated money only for a fund for self help groups, the stimulus plan announced was action packed. Most of the announcements will take a few weeks to implement. But if the action starts now, the last quarter of the year should see the economy clocking a 6 plus per cent growth rate.
The time-bound announcements on ensuring a friendlier, transparent, rule-based and randomised tax compliance administration will make us a civilised country and will make the Enforcement Directorate and the Central Bureau of Investigation do the job they should be doing. The announcement that the government will be like all of us and will pay its bills in a fortnight is good in a country which has memories of a rapacious state. I hope this will mean that some day the friendly neighbourhood cop will pay for his chai pani. Incidentally, I once chaired a committee which argued that civil servants must get decent salaries.
The removal of criminal prosecution for defaulting on CSR obligations shows maturity. Of course, correctly, civil prosecution possibilities exist. Such gestures will let investors engaged in real capital formation to concentrate on their real responsibilities rather than looking over their shoulders all the time. The provision of Rs 70,000 crore for capital infusion in public sector banks is less than what they demanded. Yet, it makes sense since all such steps must be both exceptional and performance evaluation-based by the owner — in this case, the banking division of the finance ministry, acting on behalf of the President. Insistence that the changes in bank rates must get reflected in the cost of borrowing going down, rather than an oligarchic bank bureaucracy fattening itself, is to be commended.
The steps for micro, small and medium enterprises are all fine, although the drama in the announcement could have been moderated in what was essentially orchestrated as a professional policy exercise. There is no harm in an economic ministry being occasionally professional. In fact, there was a time when they were largely so. Finance, planning and commerce (trade policy) was serious stuff. It was not about playing to the gallery, since in a globalising world, everyone else is looking on.
In fact, Nomura has just given a GDP quarterly forecast, which is more pessimistic than others. We must now credibly show that the last quarter will be better. Political parties will score brownie points. Visions are at a discount in a two minute sound bite in a channel. It would have been appropriate to stay away from giving sops to individual industries. Let the ministry make the overture and you give a majesterial decision finance minister, otherwise we will be worrying about suitcases in North Block, finance minister, JNU withstanding.
I remember when the original suitcase wallah made the news. I was vice-chancellor of JNU and Manmohan Singh had cut my budget following Bretton Woods’ advice. I was collecting non-government of India funds for my university and jokingly said that I’m available at the north gate of JNU, if anybody wants to give us a suitcase. We will also give him a receipt.
More importantly, the FM’s announcements do not take cognisance of the RBI governor’s plea that the finance ministry must come out with a fiscal stimulus to reverse the declining investment rates (as a share of GDP). He was clear that the steps he wanted the monetary policy committee (MPC) to take would be effective only in a friendly fiscal state. All that (tough measures) remains for the FM’s next announcement. Well begun is half done, as they say.
This article first appeared in the print edition on September 6, 2019 under the title ‘The revival path’. The writer, an economist, is a former Union minister.