These days two news related to the Indian economy are in the headlines. First, the Reserve Bank of India has said in its report on currency and finance for 2021-22 that it may take more than 10 years to recover the damage caused to the country’s economy during the Corona period. Actually, before COVID-19, our economy was growing at the rate of about four percent per annum. So it is estimated that in the last two years it would have increased by at least eight per cent, but this did not happen, and now it may take about 13 years to recover. The second news is related to LIC’s IPO, through which the government can earn about 21 thousand crores. This IPO opened yesterday and investors have shown a good trend towards it.
There are many buts in both these reports. But the important question is whether our economy has crossed the level of 2019? Official figures confirm this, but it also has many flaws. For example, these figures are only of the organized sector, while a large part of our economy is handed over to the unorganized sector. Then, even in the organized sector, the condition of ‘contact service’ like tourism, hotels, restaurants is still bad. Taking a sample of 1,500 companies, the Reserve Bank has estimated that this sector is growing at the rate of 20-24 per cent. Even if we assume that this sample represents 6,000 companies listed on the stock exchange, it cannot be said that it is also the face of 60 million micro industries in the country. Since the demand shifted from the unorganized sector to the organized sector during the Corona period, the news of our prosperity is not correct.
The country’s economy also shows that at present our ‘Consumer Confidence’ is 71.7, while before the pandemic it was 104. This index indicates whether a consumer is optimistic or pessimistic about his expected economic condition. Since this index has still not reached the level of 2018-19, therefore it is not possible to fully predict our economy to reach the level of 2019.
So, doesn’t the government have the resources? Basically, the government earns in two ways. The first route is tax, that is, taxes, while the second part of earnings is revenue from public companies’ dividends, auction of spectrum, etc., disinvestment, which is called ‘non-tax revenue’. However, disinvestment should not be treated as income of the government. It is like selling one of his houses and buying another. It is not a pure investment. However, it has less ‘capital stock’. In this year’s budget, the government has set a capital investment target of Rs 7.5 lakh crore. After Pawan Hans, Hindustan Petroleum, LIC’s IPO is part of this exercise. But this is a change in the character of the property. On the contrary, if the desired amount of money is not raised through disinvestment, then we lose the ‘capital stock’, as in the case of Pawan Hans.
If seen, the corona pandemic has had an impact on the economies around the world. Almost all the countries have spent by taking loans. It was also their compulsion to do this, because if it was not done, the demand in the market would have reduced further. In America, the reforms could happen much faster, because the amount of money it pumped into the economy was about 20 percent of its GDP (Gross Domestic Product). We also handed over about three lakh crore rupees to our economy, but it was only 1.5 percent of our GDP. This is the reason why our demand could not pick up here. We have adopted a ‘supply-side’ policy and not a ‘demand-side’. Even in the year 2019, we reduced the corporate tax rates thinking that companies would invest the remaining money, but other than sectors like telecom, IT, pharma, many companies struggled with lack of demand and they avoided investment. As a result, our investment percentage was close to 36% before the pandemic, reaching 32.
So, how to increase income? For this the government has to provide employment especially to the poor. Reserve Bank figures show that during the pandemic, of course, the budget for MNREGA was increased to Rs 1.1 lakh crore, but it was not enough. In this, the beneficiary got only 45 days of work, while the number of days should be at least 100. Clearly, the money in MNREGA will have to be almost doubled. Similarly, attention will also have to be paid to the Urban Employment Guarantee Scheme, for which expenditure on education, health, urban infrastructural development etc. will have to be increased.
Micro industries will also have to overcome the problems caused by GST. If possible, it should be made a ‘last-point tax’, that is, the only tax levied when the product reaches the hands of the consumer. This may end the tradition of giving input credit, which has caused a lot of damage to the small and micro industry. The country’s micro-industries are also grappling with the constraints of technical constraints, non-availability of credit and marketing constraints. For this cooperatives should be formed. It is interesting to know that 99 percent of the MSME sector is owned by micro industries, but the government announcements for this sector usually go into the account of small and medium scale industries. If a separate ministry is formed for micro industries and a separate ministry for small and medium industries, then not only new employment opportunities will be created in micro industries, but the demand will also increase here. The government should increase the rates of direct taxes and support indirect taxes. If these few steps are also taken, then our economy can get back on track much faster.
(These are the author’s own views)