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The new FM and scores of suggestions

By DM Deshpande

One of the most prudent decsions the Prime Minister took is to choose Nirmala Sithraman as the new Finance Minister. Conventional wisdom has it that women are more adept than men at running household finances. By and large what’s true of a home is also true of a nation.

A financially well run country will attract investments and give a boost to growth and jobs.

More pertinently the new FM is a qualified economist and therefore is in a position to understand the nuances of public finances better than an untrained person. Within a short span of time after her announcement as the new FM there has been a raft of suggestions from all quarters. But, it is important to understand two important things. One, the FM can only do this much- what majorly impacts nation’s fiscal and financial space. And second, more important is the context, vision and strategies of the government.

After all, FM is also a team member, albeit a more important person, in the group. The team normally operates in a cohesive manner to achieve certain objectives.

The context is in the backdrop of recent elections. And to a great extent it is political. Despite the hullabaloo of the opposition and experts with regards to rural distress and job losses, electoral victory gives a new definition of problems and parameters within which solutions to those could be found.

Already two high powered committees have been appointed to fix problem of job losses and look in to issues pertaining to fresh investments. But the political context may also impact a reform to reduce corporate taxes to attract investments and make the economy more competitive. The present context may interpret this as doing something for the rich! In the present age of internet and TV, this may not be good for optics! Dittoo would be the possible outcome in terms of removing all those cesses and surcharges. They have distorted tax structures and ‘cheated’ states by loss of share in tax revenues.

The vision of the government needs reiteration. The economy not very long ago, was talked of having the potential to grow at double digits. But now that vision has been tapered down to seven per cent from the earlier eight per cent. The simple calculation is, not much needs to be done to ensure growth rate of seven per cent. The RBI has already cut repo rate third time in succession; hence, repo rate may be a nearly ten year low.

There are some signs of credit uptick already, which is almost certain to gain momentum going further. With some luck, monsoon may be normal and agriculture will recover. Worst seems to be over for both industrial and services sectors. Elections done and dusted, that element of uncertainty has gone so there will be a natural pick up in some investment. Well, if the government is keen on a higher growth rate, then it has to undertake at least some radical reforms.

The NDA government believes that it has come back to power on enhanced welfare delivery mechanism and some timely political messaging. Hence, at least at the moment, it may not try to pursue a radically different approach.

It is another matter that economists and experts are almost unanimous that the economy needs urgent repair works. Industry is down, agrarian crisis has reached epoch proportion and even services are not doing well. Corporate margins are squeezed, order book is not looking healthy and many industries are operating well below their full capacity. Banks have been crippled by large NPA’s. Crisis in NBFC’s is an added dimension to our challenges in banking sector.

Based on the above, here is a small wish list-in fact, very much doable in the present context as well as by the yardstick of current thinking and philosophy of the government. One, stick by the fiscal target and second, recapitalize public sector banks. Recapitalisation brooks no further delay. Instrument of bonds issue may be used. This will free banks’ lendable resources. Lastly, strengthen welfare measures by all means but cut wasteful subsidy like fertilizer, electricity and food.       

*The writer is in the field of higher education- teaching, research and administration for nearly four decades. Presently he is the Vice Chancellor of ISBM University, Chattisgarh.

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