By S. Sudhakar Reddy
The only positive aspect about the initiatives announced by the Union Finance Minister Nirmala Sitharaman is that the government has finally acknowledged that the economy is in crisis. However, the directionlessness of the initiatives shows that the government still does not understand what ails the economy.
India’s is a mixed economy with both strong public and private sectors. The artificial money crunch created by the private sector was controlled by the nationalisation of banks, done at the behest of the CPI. The social nature of the strong public sector banks has protected the private sector of Indian economy from numerous international economic recessions including the ones that shook the world’s largest economies.
The government has destabilised the Indian economy by weakening the public sector banks through mergers, nonaction against large defaulters and lack of professional management due to political appointments of non-economists to bank boards. The autonomy of RBI has been severely impacted and the government’s bulldozing of demonetisation despite warnings from the then RBI governor and economists wrecked the Indian economy.
The government’s crony-capitalist policies favouring those who funded the prime ministerial candidature has killed the sense of level-playing field. Professional industrialists are scared of the few families being able to twist the government policies into their favour thereby creating an oligarchy in the country. The using of tax agencies to hound not only political opponents but also rivals of those close to the prime minister has created an unspoken distrust in the market forcing out others from the sectors in which these families operate.
India’s public sector has been the backbone of the economy. The government has created a perception that overall public sector enterprises are facing losses and are a lag on the economy. Many public sectors have been systematically put into self- destructive mode by the government by not paying them pending bills and showed them as lossmaking.
This is in contrast to the fact that despite all manipulation by the government all profitmaking PSUs together generate a profit of Rs 1,59,635 crore compared to all the loss-making ones together making a loss of Rs 31,261 crore in 2017-18. Public sector units are essential in all the core social sectors and to protect the economy in all kinds of economic weather as well as to create massive volumes of employment.
The government has not only completely stopped the development of public sector but also is killing the existing pillars of the economy by systematically shutting them down creating a lot of unemployment and making the country dependent on other countries even for core sectors. Even all the important requirements of secretive development of sensitive national defence equipment have been reversed by favouring foreign companies just to favour the oligarchy of the country. It is essential to develop large public sector units in social sectors to create large volumes of employment. Disinvestment is nothing but murder of the economy.
Various countries across the world including the world’s top economies have been continually protecting their industries by blocking MNCs that may affect their native industries. Countries that had advocated globalization and free market are now going to great lengths to protect their industries and employment. However, the Indian government despite the largest economic downturn in two decades has shown no urgency in doing the same. MNCs have been welcomed into sectors that kill our local industry as long as it helps the families close to the ruling establishment. It is necessary that the government come up with a sector-wise policy so that international investments are welcomed in sectors in which India is weak and protect the sectors in which Indian industries are strong.
There has been a complete disregard for the small and medium traders and cottage industries in framing of government policies. The implementation of GST without any kind of protection to the small traders and cottage industries has killed the livelihood of millions. They have now become labour in big industries or remain unemployed. The complexity of the tax system and the continually changing rules for the same has made it impossible for businesses with small turnovers to survive. It is necessary to create confidence that Indian system encourages small businesses and ensure that they are not harassed by rules that are a result of knee-jerk reactions.
The government has acknowledged that lack of liquidity or credit in the economy is affecting the health of the economy. However, it is necessary to understand where the money has gone. Almost 100 per cent of the money came back into banks due to demonetisation. However, the money now with the banks is a fraction of what it was before demonetisation. All the money has been given as credit to the huge corporates of the oligarchy. These companies have invested money in projects outside the country. Instead, credit should have been allocated sectorwise and also for housing loans which would have strengthened the economy. A thorough investigation is necessary into what happened to all the money that came into the banks during demonetisation.
Finally, economy is strong when people are financially strong. Economy is weak because people do not have money to spend. The government has to realise that for the first time in history, poor people are paying more taxes than rich people. This is due to the huge increase in indirect taxes. Now indirect taxes are contributing more money to government coffers than income taxes and corporate taxes together. This is a policy that is making the poor poorer and the rich richer. Indirect taxes need to be drastically reduced for prices to come down and increase the buying power of people.
Instead of taking these kinds of steps, the government is further walking down the path of crony capitalism and reduced taxes on the rich. This will weaken the economy greatly and make the survival of the common man very difficult. Explicit steps need to be taken to increase employment and wealth to the common man. This can be directly achieved by strengthening defence, banking and public sector industries. This path can be adopted by the government only when it dawns on them that ‘people are the true wealth creators’.
The writer is the former General Secretary of the CPI.