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RBI’s Transfer Of Funds Unlikely To Clear Financial Mess

IPA Staff by IPA Staff
August 30, 2019
in Uncategorized
4 min read
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RBI’s Transfer Of Funds Unlikely To Clear Financial Mess
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RBI’s transfer of Rs 1.76 lakh crore to the government of India is not likely to clear financial mess of the country that has been created by the Modi-led NDA since 2014. The extent of the economic and financial crisis is far worse than the gift of the RBI which is 1.25 per cent of the GDP in 2018-19.

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Even if we consider that the government will somehow be able to achieve 7 per cent of GDP, as predicted by Economic Survey, the shortfall in the budgeted 12 per cent GDP would be 5 per cent which would be equivalent to Rs 7.04 lakh crore. This huge shortfall in the budget calculations would substantially bring down total earning of the government. Since, Rs 90,000 crore from RBI is already accounted in the budget; the extra money available to the government will be only Rs 86,000 crore in addition to the budgeted amount.

 

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It’s a pittance even in comparison to the country’s direct and indirect tax collections for FY18-19 which fell short by Rs 1.7 trillion, which was 7.5 percent below the revised estimate for the period. The direct tax collected till mid-August is 4.69 percent, against the annual target of 17.3 percent. It should be noted that GDP growth rate for the year was 6.8 per cent which is likely to fall to 6.2 per cent in the current financial year. In the last quarter, GDP growth rate fell to 5.7 percent. Across the board, the economic slowdown will affect tax collection, which is already projected to be unreasonably high in the budget.

 

All these are indicative of the limitation of the government which is not in a position to save the people of the country from the financial mess it has created in the last five years during which growth rate has come down to six years low, private investment 14 years low, unemployment 45 years high, worst financial crisis in the last 70 years, industrial production growth slipping to as low as 2 per cent, GVA growth rate in Agriculture and allied activities fell to 2.92 per cent, and so on. The list is long and most of the items present a distressing picture.

 

Even the lenient review of the grim situation indicates that the Indian economy can recover only a little from the present level of 5.7 per cent. If the GDP projections are not further revised downward, the Indian economy may recover somewhere between 0.3 per cent and 0.5 per cent, making our growth rate somewhere between 6 and 6.2 per cent, much less than the Economic Survey’s forecast of 7 per cent. An international organization has forecast a little improvement of only 0.3 per cent that too by March 2020.

 

Only a few days ago government think tank NITI Aayog had described the current stress in the financial sector as “unprecedented in the last 70 years”, saying nobody is trusting anyone else in the sector. It made a case for extraordinary steps to deal with the crisis that has resulted in an economic slowdown.

 

It may be mentioned that the sharp economic slowdown started with demonetization of November 2016, which virtually crippled the economy. It was one of the many quixotic moves of the Modi government. Money supply was restricted. MSME’s were worst sufferers. Crores of jobs were lost. Next came implementation of GST without proper technological and administrative system in place. Even after two years of its implementation, it remains imperfect. Entrepreneurs’ money was held up with the government resulting shortage of money with the exporter and domestic companies. The new hurdles created by the new system of GST are yet to be solved.

 

It’s a strange behaviour of the government to decide anything they want and then trying to implement them. They tend to forget that everything has repercussions beyond their control. Even in the budget for 2019-20, the government came out with several wild provisions which boomeranged. It compelled the government to roll back several of the tax measures in less than two months. It is also likely to lower the revenue collection targets for the current financial year.

 

The finance minister Nirmala Sitharaman evaded the questions related to consumption in her recent press briefing in which she announced rollback and modifications in several measures taken in the budget. She seemed to be over relying on private investment, which may push the country towards more troublesome days ahead. It is worth mentioning here that our industries have cut their production levels due to lack of demand. Our workforce is losing their jobs because there is no work for them in the companies they have been working. People don’t have money to buy. In this scenario, people need work, people need money.

 

We have been hearing from the government about ‘Make in India’ which have miserably failed. There are demands for many things in this country, but government does not seem to be interested in more than sloganeering. For example, in 2014, India used to import goods of worth Rs3000 per person, which has increased to Rs 6000 per person. Had our government really interested in diverting this demand towards the domestic market, our MSMEs could have been thriving by now. India is the second biggest consumer market of the world only after China because of the size of its population. There is very high demand and consumption level for many goods and services but we are yet to give its full benefits to our own businesses and industries making them sick, while non-Indian companies are deriving benefits from Indian demand and consumption.

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The outcome of the present economic and financial crisis is just unpredictable, just as it was in the last year. For example, IMF’s earlier country report for India had pegged growth for FY18-19 at 7.3 percent, which turned out to be much lower at 6.8 percent. The situation is definitely worse than the last year. (IPA Service)

 

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