G0G0VT IN Rs 155 tr DEBT, CORP GETS WRITE-OFFs
The government must come out of the perils of cycle of debts to ensure growth amid high multiple taxes and little corporate investment. The large houses get sweet pill of Rs 19.18 trillion loan write-off bonanza since 2013even as the nation gets into a borrowing mesh.
India’s inflation may not be just because of rising prices. High national debt, loan write-offs and tax burdens may have contributed to it, indicates the second major RBI 0.5 percent rise in interest rates. Total borrowings at Rs 155 lakh crore (trillion) is set to add Rs 11.5 trillion more in 2022-23. Interestingly, as a percentage of GDP, the Centre’s liabilities are set to increase to 60.2 percent in 2023.An emerging view is that the government cannot be the driver of the economy and continue lubricating it for the benefit of big loan defaulters. The small, medium and tiny sectors are becoming restless.
More cash use can reduce poverty and boost up small business. This would reduce dependence on shearing bank deposits, high NPAs and resorting to manage finances through large deficits.
Finance Minister Nirmala Sitharaman recently reemphasized that India’s long-term growth prospects are embedded in public capital expenditure at meet of finance ministers and central bank governors at Bali in Indonesia. She was hopeful that this would spur private investments. The Bretton Woods bodies promote it.
Now it needs a review as figures indicate that the Narendra Modi government’s hopes are ditched by poor large-house investments. The government is being forced into a vortex of borrowings for too many high-funded infra projects, like roads, high-speed railways and the power sector. It’s borrowings to rise to Rs 11.6 trillion from Rs 9.7 trillion in 2022-23. Since 1950s different houses have enormously benefitted from this approach.
The RBI has now moderated GDP growth to 7.2 percent, Nomura to 4.7 percent and expects inflation to remain at 6.7 percent, higher than its tolerable limits. Interestingly enough the Manmohan Singh government also did the same post-2008 Lehman Brother meltdown by incentivizing loans, most of which turned into NPAs and were written off.
Private Equity-Venture Capital (PE-VC) investments, contracting since 2012, decline 25 percent during the April-June 2022, at $11.3 billion across 315 deals; 2021had $15.2 billion invested in 264 deals.
The RBI, in May 2019, observed that 2017-18 was the seventh consecutive year of annual contraction in private sector capex. It was Rs 1,65,000 crore in 2016-17. The RBI found it declining from Rs 94227 crore in 2020-21 to Rs 68649 crore in 2021-22.
The government has taken the load off the private sector for spurring economic revival. The Union Budget 2022-23 has increased the capital expenditure (capex) target to Rs 7.5 lakh crore, a 35.4 per cent jump from the budget estimate of Rs 5.5 lakh crore in 2021-22. The revised estimate for capital expenditure in 2021-22 came in at Rs 6.03 lakh crore. Capex accounts for 19.02 per cent of the government’s total expenditure at Rs 39.45 lakh crore for 2022-23.
The high government expenditure has not spurred job creation, domestic consumption and capacity expansion of private sector for a decade. Instead it has led to severe 7 percent plus consumer inflation and almost 15.9 percent wholesale inflation, too much burden on a government that is extending free food to 80 crore poor. It has added mere 7.2 lakh government jobs and the private sector, except IT, none.
The private though have large profits, benefitting from Rs 10.83 trillion lakh crore loan write-offs till 2018 and Rs 8.35 trillion after that, as per Lok Sabha answer, cause high NPAs. Some individual houses alone have over Rs 2 trillion NPAs.
This has impacted the rupee slide below Rs 80 to a dollar causing severe balance of trade issues. The trade deficit in April-July has surged to $ 101.25 billion or Rs 7865 crore, says BVR Subramanyam. For stabilizing the rupee RBI is losing dollar reserves shrinking $ 571 billion from over $ 620 billion two months back.
This calls for looking at small businesses and SMEs for real economic growth. The SMEs need to grow independently and not as lackey of large business. A few years back the country’s tiny sector, thriving on cash. is piqued by many curbs. Let people earn and spend transparently. It would lead to more inflow of money, more investments, spur other sectors and if they want to buy gold let them do it. Let citizens thrive and help the nation grow.
Cash circulation in six years has doubled to Rs 32.2 crore. But the small businesses are too much in constraints. Let those be removed, let them deposit in banks any amount they want without a demur. Explanations can be given at their annual return. The cash has been the strength of this society.
Easy rules would revive the trades shut during the covid. This would help the government in many ways. It is not only the working classes who have been dependent on the enormous food dole but smallest businessmen as well. It would be a great boost to the Prime Minister Modi’s atmanirbharata, self dependence. The small sectors if have affordability would not themselves seek free food, a great contribution to the government’s effort at minimizing expenses.
The small traders also are feeling the pinch with stringent GST rules and penalties that surpass the actual taxes due. Nobody listens to the reasons why they delayed tax payments. The 28 percent rise in GST collection to Rs 1.49 trillion in July may have many sordid stories.
The government has to make the rule humane and reduce the taxes on food and essential items. It would stop entrepreneurs’ flight to become traders and spur growth. It may earn a few crore less but would add to the people’s happiness. In a year’s time, politically crucial for the government, it would bring in a sea change in the economic pattern of overall development, growth and happiness.
A government concerned of the rising prices may have many easy solutions if it changes its approach to the commoners in different spheres. These need minor adjustments that would more than pay back for it. It would also provide opportunities on infra investments and many high-speed projects.
Like small touches through painter’s brush, the economy would change enormously. It does not need large efforts but a mere small Midas touch to change the Indian economy, may be as a harbinger of m(M)odification to the world economy.