Some years ago, there was a cartoon movie named ‘South Park’. That movie, though it used crude language, had tried to portray how society always preferred to blame someone or something else for inherent faults and ills that it was responsible for itself.
In India of today, when it comes to managing the nation’s economy and finances, the deficit of attention and expertise on the part of the present government speaks in a similar fashion as South Park.
The economy was on a steady fall from the past few years since the BJP held the reins of governance at New Delhi. The trends of a fall were already evident even in the last phase of the 16th Lok Sabha period which was the first term of the Modi government and the second term has only accentuated the scenario for the worse. Covid-19 came early this year – when Modi and his folks are in their seventh year of governance – and its chaos now.
In the present context, Finance Minister Nirmala Sitharaman’s invocation of God – “an act of god may result in a contraction of the economy this fiscal” – might itself be seen as an imbecile putting up an escape act. To put the blame on God for the pandemic and thereby wash the government’s hands of a disaster staring point blank at the nation is a very dangerous effort. Although she spoke in the context of the sharp fall in GST collections, the decline was kick started on 8 Nov 2016 with Demonetization. Painted as an act meant for favoring the poor and flushing out illegally stashed cash of the rich, the move was a lethal play of politics. Aimed at disarming the unprepared Opposition just before elections to Uttar Pradesh state Assembly, that single decision crippled the Indian economy and hollowed it out from inside. This was followed by the haphazard implementation of Goods and Services Tax (GST) that kicked in the small and medium trade and business activities and killed them completely.
The present GST collections touching base have to be seen in the background of 2016 and 2017. Now it has been exaggerated after the coronavirus related lockdown and other linked issues happened in quick succession. The shortfall this fiscal is of the order of an estimated `2.35 lakh crore based on current projections. As the fiscal advances, the scenario is expected to further worsen with very little scope for improvement. The Finance Minister has come up with two proposals before the states to overcome this situation. This is because the Centre has failed to adequately and provisionally compensate the loss for states vis-à-vis GST collections this year. The emerging situation vividly exhibits how, virtually, no planning was done to take into consideration all the 360 degrees of dangers when a nation of India’s size goes into a whole new tax regime all of a sudden. Normally, proper planning would have considered various angles of risk that a large economy might have to face. Those threat perceptions should include war, pandemics, great natural and sometimes, maybe, even man-made disasters, demographic upheavals, international economic crises and other such angles. For such a massive reform step to be successfully introduced, it should have been ensured, at the planning stage itself, to look out for the next 50 years and introduce safeguards against any eventualities. Unfortunate for this country that such future projections are never quite in vogue.
While the shortfall in compensation to states is put at `97,000 crore, the Finance Minister has proposed that states borrow as much as they want from RBI through a special window, pay interest for the amount borrowed and repay the principal five years later from cess collections. It is noted that there was hardly any GST collection in April and May, and only a bare minimum improvement in June and July.
It is true that RBI could be sounded for help, but a problem is that it can grant money only on the basis of certain rules and regulations. For one, interest rate will be substantially high. Governments taking huge amounts as loan with interest from RBI or other agencies posed its own risks. The money thus paid as interest will end up as an added burden on the people, who already pay crippling taxes and are groaning under the present critical situations of job loss and lack of income.
GST, introduced as a half-baked system in 2017, was originally a baby of the UPA. It was taken forward in a rush and implemented in a faulty manner by the Modi government. The original idea was to have a ‘one nation, one tax’ system, to unify the market system, which was seen initially as a reform step. Even today, there is very little clarity about the implementation and the system is constantly being tweaked to plug the loopholes or make changes based on demands from powerful lobbies. A major market reform step would require time to settle down but this here is the worst scenario that is possible.
Had there been some care and planning, the present scenario of hopelessness would not have crept in or reached such a pass. Instead, the government is simply confused about the way forward. Most economists agree that the ill-intentioned step of Demonetization had already broken the back of the Indian economy and of markets due to serious disruption in money supply. This being followed up with GST has, together, taken the economy into a state of deep paralysis, compounded only by the spread of the pandemic.
Today, the Indian economy is on oxygen and gasping for its survival. Anything could happen in the coming months. Such is the desperation and this is evident in the words and deeds of the government itself. It is likely the government does not have the expertise at hand to tackle the present situation. Nothing yet goes to show it has. The government is on a trial-and-error mode from which it is not able to extricate itself. This is bound to have serious implications for the future. Blaming such a situation on God by itself will not be of much help either. Question may arise as to which God?