Fixing The Slowdown
The Finance Minister has announced a mini-stimulus package to arrest the economic slowdown. But the economy needs much more than piecemeal solutions
- Sep 2, 2019,
- Updated Sep 4, 2019 7:43 PM IST
The last week of August has witnessed a series of economic stimulus announcements by the Narendra Modi government, which seems to have finally accepted that the economy is in serious trouble. On August 23, Finance Minister Nirmala Sitharaman announced the first shot of the stimulus package with an upfront disbursement of Rs 70,000 crore to recapitalise banks, a set of administrative measures to speed up GST refunds and reduce meddling of tax authorities.
Five days later, Commerce Minister Piyush Goyal and Environment Minister Prakash Javadekar jointly revealed what they claimed to be the next dose - tweaks in FDI rules to attract more investment into India. On August 30, Sitharaman announced the mega merger of 10 public sector banks into four large entities. Punjab National Bank will merge with Oriental Bank of Commerce and United Bank to form India's second largest bank. Canara Bank and Syndicate Bank will merge to form the fourth largest bank. Union Bank of India will merge with Andhra Bank and Corporation Bank to form the fifth largest bank. Finally, Indian Bank will be merged with Allahabad Bank.
In between, the Reserve Bank of India (RBI) strengthened the government's ability to front-load public expenditure by handing over Rs 1.76 lakh crore as dividends and transfer of surplus reserves. If Sitharaman's words are to be believed, this is just part of an ongoing endeavour to achieve high economic growth. The declining growth in India's GDP explains the rationale behind the government move. India's economic growth has been sliding since four quarters. The Q1 FY20 GDP growth at 5 per cent, the lowest in seven years, is yet another signal to that end.
The signs of trouble which warranted these stimulus measures have been visible for some time. Automobile sales have been declining month after month for almost a year. Merchandise exports growth was more of an aberration as it remained muted or negative for several years. Almost every industrial sector, including biscuit manufacturers who cater to mass market brands, had begun to complain of lower sales, and possible job cuts. Even Bharatiya Mazdoor Sangh (BMS), the trade union affiliate of the RSS, had openly expressed concerns over job losses. The Northern India Textile Mill Association inserted advertisements in mainline dailies a couple of days before Sitharaman's stimulus package, pointing out the job losses the industry has been facing.
The stimulus package was the first public acknowledgement by the Narendra Modi government of the severity of the economic crisis. Now that the illness has been diagnosed, medicines prescribed, and treatment begun, will it provide a complete cure? Or is it going to be just a symptomatic relief?
The last week of August has witnessed a series of economic stimulus announcements by the Narendra Modi government, which seems to have finally accepted that the economy is in serious trouble. On August 23, Finance Minister Nirmala Sitharaman announced the first shot of the stimulus package with an upfront disbursement of Rs 70,000 crore to recapitalise banks, a set of administrative measures to speed up GST refunds and reduce meddling of tax authorities.
Five days later, Commerce Minister Piyush Goyal and Environment Minister Prakash Javadekar jointly revealed what they claimed to be the next dose - tweaks in FDI rules to attract more investment into India. On August 30, Sitharaman announced the mega merger of 10 public sector banks into four large entities. Punjab National Bank will merge with Oriental Bank of Commerce and United Bank to form India's second largest bank. Canara Bank and Syndicate Bank will merge to form the fourth largest bank. Union Bank of India will merge with Andhra Bank and Corporation Bank to form the fifth largest bank. Finally, Indian Bank will be merged with Allahabad Bank.
In between, the Reserve Bank of India (RBI) strengthened the government's ability to front-load public expenditure by handing over Rs 1.76 lakh crore as dividends and transfer of surplus reserves. If Sitharaman's words are to be believed, this is just part of an ongoing endeavour to achieve high economic growth. The declining growth in India's GDP explains the rationale behind the government move. India's economic growth has been sliding since four quarters. The Q1 FY20 GDP growth at 5 per cent, the lowest in seven years, is yet another signal to that end.
The signs of trouble which warranted these stimulus measures have been visible for some time. Automobile sales have been declining month after month for almost a year. Merchandise exports growth was more of an aberration as it remained muted or negative for several years. Almost every industrial sector, including biscuit manufacturers who cater to mass market brands, had begun to complain of lower sales, and possible job cuts. Even Bharatiya Mazdoor Sangh (BMS), the trade union affiliate of the RSS, had openly expressed concerns over job losses. The Northern India Textile Mill Association inserted advertisements in mainline dailies a couple of days before Sitharaman's stimulus package, pointing out the job losses the industry has been facing.
The stimulus package was the first public acknowledgement by the Narendra Modi government of the severity of the economic crisis. Now that the illness has been diagnosed, medicines prescribed, and treatment begun, will it provide a complete cure? Or is it going to be just a symptomatic relief?