In a span of less than a week, there have been three sets of official announcements enumerating the measures to alleviate the problems faced by industries, businesses and workers due to the economic disruption caused by COVID-19. The first two were made by Finance Minister Nirmala Sitharaman on March 24 and 26 and the third by the RBI Governor Shaktikanta Das on March 27. On March, the FM announced reliefs for industries and businesses which are largely ‘procedural’. These include extending the date for filing returns [income-tax, GST, customs, excise and statutory filings under Companies Act], reducing interest chargeable on delayed payments, exemption from penalty, increasing threshold of filing under the Insolvency and Bankruptcy Code [IBC] etc. The firms have...
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Category: Savings & Investment
Yes Bank saga – it’s a system failure
Much before the crisis at the beleaguered Yes Bank reached a flash point [when the banking regulator, Reserve Bank of India (RBI) on March 5, 2020, superseded its Board, appointed ex-chief finance officer (CFO) of the State Bank of India [SBI] as its administrator and imposed moratorium for a month on critical operations such as sanction of fresh loan, renewal of existing loans, Rs 50,000/- ceiling on withdrawal of money per account] some depositors had already sensed it coming. They withdrew about Rs 18,000 crore during the first six months of current year [deposits declined from Rs 227,000 crore as on March 31, 2019 to Rs 209,000 crore as on September 30, 2019]; of this, Rs 16,000 crore were withdrawn...
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Make your choice
If demand doesn’t improve, firms might retain the tax cut bonanza instead of investing. It would’ve been better to put more cash in the pockets of individuals by giving more IT relief Amid an atmosphere of gloom and doom (triggered by growth plunging to a low of less than five per cent during the current year and muted projections for next year), it is necessary to closely scrutinise tax proposals in the Union Budget for 2020-21 to assess whether or not these will generate the much-needed growth impulses. The four major factors impinging on a surge are private consumption, investment, export and spending by the State. The Modi Government has kept up the tempo of expenditure by way of building infrastructure and...
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Budget 2020-21 – will FM’s tax proposals spur growth
Amidst an atmosphere of gloom and doom [triggered by growth plunging to a low of less than 5% during the current year and muted projections in regard to growth during the next year], it is necessary to closely scrutinize tax proposals in the Union Budget for 2020-21 [presented by the Finance Minister, Nirmala Sitharaman on February 1, 2020] to assess whether or not these will generate the much needed growth impulses. The 4 major factors impinging on growth are (i) private consumption; (ii) investment; (iii) export; (iv) spending by the state. Modi – government has kept up the tempo of expenditure by way of building infrastructure on an unprecedented scale and massive spending on welfare schemes. As regards export, given...
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Aspirational India – long on vision but short on resources
The Union Budget for 2020-21 presented to the Parliament by the Finance Minister, Nirmala Sitharaman on February 1, 2020, confirms apprehension that the actual fiscal deficit [FD] for 2019-20 would exceed the budget estimate [BE] by a significant margin. Sitharaman puts it at 3.8% of GDP [gross domestic product] against the target of 3.3%. However, she has justified this deviation in terms of the recommendation of the NK Singh committee on review of the Fiscal Responsibility and Budget Management [FRBM] Act [2003] which permits breach of the target in case of “far reaching structural reforms with unanticipated fiscal implications”. For 2020-21, the finance minister has provided for FD of 3.5% as against 3.0% as stipulated under the FRBM Act. Here...
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Long on vision, short on means
The credibility of the fiscal consolidation glide path has been dented which is also reflected in the Sensex falling by over 1,000 points after the Budget announcements The Union Budget for 2020-21 presented to the Parliament by Finance Minister (FM) Nirmala Sitharaman on February 1 confirms apprehensions that the actual fiscal deficit (FD) for 2019-20 would exceed the Budget Estimate (BE) by a significant margin. Sitharaman puts it at 3.8 per cent of the GDP against the target of 3.3 per cent. However, she has justified this deviation in terms of the recommendation of the NK Singh Committee on review of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which permits breach of the target in case of “far-reaching structural reforms...
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Can invisible hand work?
Seen from an economist’s perspective, the Economic Survey looks eloquent. But execution could run into a logjam as politicians are prone to controlling the consumer The Economic Survey for 2019-20 has been prepared by the Chief Economic Advisor, Dr K Subramanian, keeping the ambitious target of achieving the $ 5 trillion economy status by 2024-25, set by Prime Minister Narendra Modi, at its centre. The rigorous analysis (a lot of it involves running of “regression equations” — a euphemism in econometric analysis to bring out correlation between various economic parameters) done by the CEA has to be seen in the backdrop of deceleration in the GDP (gross domestic product) growth to its 11-year-low of five per cent during the current year (first...
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Reducing income inequalities – needs change of mindset
Almost every government irrespective of its political affiliation assigns top priority to accelerating economic growth [commonly understood as giving a push to gross domestic product (GDP)] believing that fruits of this acceleration will automatically percolate to the lowest strata of the society resulting in their higher income and better living standard. This belief has led successive regimes to single mindedly focus on growth without even bothering to look at income distribution. This task is left to economists for analysis more in the nature of a post mortem and mountain of research but is of little use in so far as learning lessons and changing policy discourse is concerned. One such piece of research is ‘Time to Care’ released by rights...
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Where has demand disappeared?
The growth in gross domestic product [GDP] during the first and second quarter of current financial year was 5% and 4.5% respectively. Given the trend during the remaining two quarters, the year is expected to end with growth of no more than 5%. This is a significant drop from an average of about 7.5% recorded over a 5 year period 2014-15 to 2018-19. The drop during the current year is being blamed on ‘lack of demand’ with some commentators even arguing that demonetization and hasty implementation of the Goods and Services Tax [GST] led to demand destruction triggered by large-scale unemployment and erosion of income and purchasing power. While, there can be no disagreement on ‘lack of demand’ argument, to say...
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IBC framework – springboard to 5 trillion dollar economy
In the midst of raging controversy over the Citizenship Amendment Act [CAA] [2019] and fear over the impending National Register of Citizens [NRC] capturing headlines in the media, a positive news for the economy went unnoticed. This relates to improvement in the health of the banking system. According to the annual report on ‘trends and progress of banking in 2018-19’ released by the Reserve Bank of India [RBI], the gross non-performing assets [GNPA] – a euphemism for loans turning dud – expressed as percentage of total loans declined from a high of 11.2% during the financial year [FY] 2017-18 to 9.1% during FY 2018-19. During the current year, this has remained stable at 9.1 per cent as of September-end, 2019. Correspondingly,...
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