In the midst of these seemingly hopeless times with
nearly every economic parameter going down, it is heartening to see a small,
tiny uptick in credit offtake from banks {Business Standard ,”All Eyes On RBI
Today”, 2nd August Credit
Chart – See Chart below}. I haven’t seen many people note this : but the chart
is clear. There is a small uptick – this may of course be irrelevant, and
unsustainable; but it is present. It is now for the Government to ensure this
uptick is sustained; increasing Credit Offtake is a prerequisite for a
sustained Economic Recovery.
However, it is with regret that I admit my article
isn’t about recovery prospects; as most of my readers will no doubt be aware –
I don’t indulge in speculation; that requires detailed data trends which are
not available to me, as well as tools. This present writeup is more about the
risks that are facing us in the current situation, which taken individually or
together can derail this small beacon of hope. The beacon of hope isn’t just
the Credit Growth, but rather the GST as well as the increasing Tax Base; and
of course, not to forget the welcome initiative of this Government to take some
hard decisions. As to whether these hard decisions are enough or not, is another
story, for another article. As I said, speculation isn’t my style, neither is
it my current forte.
HARD
DECISIONS
Lets us tackle this most prickly of issues
straightaway. Article after article is claiming- in the Pink Media {I freely admit I have stopped
reading White Media, as I find them not upto the Mark. I count Livemint in Pink
Media, as in Economic Media} – that the current dispensation is not taking hard
decisions, or real reform moves. I respectfully submit that the reality is the
exact reverse – they are not only taking Hard Decisions, they are doing so with
a single minded determination. Let us give credit where credit is due.
The GST is itself a hard decision; fine – it is,
well, let us say not upto the mark – but it is a start. {Libs, hold on please –
will attend to GST in a separate section here}; yet, the Government went ahead,
warts and all. This will unlock future potential, as I analyse in a strategic
analysis of GST impact subsequently in another article. Next, the rather
unfortunate tendency of this Government to target subsidies with a single
minded determination and focus brings a new atmosphere in the country and among
the people.
THE GST
Bhakts are over the moon over this reform; Libs are
cautiously optimistic, while being wary of the downsides of this move – which
are, quite frankly, way too many and way too technical to be stated in a short
summary. Both sides are right. The news on the ground isn’t great; the move has
choked the economy, as we can see in the trickle of information that is now
coming out. While there is logic in the claim that these are temporary, this
needs a careful look at.
Trucks – one article said 20-30% - are not getting
loads; Chemists are not ordering some key drugs in sufficient quantity as they
fear input credit will not be passed on; SME order books are empty, and they
are paying a temporary price; Hotels business is down 20; Manufacturing sector
took a big hit in July – which is the sharpest decline or hit in nine years; Housing
and Real Estate is showing signs of stress due to RERA and GST; Textile Segment
– esp the small units – is also showing stress due to GST. You can of course claim that these are short-term changes, but there is
more to it, as we shall see.
SUBSIDIES
& FACILITIES
The Government, at long, long, last – has shown some
signs of attacking our crippling subsidy problem. We are a developing country,
and the more we spend on Subsidies, the lesser we have for Development and
Capital Expenses. In that light, it is beyond argument that this is one area
that required attending to. At last, we are doing it – but is our approach
right? There are some indications that
the Government is thinking of tinkering with the kerosene subsidy, and the fertilizer
& Gas subsidy.
On the face of it – this looks a great move. But go
deeper, and problems emerge. The government has announced that the price of
subsidised kerosene will be raised by 25 paise per fortnight until the subsidy
goes. But look elsewhere – 40% of Kerosene is diverted, true. What of the
balance 60%? That is used by those whom it was meant for. Second, cooking gas
subsidy is being phased out. Third, railways – where catering and Blankets etc
might be phased out.
THE KEY
POINT
First of all, as all indicators point out – as I
look at in this article of mine on my blog – The Indian Economy has not been
faring too well. On top of that, demonetization created massive disruption
particularly on the SME and Unorganised & farming sectors of the economy. Adding
to this potpourri was a potent cocktail called The GST, which created further
disruption. Point to be noted here – this was bound to be felt highest in the
SME and Unorganised sectors, as the Larger players had the time, knowledge and
the money to implement change processes as well as whither the short term
storm. Also remember that the contribution of the Small and Unorganised sectors
to the Indian Economy is to the extent of 40-50% of GDP as well as being the
major contributor to Savings as well as employment
While the overall direction’s utility and benefits
are actually beyond argument – the bhakts have it right there; the downside
risks outlined above need to be taken into consideration. The Smaller players
in various sectors, who together make a large segment – how long will it take
for them to feel the benefits of the new regimen of the Economy? Do they have
to ability to whether this storm? If not – what will be the impact? Joblessness
– how many people will lose their jobs? {There is evidence of this, look in
links enclosed} Or how many companies and operations will have to shut shop? And
quite apart from the economic impact, what about the human side of the story? The two taken together, make a strong case for a more Human approach, for reasons of pure economics, as I look at in the next part..
The human side is what worries me the most, followed
by the ability of the small sectors to engage with and emerge victorious over
the challenges thrown at them. That they will win eventually is beyond argument
– history is mute proof of that. But the process of change can be painful. It
will require deep strategies, executed to perfection, to mitigate the impact,
involving re-skilling, re-training, and a very soft handling. As on date, there
seems to be no evidence of this happening. What will happen to the people who
will get hurt in the interim is open to question; they will just have to cope
on their own.
The other critical factor is the ability of the
smaller players to weather the change. Take subsidies; sure – some of it is a
waste. But large portions do reach the intended beneficiaries {read Kerosene
article below}; to this category of people, people like you and me perhaps, the
small amount of help through subsidies is actually quite large from their point
of view. Instead of devising mechanisms
to reduce misuse, the Government is doing away with them altogether. Similar
is the case of the facilities example – instead of finding ways to improve, the
Government might just do away with them.
CONCLUSION
Sure,
these are hard decisions – some of them are bound to be beneficial, given they
are based on solid logic. But does the on-ground
reality in industry amenable to such gut-wrenching changes? If it isn’t, it doesn’t
mean we don’t do the changes – all I am
saying is that there is way to take hard decisions – and this isn’t it.
Once again, it boils down to the most tricky of all things in life :
implementation. Further, there is also a distinct feasibility of markedly
improved strategisation as well as tacticalisation. I refer to strategic ways
of mitigating the downside, and the precise tactical roll-out plan of such
far-reaching changes; many, many methods are feasible, which given the audacity
and correctness of the overall objectives and the strategy, will certainly lead
to benefits for all… but is anyone listening? I fear not…
BIBLIOGRAPHY AND REFERENCED ARTICLES
9) GST impact: Manufacturing at a nine-year low; Positive and Negative Impact of GST on Indian Market;
10) Howl of protest over plan to smoke out LPG subsidy {TN};
11) GST hiccups stay for distributors, chemists;
12) A government that takes jobs away
11) GST hiccups stay for distributors, chemists;
12) A government that takes jobs away
And several others over the course of my regular
readings...
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