Indian economy will be a big test for government in 2018
The government is walking a financial tightrope, thanks to its fiscal deficit targets on the one side, and rising crude oil prices on the other.
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The high-profile acquittals in the 2G scam and an equally high-profile conviction in the fodder scam capped what has been a confusing and tough year for many. However, much of the deliberations of the year weren’t on these subjects, but the other two Gs — GST and Gujarat, and a V — not the victory sign flashed by politicians, but a living symbol of India’s systemic failure to ensure justice to someone guilty of running away from law — Vijay Mallya, who owes Indian banks Rs 9,000 crore.
There is not much debate on the need for GST. Both the government and the Opposition, and most large businesses say GST would bring in a unified tax across the country and do away with a multitude of central and state level indirect taxes. However, the implementation went awry, leading to much anger among the business community, especially smalltime business. The multitude of slabs, the frequent revisions that the government had to carry out, the inability to keep procedures simple as promised, and the various technical glitches made the implementation of the tax a real nightmare.
So much so that GST, though designed to be a disruptive but a path-breaking move, had a disastrous effect. Much work needs to be done to make the process simpler and more acceptable to the business community. While GST was expected to bring more under the tax net, lower revenue collections in recent months show that an optimal implementation of the tax is still far away.
Although demonetisation was effected in November 2016, its economic impact was visible in its full dimension only in 2017, when the economy grew at an alarming 5.7 per cent in the first quarter of 2017-18. Although growth revived to 6.3 per cent in the second quarter, there have been concerns on the jobs front, with several large IT companies laying off staff. Layoffs and freezing of new recruitment was rampant even in the manufacturing and financial services sector as exports continued to face challenges, and domestic business was lacklustre in certain sectors.
Credit offtake continued to be tepid, and private investments were at historic lows. What was equally embarrassing for the government was the RBI saying in August that 99 per cent of the Rs 15.4 lakh crore that was demonetised had come back into the system. It raised questions on whether demonetisation actually worked, and whether the government was right in considering black money as something just stashed away in cash, that could be easily be unearthed through demonetisation and extinguished. There has been no credible answer from the government so far on this.
There were other steps taken in continuance with the government’s crackdown on black money. In September this year, it deregistered 2,00,000 shell companies and froze their accounts. Shell companies are non-trading companies used as vehicles for various financial manoeuvres or kept dormant for future use. The companies identified by the government have remained inactive for two years or more.
Reports said it is also investigating suspicious deposits of more than $1 billion (Rs 6,400 crore) made by these companies. But it is in bringing those investigations to fruition that the government can claim any success in tackling fraudulent businesses. Similarly, although the tweaks in the insolvency law were aimed at an early closure to the issue of non-performing assets in public sector banks, the process can be long winding, and riddled with litigations.
Meanwhile, hearing on Mallya’s extradition case has commenced in the UK, but there are hardly any reassuring signs that he will be brought back to India to face charges in this country. Arguments by his lawyers in his support pointed to the complexities in running an aviation business in India, and that case was "politically motivated" for gains for parties in India.
How long will this case drag on? It is anybody’s guess. Will it end up in the same manner as the 2G spectrum case? The verdict in the 2G case points to the failure of the CBI to present credible evidence of fraud and illegal gratification against former telecom minister A Raja or those telecom companies that allegedly exploited the loopholes in the spectrum allocation law. It is still difficult for an average person to believe that there was no wrongdoing in the 2G case, so only its examination by the higher courts can help decide on the merits of the case.
Last, but not the least, is the outcome of the Gujarat elections. With the Congress, boosted by support from young community leaders such as Hardik Patel, Alpesh Thakor and Jignesh Mewani, rattling the BJP at the Prime Minister’s home state, there is bound to be a lot of introspection in the ruling party. The upcoming Union Budget is likely to be heavily focused on agriculture and rural growth, considering the anger in those sections against government’s policies.
But the government is walking a financial tightrope, thanks to its fiscal deficit targets on the one side, and rising crude oil prices, implementation of the seventh pay commission and higher public expenditure in the absence of private investments raising challenges on the other. How will the finance minister juggle these acts? It’s economy one will have to watch out for in 2018.
(Courtesy of Mail Today.)