A month after the Union Budget was presented by the country's first full-time woman finance minister Nirmala Sitharaman, experts think the government has failed to unleash the "animal spirits" to revive the sagging economy, and the only way to kick-start consumption and investment cycle was to "reform and perform".
At the 11th edition of The Finapolis Knowledge Series held on August 8, 2019, four panelists deliberated on the topic ‘The Economy -- 1 Month After The Budget'. The Finapolis Knowledge Series is an endeavour by the Karvy Group to spread awareness on a variety of topics of interest to businesses, investors and individuals.
The panel comprised Mohan Guruswamy, economist and political analyst, Saumen Chakraborty, president and CFO of Dr Reddy's Laboratories, Yogesh Bhat, senior vice-president-investments of ICICI Prudential Asset Management Company and Puja Mehra, a senior journalist and author.
Kingshuk Nag, former resident editor of The Times of India, who moderated the discussion said that the political agenda was dominating the economic agenda with the country in the throes of what was happening in Kashmir. "There are job losses. The economy is not growing fast enough. I won't say there is pessimism all around, but the optimism is tapered," he observed. On their part, experts believe that the government had failed to initiate crucial reforms in agriculture sector, manufacturing was not made easy, the problem of NPAs in the banking sector was not addressed in time while the "tax terrorism" has further compounded the problem.
To a question of the moderator 'what went wrong and when did it go wrong?', panelist Guruswamy said, "The economy is tanking, and tanking quite badly. This is not unexpected; it is going on predictable lines. This is not something which happened for the last one month or the month before. This is something which has been happening for the last 10 years. If you look at the economy from 2012, the savings rate has been coming down, the tax to GDP rate has been coming down, the capital investments rate to the GDP has been coming down." The surcharge on the super rich announced in the Union Budget has set off alarm bells among investors, but Guruswamy wondered why the super rich should not be taxed. "It doesn't matter if the FIIs come and go, one should be worried if the FDI money goes out," he said.
Broadly concurring with Guruswamy, senior journalist Puja Mehra said the slowdown began three years ago. "For three years, the GDP growth has been slowing down. The slowdown was not an outcome of Balance of Payment (BoP) crisis or increase in global oil prices. It was not an outcome of external shocks, this was an outcome of policy failures and cumulative effect of successive governments not continuing the reform process led to the slowdown," she pointed out. The agriculture sector has not been reformed, the labour laws are still not allowing companies to grow in size and create new jobs, she added. "Unless you create new jobs, the market will not expand and the demand will not expand," she observed. The need of the hour was to immediately address the NPA problem and other pending reforms that India had not done since 1991, she suggested.
To Kingshuk Nag's question whether the slowdown was indeed an outcome of internal shocks, Saumen Chakraborty, president and CFO of Dr Reddy's Laboratories, said "More than the slowdown what bothers me most is the sentiment or the business confidence index. I see a drastic drop in business confidence index pre-budget to post-budget." He hoped that the economy will grow, but the government needs to initiate urgent remedial measures to infuse trust and confidence among the industry leaders and investors. "There is a lot of potential. The economy will be among the best, but we are not able to leverage that. There is an immediate need for the government to have a constructive dialogue with the industry leaders to give a boost to the economy," he said.
To a question by the moderator on 'why the economy is slowing down and how can it be accelerated', Yogesh Bhat attributed it to the festering tri- balance sheet problem -- the balance sheets of the government, corporates and individuals. "In the last five years, the government has failed to maintain their numbers for various reasons. Why is the government sticking to the fiscal prudence which it may have promised to the rating agencies? The second one is corporate balance sheet. This is the real big issue that has caused problems on both the demand and consumption side. The balance sheets were over leveraged and the cost of servicing the debt has somehow not happening properly. On the other hand, the balance sheets of individuals in India are not over leveraged," he said.
When a panelist suggested that the government should stop "tax terrorism", Kingshuk Nag wondered whether "the government should behave like a school master with a cane or behave like a father", sending everyone into a burst of laughter. The serious discussion took a light-hearted detour during the Q&A session with the moderator's touch of humor that gave a much-needed relief to the panelists and the audience alike, especially in these times of grim economic outlook.