Indian economic recession

In the budget, the FM Nirmala Sitharaman claimed that India’s economy would hit $5 trillion by 2025. In the weeks that followed, GDP growth rater fell to a six-year low of 5%; the RBI made a surplus transfer of Rs 1.76 lakh crore to the union government; and the government announced the merger of ten public-sector banks into four combinations. These announcements came against the backdrop of the precarious state of the Indian economy. The country is witnessing an economic slowdown that has spread from the auto sector to all other segments, the unemployment rate is at a 45-year high and the tax collections from the previous fiscal year presented an estimated shortfall of Rs 1.67 lakh crore from the revenue expected by the BJP government. The going seems difficult for both Sitharaman and the Indian economy.

• The RBI has lowered India's growth forecast for FY20 to 6.1% from 6.9% it projected earlier. The World Bank has cut India's GDP growth forecast from 7.5% to 6% this year.
• India is a consumption-driven economy. When consumers buy goods and services, the wheels of the economy turn. That has not been happening for several quarters and for various reasons.
• Fewer jobs (at 6.1% in 2017-18, unemployment was the highest in 45 years), a freeze in salary hikes and bonuses, layoffs and uncertainty in businesses are making people cut down on spending.
• Incomes and wages in rural India, where 67% of India's population lives, have been hit because of low food prices. Agriculture GDP grew just 2% in the first quarter of the current fiscal, compared to 5.1% in the same quarter of the previous fiscal.
• Consequently growth in private consumption expenditure is down to an 18-quarter low of 3.1% in June 2019. Savings declined to an all-time low because of static or falling incomes.
• Construction, which is a big employment generator, is decelerating because of the slump in real estate. Exports fell 6.57% in Sept 2019 compared to a year ago. Discoms are groaning under a combined debt of over Rs 2.4 lakh crore. Corporate sector revenue growth fell to an 11-quarter low and investments plunged to a 15-year low.
• The banking and financial services sector is in a mess. There is liquidity, but no loans are being given. Banks are tottering under a mountain of NPA's of close to 10% of their total assets. They are fearful of giving fresh loans in case they add to their woes. Non-banking financial companies, which are a major source of consumer loans, are in a mess of their own and unable to extend credit. And the string of collapsing financial institutions has further sapped consumer confidence in the system.
• The government's rescue acts like slashing corporate tax rates and unprecedented interest rate cuts by the RBI seem to be yielding no results in the short term.
• These are exceptional times and they call for exceptional measures. Indian government could take cue from the US Federal Reserve spent nearly 800 billion dollars to pre-empt an imminent economic meltdown in 2008.

The Indian economy is in a vicious downward spiral and the Modi government needs to stop worrying about the fiscal deficit & inflation etc and start pouring money into the economy to stimulate growth. They need to put money in people's pockets in every way they can. This appears to be the only way to get the jammed wheels of the economy moving again.

Read the source article

GST Blues ... World Bank update

World Bank’s update on India GST are worth pondering.

• The unified Goods and Services Tax (GST), which subsumed a web of central and state levies to make life easier for businesses, is one of the most complex and has the second highest rate in the world.
• As many as 49 countries around the world have a single slab of GST, while 28 countries use two slabs, and only 5 countries, Italy, Luxemborg, Pakistan and Ghana and India, use four non-zero slabs. 
• Indian GST’s top slab of 28% is the second highest of the 115 countries in the world.
• Separately, gold is taxed at 3% rate, precious stones at 0.25%, while alcohol, petroleum products, stamp duties on real estate and electricity duties are excluded from the GST and continue to be taxed by the central and state governments.
• India’s landmark tax reform was off to a chaotic start in July 2017.
• The tax overhaul brought along some teething issues and disruptions. Dealers stocked up on inventory and reduced production, pulling down growth to a three-year low. 
• Disruptions are due to lack of clarity on discontinuation of local taxes; demands for exemptions or lower tax rate; and on account of coping mechanisms to preserve revenue collections.
• Revenue collections have taken a hit. India missed its fiscal deficit target this year.
• India’s threshold for GST registration is also the highest. Businesses with an annual turnover of Rs 1.5 crore fall under the GST regime and are eligible to get input tax credit. 
• Those with annual sales below that and over Rs 20 lakh are allowed to pay a flat tax rate of 1% but can’t charge GST on sales or recieve tax credits. That’s mainly to ease the cost of compliance for small businesses.
• GST resulted in increased administrative tax compliance burden on firms and locking up of working capital due to slow tax refunds.
• High compliance costs are also arising due to prevalence of multiple tax rates implies a need to classify inputs and outputs based on the applicable tax rate.
• While teething problems on the administrative and design sides persist, the introduction of GST should be considered as the start of a process, not the end. The economy is adapting to the new system. 
• International experience suggests that the adjustment process can affect economic activity for several months, the benefits of the GST are likely to outweigh its costs in the long run.
• The key to GST’s success would be a policy design that minimises compliance burden by reducing the number of different rates, limiting exemptions and simplifying laws and procedures. A communication campaign is crucial to convey the various aspects of the new tax regime to businesses.

Read the source article

Implementing the GST will only boost the competitiveness of manufacturing, trading and services sector engaged in selling goods & services throughout the country by economizing logistic delays, warehousing facilities and streamlining tax payment systems. The report is silent on size of country and its business net work, complexity of demography and support of political opponents to government body. The informal sector with single or family run shops & services with razor thin margins, high working capital costs they find GST compliance costs unaffordable. Today, the reality is small traders collect GST from consumers they neither pay the same to Govt nor file returns. They are spread across the country and impossible for forcing them to comply with corrupt taxmen. Those who were VAT payers in the past have cancelled their GST registrations. Every importer understates invoice prices and quantities especially from China. There is nothing which can't be bought for cash without receipt. This a big hole in GST collections and centre simply stares at this leakage and loss.

What eased doing business in India?

• India jumped up 30 notches into the top 100 rankings on the World Bank’s ‘ease of doing business’ index, thanks to major improvements in indicators such as resolving insolvency, paying taxes, protecting minority investors and getting credit.
• While the jump is impressive, that is not the whole story. Excepting few increases due to increase in computerisation everywhere, nothing much has changed on the ground.
• Modi hailed the jump in India’s ranking as “historic” and said it was a result of “all-round and multi-sectoral reform push.” Jaitley said India’s jump is the highest by any country, and that reaching the ‘top 50’ target set by Prime Minister Modi is “doable”. These guys bombard with publicity every minor uptick but avoids talking about negatives whether it it happened on its own or whether they have done it is immaterial. 
• This ease of doing business in India helps only large corporates and MNCs and has nothing do with informal businesses which contributes 45% GDP and 80% jobs, that stands decimated by Modi's 'hare brained demonetisation' and 'badly implimented noble GST'.
• The persistent problems of India namely agraian distress, joblessness, spiralling down of economy, healthcare & education in doldrums and so on has nothing to with this ‘ease of doing business’.
• While common man continues to suffer, government's coffers could see increased inflows over time.

Swachch Bharat - Failure

India Today  |  Oct 16, 2017  |  Page 9

Without going into too many details, it is safe to declare that 'Swachch Bharat' has derailed and a 'Failure', simply because World Bank hasn't released any money committed for 'Clean India' even after three years of its launching and spending huge amounts mostly on publicity, with participation of President, PM, Governors, CMs, Ministers and everyone from politics and government with broom sticks posing for TV cameras, citing "moderately unsatisfactory" and "campaign's wider ineffectiveness". Thousands of crores of rupees spent so far has gone down the drain burdening exchequer with no lasting benefits. Modi & co must own up responsibility for this debacle along with many more failures. But it is too much to expect such nice things from third rated politicians from BJP and Sangh parivar. The reason for failure of 'Swachch Bharat' is insufficient home work done and improper planning prior to launching etc.

Give me six hours to chop down a tree and 

I will spend the first four sharpening the axe ... Abraham Lincoln

Sadar Sarovar Dam: Incomplete but Modi inaugurates!

Amid protests and allegations of little work done on it, Prime Minister Narendra Modi, spent his 67th birthday on Sep 17, 2017, in his native Gujarat and dedicated the Sardar Sarovar Dam to the nation. Rehabilitation of the submergence-affected population is about 80% incomplete, but the Prime Minister declared the project complete! 

• The foundation stone of the Sardar Sarovar Dam was laid by former Prime Minister Jawaharlal Nehru on April 5, 1961.The Planning Commission finally approved the project in 1988. The construction on the project began 26 years later in 1987, when his grandson Rajiv Gandhi was the Prime Minister. Sardar Sarovar Dam is the most controversial development project of the nation. 
• Sardar Sarovar Dam (1.2 km long dam is 163 metres deep) is the biggest dam in the world after the Grand Coulee Dam in the United States. The project aims to benefit about 10 lakh farmers.
• The Sardar Sarovar Dam has two power houses - river bed power house and canal head powerhouse. The two powerhouses have the installed capacity of 1,200 MW and 250 MW respectively. Power generated from the Sardar Sarovar Dam will be shared among Maharashtra 57%, Madhya Pradesh 27% and Gujarat 16%. The dam has so far produced 4,141 crore units of electricity, so far.
• Sardar Sarovar project was estimated to cost Rs.6,400 crores in 1988. The construction was backed by funds from the World Bank. Revised estimates in 1996-97 was Rs 13,000 crore. The present project cost is around Rs. 60,000 crore. 
• There is no credible assessment of the costs, benefits and impact of the project. Whether the project was boon or bane - reviews conducted once by World Bank and another by Govt of India and in both cases, the outcome was the project in its current form should not go ahead. That answer was available about 25 years ago.
• Sardar Sarovar Project is expected to supply drinking water to 29 million inhabitants across 131 towns and 9,633 villages in the state of Gujarat.
• The project is still incomplete with over 43,000 km of canals (out of total 70,000 km of canals) yet to be completed despite the BJP ruling the state for the last 22 years. All the incomplete canal network of the project are in the drought-prone areas of Kutch, Saurashtra and north Gujarat. The SSP’s basic objective is far from achieved. State government is guilty of criminal negligence for unilaterally reducing canals length from 90,000 kms to 70,000 kms without consulting Narmada Control Authority and truncating the benefits to state.
• Experts opined that if water tables were improved and electricity tariffs reduced, there was no need to build such a large dam. There were other options available. Neither Central Gujarat nor Ahmedabad were a priority for the Sardar Sarovar Project. Planned priority work is not happening.
• The celebrations for the completion of the dam are merely a poll plank. The CAG and Planning Commission had earlier pointed out that due to incomplete canal network, farmers are losing about Rs.1,800 crore every season.
• The Narmada Bachao Andolan led by activist Medha Patkar has claimed that after raising the height of the Sardar Sarovar Dam, about 40,000 families in 192 villages in Madhya Pradesh will be displaced. The government has put the number of displaced families at 18,386 in Madhya Pradesh. 
• According to an estimate, more than 5 lakh families are battling displacement problems.
• The consistent struggle by social activists spearheaded by Medha Patkar on environment and rehabilitation issues to dismantle the project built a huge amount of pressure on the World Bank forced to review the project. On concluding the fact that inadequate assessment had been made by the Indian government, the World Bank cancelled the loan in 1993.
• The 150-km stretch of the Narmada downstream from the dam is now dry most of the year and the claim of 600 cusecs being released is not supported by any clinching evidence. The livelihood of at least 10,000 families depending on the Narmada estuary stands destroyed. 
• In the next assembly elections run up in 2018, BJP will have to answer several tough questions like reduction in canal length, incomplete canals in North Gujarat, Kutch & Saurashtra, illegal diversion of waters in canals, no additional acreage brought into cultivation during the past five years, delays resulting in huge cost over runs with no additional benefits and most importantly incomplete rehabilitation issues etc. 

Modi is expert in chest thumping few positive achievements and never touching any negative things or wrongdoings and manages media to sing to his tune. So far he was successful with his rhetoric, oratory skills and charisma. But he can't fool all the people all the times. He is bound to face music for his lies and misdeeds in Gujarat itself in 2018 and price nation has paid by then is enormous. While selective truth hammering is any politician's trait, but people expect absolute truth from Prime Minister's mouth and truth is the last thing Modi speaks. At the sight of telling lies to public, Prime Minister, Chief Minister & all Ministers must be disqualified from their positions, the rule book should be amended.