Recall the year 2013 when everyone, including the current crop of leaders, criticised the Congress-led UPA government for the stalled projects, corruption charges, ill-thought-out legislation and inaction on many fronts. The then opposition often used the word “policy paralysis” to relate with the way the government functioned. The then Prime Minister Manmohan Singh was accused of being a mauni baba, who allegedly acted only when Sonia Gandhi pressed the remote button.
Things changed and the public voted out the UPA government, thinking that Narendra Modi will add some spice to their life and will bring some relief to the ailing economy. Year one, we felt that things would go on the right track. Modi made a lot of announcements, launched new schemes and even went abroad, pitching to the foreign institutional investors, reciting the encouraging and overwhelming tale of how India would be in the coming years. He was able to win their confidence. Hopes revived as many expressed interest in investing money and many agreements were signed as a token of their expression of interest.
The stock market, which had acquired a bearish tone, rallied and we could see BSE Sensex crossing the 20,000-mark and going on and on towards the 30,000 mark. Never before had India seen such a surge in share markets.
Then came the ill-fated November 8 when out of the blue, Modi made an announcement of scrapping the 500-rupee and 1000-rupee notes albeit in the name of weeding out the black money the rich people were assumed to have piled up. What a masterstroke, people thought! Modi had the guts to take steps which could annoy his own vote bank – the traders – said many.
India Inc. welcomed the step. The general public stood stoically with the government amidst anarchy and chaos. Despite the trouble the people had to face standing in long queues before the banks, they praised Modi. That was how people reacted initially. Some even related the struggle to no less than another independence struggle. We were told that most of the bad cash would become a mere piece of paper, useless and invalid.
Soon, we realised that it was a futile exercise as the RBI got a major chunk of the specified bank notes in circulation back into its coffers. Even the apex bank had no clarity while dealing with the situation, as it had issued a notification almost every day — 74 notifications, to be more precise, during the 50-day period. Imagine the monumental task the bank was entrusted with, without much deliberation and discussion. The RBI governor must have had sleepless nights.
When it was confirmed that the gamble was a failure, the government started changing goalposts and labelled it as a move to usher in a cash-less economy. When the concept of cash-less economy also failed to attract, it had another goal – an economy with less-cash. A year later, cash is still the king. India is not even a less-cash economy. People are back to track with their age-old habit of dealing in cash.
Finance minister Arun Jaitley called it as a “watershed moment”. No doubt, India never underwent disruption at such a large scale. It was certainly unprecedented.
Time passed. We thought, we could recoup. Suddenly, in another mid-night drama, like the night when Prime Minister Jawaharlal Nehru made his famous tryst-with-destiny speech, we were inflicted with another injury. We had the GST, which the Congress vice-president Rahul Gandhi terms as “Gabbar Singh Tax”, instead of Goods and Simple Tax.
We were told that the GST would make our life easier as we would have only one tax throughout the country. Instead, what we had were four different slabs, actually eight. We have products and services to be taxed at 5, 12, 18 and 28 per cent. And then there are certain things which are exempt with zero rate. Diamond will be taxed at 0.25 per cent and gold at 3 per cent. We also have a cess for luxury items and the rate varies from 290 per cent to 1 per cent, depending upon the product.
The 213-page document, detailing the simple tax, has undergone several changes since it was enforced. It seems the government wanted to collect the maximum amount of tax. But soon it realised that the step could go against it and hence many items were shifted to the lower tax slab within days of its enforcement. The GST Council has already met 23 times.
The number of policy and tax rate changes by the central government and the GST Council can only parallel the numerous notifications issued by the RBI during demonetisation! We have only one wish for a smoother GST transition with no more hiccups. The government says it is evolving every day. We feel that it is an ill-thought-out exercise implemented in a hurry without giving much thought on its implications. The government is back to square one every time it revisits GST.
The rates apart, three types of GST – Central GST, State GST and Inter-state GST – have already confused us. It seems the concept of “one nation, one tax, one market” remained only in the minds of the legislators. What appeared on paper was several taxes, several markets, several returns, several rates, several categories and many more!
A survey conducted by a leading daily after the recent amendments showed that many felt happy that there are only 50 items that fall in the highest tax slab. But a majority feels that it will take another six months or even a year to stabilise operations.
Even though the frequency of filing returns has been changed from monthly to quarterly basis, transitional issues like issue of credit, clarifications, simplification of compliance, anti-profiteering norms etc. are big issues surrounding the GST. We are sure a majority of them will be resolved by 2019 in view of the Lok Sabha polls due in 2019. We do not know whether it will actually work for the Modi government.
These apart, let’s see the status of project approvals – one of the major issues when the UPA government was in power. Modi had made a series of promises vis-à-vis easy approvals, fast-tracking of projects and creating an environment of “trust and leadership”. However, his words seem to have no substance.
The recent data published by the Centre for Monitoring Indian Economy (CMIE) show that the value of stalled projects has increased to a whopping Rs. 13.2 trillion as on September 30, 2017. This means that 13 per cent of the projects under implementation are stalled. Out of these projects, nearly two-third applications are from the private sector with over 20 per cent value, which has been the highest since March 2004.
However, going by what Jaitley said recently, it seems the minister is living in a different country altogether. He claimed that the government has eased environment clearances. The numbers tell a different story. The CMIE data show that around Rs. 5 trillion worth of projects are stalled due to lack of environmental clearances, fuel and raw material issues and lack of funds. This accounts for nearly 40 per cent of the stalled projects as on September 30, 2017.
This has affected the announcement of new projects. The value of new project announcement is only Rs. 31,000 crore till last quarter which is insignificant, compared to Rs. 1.79 trillion and Rs. 1.69 trillion in the same quarter in 2016 and 2015 respectively.
The data have come at a time when the government is already facing criticism for what the Indian economy has been inflicted with after the unwanted exercise of demonetisation and a hurried implementation of the GST. The government’s “ease of doing business” rhetoric is only valid for a few business groups. It seems the small traders figure nowhere in Modi’s idea of “New India”.
It is time Modi wakes up from his slumber to take concrete steps for bringing his government out from the “policy paralysis” it suffers from. We do not need a speaker, a “political campaigner” holding the country’s highest office. We have already gone through several policy shocks which have accentuated uncertainties and made investment riskier. We need an administrator who understands the nuances of Indian economy and is able to bring us out of the current crisis.
(The writer, a company secretary, is director, communication, Deepalaya, and can be reached at firstname.lastname@example.org)
(Published on 20th November 2017, Volume XXIX, Issue 47)