Prime Minister Narendra Modi’s claim, in his address to the nation on Sunday, is that he has handed down a “double bonanza” to the 1.4 billion population in a space of one year – the Income Tax exemption up to Rs 12 lakh per year and the present GST rate cuts – meaning a “savings” to the people of “as high as Rs 2.5 lakh crore.” This is a presumptive figure. The PM’s claim is that the season of the Navaratri festival starting now would turn out to be a “savings festival,” but the rate cuts would work the other way, namely in a boost to spending. The benefits coming under the slogan of Nagrik Devo Bhava would be significant for the urban middle-class. The prices of several consumer goods have been reduced. As for the rural economy and the agriculture sector, the government has reduced GST on raw materials for fertilizers, which should reduce the prices of manure and production costs for farmers.
However, as in every such governmental step in the past, how much benefit would accrue to the people or the farmers, in the long term, in the real sense, needs to be measured sensibly and carefully ascertained to separate fact from propaganda. While the cuts in GST rates are appreciable, a question also arises as to why unreasonably heavy taxes were imposed in the past – following the rolling out of the GST regime in 2017. This is not to ignore the good sides of the market reforms. While making an exhortation to the people to buy only what’s made in India, the Prime Minister has admitted that there has been a flooding of foreign goods into the country. This trend has not started with Modi, but the PM has done little to control this trend even as he introduced initiatives like Make In India and Aatmanibhar Bharat. While the Chinese sway over our markets continues, the impact of these initiatives is somewhat impressive in select sectors including in hi-tech fields like aviation and military ware. The share of manufacturing in India’s GDP is still 12 per cent – against China’s 27 per cent. This is less than the world average; and less than those of Pakistan, Bangladesh and Sri Lanka. For a nation like Vietnam, the share of manufacturing in its GDP is 25 per cent – double of India’s. The share of agriculture in Pakistan’s GDP, at 24 per cent, is higher than that of India’s at 18 per cent. Both Manufacture and Agriculture are job-creating sectors, where governmental interventions should have boosted performance.
The PM spoke up for a boost to the MSME and small-scale industrial sectors – but must explain why these sectors failed to gain steam during his last 11 years. The flooding of Chinese goods in recent decades only added to the plight of these sectors here. The failure to raise the manufacturing output in significant ways was due mainly to the stranglehold of the corrupt bureaucracy encouraged by the unstoppable licence/clearance raj. Exhortations from the podium by themselves do not make much of a difference to the ground situations.
