PM Narendra Modi and his team are fighting the wrongs of some of their own policies to prevent us from sinking deeper into the economic slump.

Though there’s no official word yet (and there may not be one), the wretched ‘R’ word could soon grip the nation, causing further ‘doom and gloom’, which RBI Governor Shaktikanta Das wants us to avoid at all costs.

Textbook theory tells us that if growth contracts for two quarters in succession, a recession occurs. Going by forecasts, June quarter GDP will be lower than March quarter’s 5.8%. If it happens, technically, India will slip into a recession. However, multilateral agencies like the International Monetary Fund (IMF) consider key metrics like unemployment and inflation to conclude whether a country is in recession. While our headline inflation has remained obedient, hovering around 4% , disappointing jobs data is giving policy watchers the chill.

“We aren’t in a recession as of now. When you look at it globally, we are one of the few economies growing at that rate. Even China’s economy contracted, while European countries are seeing a growth of 1-2%. This isn’t to say we aren’t slowing down, but compared to others, we are relatively better off,” R Vaidyanathan, former professor of finance, IIM-Bengaluru, told this paper.

Recession or not, the clamour for Rs 1 lakh crore stimulus and cries for sector-specific sops are getting shriller. Finance Minister Nirmala Sitharaman, whose Budget announcements unleashed much of the market unrest, is re-looking into her own policies, hoping to play the perfect Santa in her second act. But not everyone within the government machinery is on the same page. Recently, Bibek Debroy, Chairman, Economic Advisory Council to the Prime Minister, warned against any sector-specific reliefs. Moreover, the fiscal deficit constraints leave little room for Sitharaman to manoeuvre.

“Unlike Thailand or Korea, which depend on external demand, we are an investment-savings-based economy. We can’t afford to be a consumption-driven economy, where people tend to buy things that aren’t required. It isn’t desirable as it distorts allocation of resources,” reasoned Vaidyanathan, adding, “In the past 10-15 years, there has been tremendous pressure on people to buy. Obviously, savings rate will reduce.”

With private investments and household savings declining, and demand down in the dumps, how can we overcome the slump?

Dr Arvind Virmani, former CEA & Executive Director, IMF suggests agricultural market liberalisation, opening up of FDI and land and labour reforms as the keys to growth revival. According to him, some of the collateral economic damage was due to the government’s black money crusade, rules and actions culminating in big bang demonetisation, and an unnecessarily complex GST, which together reduced demand from the informal sector.

Then there’s also credibility loss for the government due to its own reforms.

“One key element of this (credibility loss) is ad-hoc increases in cesses, surcharges, sources of income (like capital gains), marginal income tax rates and import tariffs, unconnected with tax economics (Direct Tax Code), combined with an excruciatingly slow pace of fulfilment of promises on corporate tax reform (rate reduction),” Virmani observed.

Part 2 of the series | Sure signal of worldwide recession being months away, but is India prepared?

Investors are highly anticipating the rollback of FPI surcharge, long-term capital gains tax and others, but the ministry appears to be talking in circles, as of now. Auto industry, which is gasping for breath, has a cap in hand with demands ranging from GST rate reduction to lowering of registration fee. The sector contributes Rs 1.8 lakh crore revenue to the government treasury, but the slowdown sliced off GST collections by 8 per cent in the first six months of 2019. “Just to catch up with FY19 collections, the auto industry will need to grow at a rate of at least 7 per cent in the remaining 8 months of FY20,” said M&M chairman Anand Mahindra.

According to him, removal of immediate barriers makes autos affordable. “The first suggestion is some temporary relief in GST front, either by modifying the slabs or reducing the cess. A re-look at the registration fees, which have gone up substantially, and a rollback of hikes in road taxes by state governments after GST rollout will set us back on track,” Mahindra said.

On the other hand, dealerships and component makers need greater credit support from lenders with apex bodies SIAM, ACMA and FADA unanimously seeking GST rate cuts for both completed vehicles and components from 28 to 18 per cent. While Mahindra conceded that tax cut topples the government’s fiscal math, he hastened to reason that higher sales can indeed make up for lower tax collections.

The highly-indebted telcos tried to salvage the situation with a grab-bag of measures. Some raised funds through equity and asset sales, others resorted to cost-cutting, while some others either filed for bankruptcy or exited the business altogether.

Part 3 of the series | Even Rs 5 biscuit packs aren't selling: Inside India's worrying economic slowdown

Consequently, the sector’s debt exposure reduced to Rs 5 lakh crore from about Rs 7.6 lakh crore last year. But to counter the fierce competition from Reliance Jio, operators had to yet again reduce tariffs and offer more features at lower costs -- which will certainly impact cash flows. But there’s a way out, as Rajan Mathews, director general, Cellular Operators Association of India, puts it. The sector has sought lower levies, which according to COAI are over 30% on the industry’s adjusted gross revenue.

“High import duties on equipment required for 4G & 5G networks, high right of way charges imposed by State and local governments, double taxation, i.e., taking up front payment for spectrum through auctions and continuing the legacy revenue share where license fees (8 per cent) and Spectrum usage charges (average of 5 per cent) are being paid for the same spectrum and licence, are some of the policies exacerbating the stress,” Mathews reasoned.

Telcos want relief in the form of a widespread cut in charges. “The government should reduce licence fee immediately to 3% and spectrum usage charges to 1%. These measures are supported by the TRAI,” Mathews said, adding that reserve prices for upcoming spectrum auctions should also be reduced.

Besides debt restructuring for spectrum, allowing additional time to repay and at lower interest rates, removing GST on debt repayments and interest, and slashing import duties on 4G and 5G equipment to zero from the present 20% to incentivise rollout of networks are some of the other demands.

Similarly, the Indian textile makers are let down by a host of factors. Currency fluctuation, rising input prices, high interest rates, lack of formal credit, advancing technology and formidable global competition meant that the full potential of exports remained untapped. This in turn gave room for smaller countries like Vietnam and Bangladesh to flourish. For instance, in FY19, if India’s textile exports stood at a feeble $17 billion, Vietnam and Bangladesh’s share was nearly double at $33 and $36 billion! “The signs of slowdown were apparent from May. The government announced a rebate on state taxes, including embedded taxes, in March. However, they are yet to be implemented,” said Chandrima Chatterjee, Adviser, Apparel Export Promotion Council.

Virmani says specific duties on textiles imports need to be converted to ad valorem to eliminate evasion and corruption, besides appointing a Tariff Reform Committee to propose a rational policy for tariffs.

The industry wants uncertainty on withdrawal of Merchandise Exports from India Scheme to be laid to rest. Such as move puts Indian exporters at a disadvantageous position in the international market. “If MEIS is removed, it’ll be bad for the industry. We have flagged concerns, but the response is slow. Exporters are already cautious in hiring, and if uncertainty persists, there will be job losses, especially among smaller firms,” Chatterjee said.

Worryingly, within total textile exports, the share of apparel exports fell sharply from 51% in FY17 to 45% in FY19, as fashion and lifestyle retailers reduced production, which industry insiders attribute to both sluggish domestic demand and relatively high labour costs, prompting branded retailers to move to Bangladesh and other cost-effective countries.

In the real estate sector, despite excess supply, consumer sentiment remains subdued. The delay in buying decision has severely impacted sales, piling up unsold inventory even as thousands of projects remain unfinished. According to JLL, 2.2 lakh housing units worth Rs 1.56 lakh crore, launched prior to 2011 across 7 major cities remain incomplete.

“Quick action from the Central government and apex regulatory bodies will be paramount in easing the pessimistic scenario looming over the sector for positive growth,” said Niranjan Hiranandani, co-founder, Hiranandani Group.

The industry wants an overhaul of regulations, including clearing of revenue records and land titles for faster processing and approvals of projects, which now takes 18-36 months.

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