No quick fixes: Modi govt implements most of the stimulus measures but economic recovery is a far cry

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Updated: November 01, 2019 1:09 PM

Economic Slowdown: Though the Modi govt has implemented most of the stimulus measures while some others are at an advanced stage of implementation, they failed to have any immediate impact on a declining economy.

Narendra Modi, Economy, GDP, stimulus, IIP, Core sector,Modi govt has implemented a majority of decisions announced in the last three months to revive the economy.

Indian Economy: The Modi government has implemented a majority of steps announced by finance minister Nirmala Sitharaman in the last three months to revive the economic growth, said the ministry of finance on Thursday but apparently these measures failed  to arrest the decline in a slowing economy as the latest data of 8 core sectors, also released yesterday, showed that the output in these 8 sectors contracted by 5.2% in September in comparision with the same month last year. This is the biggest decline in last 14 years.

Prime Minister Modi began his second term amid a deep economic slowdown as GDP growth declined to 5% in April-June quarter (Q1) in the current fiscal, the lowest rate in the last six years. It was preceded by the reports of serious problems in the automobile and FMCG sectors that were forced to suspend production and resort to job cuts.

The slowdown at the start of PM Modi’s second term has made it even more daunting for him to turn-around a slowing economy as he sets out to achieve the ambitious target of doubling the size of economy to $5 trillion in the next five years.

Alarmed by the slowdown, as GDP growth declined to 5.8% in January-March period this year, just before the Lok Sabha elections and then to just 5% in April-June this year, finance minister Nirmala Sitharman on August 23 announced a series of steps for economic revival. These measures were followed by two more stimulus measures announced in August and September, which also included a substantial cut in corporate tax rate to encourage companies to increase investment.

The measures announced by finance minister Nirmala Sitharaman in August and September included providing support to non-banking finance companies (NBFCs) and housing finance companies (HFCs), expanding the availability of credit through loan melas, rollback of a proposed increase in the surcharge  on the capital gains tax which was announced in the Union budget presented in July this year. She had also announced relief measures for SMEs and start-ups among other things. However, the impact of these measures has been less than expectations.

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Booster dose for NBFCs-HFCs

One crucial decision was about infusing capital in the banking sector and providing support to NBFCs. On August 23, Nirmala Sitharaman announced that the board of the National Housing Bank (NHB) had approved additional liquidity of Rs 20,000 crore for housing finance companies, taking the total commitment to Rs 30,000 crore.

In addition to this, the government has also released Rs 70,000 crore to infuse capital in public sector banks.

The govt also informed that the total support extended by the PSU banks to NBFCs and HFCs since September last year has touched a record Rs 2.56 lakh crore which includes providing credit support to non-banking finance companies and pooled buying of their stressed assets. In her maiden budget presented on July 5, finance minister Nirmala Sitharaman had already announced a partial guarantee scheme for PSU banks to enable them to acquire stressed assets of non-banking finance companies (NBFCs) and housing finance companies (HFCs). The scheme has been capped at Rs 1 lakh crore and will be open for six months.

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Biggest rate cut by the RBI in a decade

Moreover, the Reserve Bank of India has also cut the bench-mark short-term inter-bank lending rate – Repo Rate – by 135 basis points this year, the biggest cumulative cut in a year since 2009. However, these measures, which also include several other relaxations like the relief to start-ups from angel tax, fully automated electronic refund facility for input tax credit (ITC) under the GST and compulsory GST refund to MSMEs in 30 days, failed to have the desired impact.

Though the data for July-September quarter (Q2) is expected to be released by the end of November but if the latest data of Index of Industrial Production (IIP) which is available for the month of August, and the latest data of 8 core sectors of IIP which is available for the month of September are any indicators then economic turn-around as expected by the government is a far cry.

Economic recovery remains a far cry

According to the latest data released by the ministry of commerce and industries on Thursday, seven out of the 8 core sectors of the economy registered a decline of 5.2% in the last month on year-on-year basis. Except for the production of fertilisers, all other 7 sectors – coal, crude oil, natural gas, refinery products, steel, cement, and electricity registered a decline. These 8 sectors cumulatively account for over 40% weight in the Index of Industrial Production (IIP) and the performance of these 8 core sectors in September was the lowest in the last one year.

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This disappointing news comes on the heels of a sharp decline registered in the factory output in the month of August. Factory output data measured as Index of Industrial Production (IIP) registered a decline of 1.1% in August, a seven-year low. The IIP had registered a decline of 1.7% in November 2012.

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