Narendra Modi meeting Arun Jaitley today; here’s what they should discuss to prop up economy

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Published: September 19, 2017 12:32:25 PM

Prime Minister Narendra Modi will meet Finance Minister Arun Jaitley and other officials today to take stock of the economy and discuss remedial measures to bolster economic growth, the ways to create jobs and steps to spur private investments.

The government is reportedly actively looking at options to stimulate the economy, after the fiscal first quarter (April-June) GDP growth fell to 5.7% year-on-year. (Image: Reuters)

Prime Minister Narendra Modi will meet Finance Minister Arun Jaitley and other officials today to take stock of the economic slowdown and discuss remedial measures. Earlier this week, it was reported that the government is assessing the need for stimulus to boost the economy, in the face of the slowing growth in an economy hit hard by the transition effect of GST, and growing concerns over non-tax revenues.

The government is actively looking at options to stimulate the economy, after the fiscal first quarter (April-June) GDP growth fell to 5.7% year-on-year, TV news channels reported. Here are the top five issues plaguing the Indian economy which the Prime Minister and the Finance Minister must discuss today, to prop up growth.

Economic slowdown: Earlier last month, the government figures showed that India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in Ap-Jun and pitting the country behind China on the list of world’s fastest growing major economies. The 5.7% fiscal first quarter GDP growth was much lower than the 7.1% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter. The slowing growth is sure to hurt the image of Prime Minister Narendra Modi as an effective manager of the economy, and may even hurt his personal popularity ahead of the impending Lok Sabha elections of 2019, which are barely 18 months away.

GST hiccups: The government sought to put a major part of the blame for the economic growth slowing growth in April-June on GST, saying that very high level of inventories drawdown and destocking happened as businesses rushed to clear the stocks ahead of the implementation of the ambitious tax reform. Further, there is still widespread confusion among the taxpayers with regard to the implementation of GST, what with the GST Network — the system supposed to handle the filing of the returns — running into snags due to the rush of filing invoices. Moreover, in incidents scattered across the country, the taxpayers are also learned to have troubles understanding exact tax liabilities and processes required to file their returns. Meanwhile, in the first month of the implementation of GST, while the government’s collection was high at nearly Rs 95,000 crore, the net revenue was muted, considering the high input tax credit claims at Rs 65,000 crore.

Demonetisation: Narendra Modi and Arun Jaitley might also do well to take a stock of the real gains or losses that have accrued out of the unprecedented move of demonetisation. With the Reserve Bank of India reporting that 99% of the banned currency has returned to the system, the critics have questioned the whole point of the move which caused lot of pains to the people and hurt vital sections of the economy. Even as experts point out to the gains arising from the data available with the banks and the income-tax department now, Modi and Jaitley would do well to chart out a future course of action on how to make the most out of the situation.

Credit cycle and private investment: Credit is the engine driving the growth in a modern economy, or so say the experts. India’s credit growth is stifled, with the banks reeling under the pressure of mounting bad loans. Earlier May, the government notified an ordinance for speedy resolutions of NPAs in efforts to deal with the problem of India’s chronic bad loans, which have surged to to Rs 9.63 lakh crore. According to the RBI, top 12 bad loan accounts make up for Rs 2.5 lakh crore of bad debts, or 25% of the total. On the other hand, interest rates, which continue to remain high even now by various standards, discourage small and medium enterprises to take loans and fund growth. This, in turn, is slowing down employment, and is hurting the investment cycle. The government must look at the informal sector of the economy, and how to provide it access to the capital.

Government’s non-tax revenues: There is a growing concern over the government’s non-tax revenues this year, specially with it becoming more likely that it will not be able to meet its ambitious disinvestment target of Rs 72,500 crore. The government seems to be constrained with a limited fiscal space to boost growth, specially in the wake of lower earnings on the account of lower RBI dividend and spectrum receipts this year.

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