Government readies next round of measures to boost economy
The PMO and the North Block have been conducting a series of meetings with central and state government officials to boost revenue generation.
The Prime Minister’s Office (PMO) and top officials of the finance ministry are working on administrative measures and incentive packages to boost the sluggish economy as the government is “deeply” concerned about the steep fall in key economic parameters besides dwindling revenue collections, three officials aware of the developments have said.
The PMO and the North Block have been conducting a series of meetings with central and state government officials to boost revenue generation, which is a necessary condition for prospective stimulus packages to create demand and induce consumption to boost the economy, they said.
One of the officials said that liquidity is no longer a major concern and the government has addressed investors’ sentiments by announcing unprecedented cuts in corporate tax rates by sacrificing Rs1.45 lakh crore. The government could now shift its focus to fuelling demand and stoking consumption, he said on condition of anonymity.
On the demand side, discussions are centred around reducing income tax rates sans exemptions, prodding banks to offer attractive EMIs for auto and housing loans, rejigging real estate laws and tax structure and reducing compliance cost for builders on the condition that the same could be passed on to consumers, the official said.
The government is also exploring some incentive to perk up automobile sales, the official added. It is, however, finding it difficult to cut Goods and Services Tax (GST) on automobiles because states are unwilling to take about Rs 60,000-crore revenue hit, he said. Other proposals being discussed include raising public investments in infrastructure, particularly in rural areas, and asking state-run firms to front-load their budgeted expenditure, he added.
The government is expecting demand to pick up because of some recent decisions. The cabinet on October 9 raised dearness allowance (DA) of five million central government employees and 6.5 million retired employees by 5 percentage points, hoping that the Rs 10,600 crore-package will boost consumption in the ongoing festive season. “More such measures are expected, depending on the availability of funds,” another official said, asking not to be named.
According to a third official, intensive meetings on these issues took place at the PMO on Saturday and some of the meetings were also attended by finance minister Nirmala Sitharaman. The PMO met senior officials of various states on Friday, prodding them to share the responsibility of Goods and Services Tax (GST) collection, which dropped alarmingly in September, they said. The GST collection in September was Rs 91,916 crore, lowest in 19 months and below Rs1 lakh crore consecutively for the second month.
The officials said the decline in GST collections also indicates a slowdown in the demand of goods and services, which has a direct bearing on the economic growth. India’s annual GDP growth in the quarter ending June 2019 was 5%, the lowest in 25 quarters. It also marked the fifth consecutive quarter of slowing growth in the Indian economy.
The government is concerned about the declining GDP growth, particularly after the Reserve Bank of India (RBI) cut the country’s growth projection by 80 basis points (one hundredth of a percentage point) to 6.1% for 2019-20 on October 4. As per the latest official data, India’s factory output contracted 1.1% in August, the worst performance in about seven years, signalling a deepening economic downturn. The auto sector, a weathervane of economic sentiment and also industrial health, has been hit hard, with passenger car sales in September falling 24% compared to a year ago. It was the eleventh straight month of decline in the segment.
On the issue of resource generation, the government is relying on efficiency in public expenditure, augmenting tax collection and maximising disinvestment proceeds. The government may also deviate marginally from the fiscal deficit roadmap and borrow resources to boost the economy and make up for it in subsequent financial years, the officials said.
In an interview with Karan Thapar for The Wire on Thursday, Bibek Debroy, the chairperson of the Prime Minister’s Economic Advisory Council, said that the government could miss the fiscal deficit target of 3.3% of GDP set in the budget.
“The government needs resources to offer more stimulus as it is committed to bring the economy again at the higher growth trajectory. A series of announcements in this regard is expected,” the first official said.
The finance minister has already announced five rounds of fiscal, administrative and policy measures to stimulate the economy since August 23 and the biggest one was on September 20, when corporate tax rates were slashed.
“More stimulus means more money, hence the government is making efforts to augment revenue collections,” the second official said, adding that the government may also reduce personal income tax rate to boost consumption. But the move will depend on its implication on the overall revenue, the official added. Hindustan Times had on October 1 reported about the possible move.
In the interview, Debroy said “it (a personal tax rate cut) is inevitable” with elimination of exemptions. “When it will happen, it is for the finance minister to announce,” he said. A similar view was expressed by NITI Aayog vice-chairman Rajiv Kumar, as reported by NDTV on October 4. “I have heard that there are demands of personal income tax rate cuts and I am fully confident that the government is holding consultations and discussions on this matter,” NDTV quoted Kumar as saying.
The Prime Minister’s Office is constantly monitoring the country’s growth revival efforts and, on Friday, it cautioned states to share the responsibility of GST administration failing which they might face troubles after the compensation period is over in 2022, the third official said. It expressed concerns over falling GST revenue at a meeting with senior officials of states on Friday.
“It is also essential that GST revenues stabilise to ensure not only that states do not face fiscal stress when the compensation period is over in 2022, but also provide adequate revenues to finance development expenditure of states and centres,” an office memorandum of the GST Council Secretariat, issued on Thursday, said. Concerned about the fall in GST collection, the government on Thursday appointed a committee of central and state government officials to ascertain the reasons for the decline.