Navratri Sales, Festival Offers Are Here. Will They Help Economy?
No, timid, half-hearted spending measures won’t help Indian economy. We need a coordinated effort by the Centre.
As a celebrated hypochondriac and paranoid germaphobe, I stopped taking newspapers as soon as the novel coronavirus came to India. But then came a day when I spilt an entire jug of milk on the floor and there wasn’t a page of newsprint in sight to sop it up. I told my newspaper guy to start delivering again, but only one paper, instead of the five that I used to take BCE (Before COVID Era). What surprised me was how light India’s leading newspaper had become. It simply didn’t have enough ads.
Last week, I felt a surge of optimism, when I saw that the first five pages of my newspaper consisted of full-page ads. True that these were all e-commerce advertisements offering festival discounts, but it made me feel that all was well, once again.
If the latest reports are to be believed, then the e-commerce guys spent their money well. Festival sales have boomed. Amazon and Flipkart say their sales till now have been much higher than they expected.
Of course, there is a pent-up demand playing out right now. People couldn’t spend for many months because of lockdown restrictions. Some held-back purchases to make the most of festival-season discounts. But the big volumes suggest that people are beginning to get back some confidence about their future.
Reasons For Rise In Vehicle Sales
The huge jump in car and two-wheeler sales is also an indicator that most consumers are preparing to get back to work in offices and shop-floors. There are two key reasons for this:
- The first is that anyone who wanted to buy a car or replace an old one, had to wait for the lockdown to end. These people have begun to buy cars, bikes and scooters since August. Of course, big discounts have helped.
- The second reason for private vehicle sales to go up is because people want to avoid using public-transport for the next few months, if not longer. Even those who had switched to Uber and Ola and ride-sharing, reserving their own cars for family outings, are driving to work.
While the ride-hailing businesses have shrunk badly, and sales of models like Dzire Tour and Innova have dropped sharply, the return to self-driven cars and bikes has boosted fuel sales. Petrol sales in September increased 3 percent compared to 2019, and even Diesel sales have risen 9 percent in the first fortnight of October.
What’s The Reason Behind Consumer Confidence?
One key reason for the recovery in consumer confidence is that COVID infections appear to have peaked in India. The number of new cases and deaths is dropping every day, although experts warn there could be a temporary surge during the festival season. Most people have now reconciled to the fact that the coronavirus is here to stay and life will have to be lived through it.
The other big reason is that the Modi government has become more accommodating. The vexed issue of interest on interest on delayed loan repayments has now been settled.
The government will pay it for anyone who has taken a loan up to Rs 2 crore, and not been able to pay EMIs on time. Government employees will be able to encash their leave travel allowance, as long as they spend three times the amount on buying goods that attract a 12 percent GST. This might not be good news for everyone, but it will definitely count as money for jam for those who were already planning to make big-ticket purchases.
The biggest economic peace-move made by the Modi Sarkar is the one on GST. After refusing to budge for several weeks, the Centre has now agreed to borrow Rs.1.1 lakh crore on behalf of states, to make up for the shortfall in GST compensation. This will ensure that the entire debt can be raised at a single rate of interest, and given that the central government has much more heft in the credit market, the loan itself is likely to be cheaper.
‘Suffering’ Of Central Govt & State Govt Employees
However, all these are still half-measures. Take the case of the leave travel allowance scheme. The government’s stipulation that people must spend three times the standard ticket-price to get the benefit, will find few takers. Employees should have been allowed to monetise their LTA and leave, without any caveats on spending. Critics say that this is nothing but a surreptitious subsidy to big consumer-durables manufacturers, especially since the money has to be spent on GST-levied goods.
Government employees say that it would be better if the government implements the Dearness Allowance (DA) hike that was announced early this year, but was frozen due to COVID.
Since government salaries take a long time to be revised, they are payed DA or an inflation-tagged increment, so that real incomes don’t fall, even when they are not significantly rejigged. This year, the Modi government had announced that DA will be raised from 17 to 21 percent, but it was walked back later. This has hit government employees badly, especially since retail-inflation has shot-up in the past few months.
Central government employees are still better-off. Many state governments are so cash-strapped that they are finding it very tough to pay their staff.
This is one big reason why states have been so belligerent about GST. The one-nation-one-tax regime meant that states were left with only taxes on fuel, booze and land. The lockdown has impacted all three. Liquor sales have dropped by nearly 60 percent since April. Petrol consumption in the first half of this fiscal is down 21 percent, and diesel is down 25 percent.
Indian Economy Needs Bold, Out-Of-The-Box Steps From Govt
This means states desperately need their full GST dues to be able to sustain their budgets. Even here, the Centre’s offer to borrow on their behalf solves only half the problem. Government estimates suggest that there’ll be a Rs 3 lakh crore shortfall in GST collections this fiscal.
The Centre claims that only Rs 1.75 lakh crore out of this is because of the shift to the GST regime and the remaining is a result of the recession caused by COVID. So, it wants states to live with less money.
This is a dangerous attitude, which will have negative repercussions on the economy. There is a broad consensus now, except amongst die-hard neoliberals, that the only way for the global economy to recover is for governments to spend much more. The Modi government has already shown that it is excessively cautious when it comes to giving any fiscal stimulus. By not giving state governments what the GST regime promised them, the Centre is also tying the hands of state governments when it comes to spending more.
The first half of this fiscal has already gone, and India needs some bold out-of-the-box steps from the government so that we are back in shape by the time the next fiscal comes.
Timid, half-hearted spending measures will not work. What we need is a coordinated effort, where the Centre makes all stake-holders – state governments, corporates, farmer and labour unions, employee associations, consumer groups – equal partners in coming up with a plan to tackle the slowdown. This will mean embracing the worst critics and taking their best ideas. After all that is what real statesmanship is about.
(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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