Stimulating sops

Stimulating sops
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Highlights

Indian economy is not in good stead. That’s an undeniable truth though those in the Central government may not fully agree with such an assessment. The country’s Gross Domestic Product has been sliding for the past 15 months and hit a three-year low of 5.7 per cent in the first quarter of the current fiscal. Industrial production is not encouraging either. So are exports.

Indian economy is not in good stead. That’s an undeniable truth though those in the Central government may not fully agree with such an assessment. The country’s Gross Domestic Product has been sliding for the past 15 months and hit a three-year low of 5.7 per cent in the first quarter of the current fiscal. Industrial production is not encouraging either. So are exports.

The Index of Industrial Production ended up in negative territory and contracted by 0.1 per cent in June this year. It was for the first time in four years that the key component of Indian economy entered the red zone. Though industrial activity picked up in subsequent months and IIP inched up by 4 per cent in August, the upswing was largely driven by the transient festive demand.

In this backdrop, Finance Minister Arun Jaitley’s big ticket announcements on Tuesday to boost economy, did not come us a surprise for many. The mammoth Rs 2.11-lakh cr recapitalisation plan for public sector banks is need of the hour. Majority of PSBs are battling burgeoning non-performing assets. As per estimates, the banking sector is weighed down by bad loans worth Rs 8 lakh crore and of that, PSB banks alone account for Rs 6 lakh crore.

No doubt, the massive recapitalisation plan will strengthen their balance sheets over the next two years. The Centre further enhanced the booster dose by announcing a staggering outlay of about Rs 7 lakh crore for the construction of highways over the next five years.

But Jaitley’s latest sops in a way squarely contradict what he has said during his recent trip to the US. The Finance Minister unequivocally brushed aside reports which said a stimulus package was in the making. He went on to tell the world that all was well with the Indian economy and there was no need for any stimulus at this point of time. On Tuesday too, Jaitley claimed that the economy was on a firm footing and macroeconomic fundamentals remained strong.

Anyway, it is good that reality has finally dawned on the Modi government that all is not well with the economy and things will go out of hand if it doesn’t act fast. BJP which secured a historic mandate in 2014 will receive a serious drubbing at the hustings if the economy is not in good shape by mid-2019.
But will Rs 9 lakh crore booster shot bring the economy back on track?

That’s a trillion-dollar question though. The ill-advised demonetisation in November last year took a heavy toll on the economy. GST, which was hurriedly implemented from July this year, has compounded the woes, pushing the economy into a fragile zone.

As a consequence, industries are operating at just 60 per cent of their capacity. In this scenario, private investments may not pick up even if banks, flush with funds from recapitalisation, offer more credit.

However, the massive highway construction plan may come in handy as it is expected to generate 14.2 crore man-days of jobs, a much-needed requirement at a time when new jobs are drying up. Still, the Centre has its task cut out when it comes to spurring growth!

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