Shivaji Sarkar
A booster dose of about Rs 6.28 lakh crore stimulus to push credit is supposedly the official recipe to rev up the economy but the market response looks muted.
The banks are expected to lend about Rs 2.67 lakh crore to fund the Covid-19 hit businesses. The lending does not help when moods are down. The actual infusion is Rs 1.5 lakh crore. A key element of injecting cash in the system that helps the poor remains elusive. India must demolish the digital Berlin Wall that the IMF suggested in 2019. Eight lakh Jan-dhan accounts are beneficiaries of PM Kisan funds of Rs 6000 each, totalling Rs 480 crore.
The share market continued with a bear hug for four days before closing with a rise of 166 points on Friday, July 2, 2021— not a big deal but like most Fridays, it breaks the monotony into a visible surge for record's sake. The concern is that institutional participation in the stock market has declined to a 15-year-low.
Finance Minister Nirmala Sitharaman's largesse is a difficult move by a government with a severe financial crunch shadowed by galloping inflation. The FM should have rectified the fuel prices as well. Her advisers are not unaware that the central and state governments are the biggest fuel guzzlers and the highest taxpayer to their own kitty. It merely window-dresses the coffers. The outgoes in reality are more.
Another set of advisors harp about road tolls, fees user charges, and high rail and transport fares must rip the roof for speedy development forgetting that it is eroding the very base of the economy – the people's purchasing power. By June, eight lakh people got their jobs restored but most of them are on lower wages which does not help augment purchasing power. The incomes of 97 per cent of households have declined since March 24, 2020. The government's free food dole sustains people.
The CPI index could plummet many points if petrol and other fuel prices are cut to around Rs 40, vehicles are not scrapped in the name of pseudo-pollution concerns, transportation charges get reduced, and high-handed police dealings with the people for enforcing Covid-19 protocols are done away with. The police deals have hurt the shops, vendors, many offices, The government need not be a welfare nation but at least it could be humane.
The banks are also shaking the confidence of the people. Would more privatization mean more outgo from the government and more miseries? Despite the government's credit-driven stimulus to help tide over the impact of Covid-19, bank credit growth hit a new low for the second year in a row in FY21. It is lower than the financial year 2020 when it grew by 6.14 per cent.
The CMIE says year-on-year growth numbers look impressive for the private sector on a low base effect. The cost of continuing uncertainties is said to be heavy on actual investment. New investment announcements continue to be at low levels. The government itself is wary of investments because of strained finances. It has led HSBC to moderate GDP growth to eight per cent, lower than RBI estimates of 9.5 per cent
The industry fears that as the government largesse would depend on higher credit from the market, lending for them would be costlier. The RBI itself has indicated of a rate rise by the next quarter or so and is pessimistic about growth. The silver lining is that the Nomura India Business resumption index hints at recovery from a sharp collapse on May 23 at 60.3.
The market concern is reflected over the drop in the flows from foreign and portfolio investors to the stock market due to elevated share valuations. In other words, there are apprehensions about actual equity prices. In June, their market share dropped to 30 per cent against retail investors of 70 per cent. The average portfolio investment was around Rs 25,200 crore a day at NSE and BSE, an extreme low.
Meanwhile, the banks with a piled-up debt of Rs 2 lakh crore and a quarter of the country's non-performing assets may not resuscitate the economy. So the stimulus theoretically pushes expenditure to about Rs 36.6 lakh crore. It may not exactly materialize. The net push may be far less and may result in lesser flows to the purchasers though it might push the official deficit to 7.5 per cent whereas in actuality it may be a few notches higher. Many companies and units are closing down and even the government is downsizing as costs go up with inflation.
(The writer is a senior journalist. The views expressed are personal. )
