Myth of Fiscal Consolidation

It is disheartening to see a great plethora of shit of hate material is traded through digital and social media to malign the poor who have been offered free ration in the severely hit double waves of Corona pandemic. It is a pity that the poor, the marginalised and the deprived, by whose votes the politicians enjoy the benefits of power and royal facilities, put their lap dogs on them to question their right to food security, clothings and shelter in a welfare state. But there are sensitive lots like us who keep eye over the lap dogs, the shit transporters and couriers to respond after thorough research and analysis to place the facts. I have always been doing so as an enlightened and aware citizen to put the record straight -- this time with new data and additional facts. 

India got independence in 1947. Between 1947 till 2014, ie, for 67 years, India’s total national debt was Rs 50 lac crore. Between 2014 till 2020 i.e, in 6 years, India’s additional national debt is Rs 44 lac crore. (Note the word additional, i.e, Rs 44 lac crore on top of Rs 50 lac crore, total Rs 94 lac crore!!!)

Allow me to show how our national economic system has been screwed. I know the shit transporters will jump into the argument of - “ these funds are used for national development”, so let’s check a few more pieces of data.

2014- 2015: Corporate loan write off - 26,107 Crore

2015- 2016: Corporate loan write off - 39,131 Crore

2016 - 2017: Corporate loan write off - 54,152 Crore

2017- 2018: Corporate loan write off - 1,29,304 Lac Crore (Note this year when GST came into existence, This is exactly when write off almost doubled)

2018 - 2019: Corporate loan write off - 1,83,168 Lac Crore

And before you chose to argue “write off’” is not “waiver”, write off will be recovered by the bank - this is for you.

Here the problem is not GST - but poor implementation of GST. Too much chaos across all sectors. For example, the Construction sector, GST was max 28% and min 5% based on products. Result - due to this huge variation, turnover went downhill. After the Confederation of Real Estate Developers' Associations of India (CREDAI) appealed to FM, GST was revised to 18%,12%,8%, and 5%. During this transition period - the entire industry which contributed 11.5% of Indian GDP went into loss, pushing 33 million people jobless (unofficial figure may be higher).

Our general debt ratio was 66% in 2010 even during the peak recession. However, it went up to 73.9% in 2019 when there was no recession or pandemic at all. After the pandemic, it raised up to 90.6% in FY21.

Before the pandemic, 22.9% of govt revenue was paid towards interest for borrowings, after the pandemic it raised to 28.5%.

Please note that I haven’t even mentioned Demonetization here, which is a major economic disaster. I have so far discussed only tax reforms, write-offs, and borrowings.

This is one reason why the government is not able to implement a majority of its announcements. For example -Vaccination drive. In the Budget speech, Feb 2021, FM announced Rs 35,000 crore to vaccinate 80 crore Indians. But then the government realized it doesn’t have funds. So GOI announced they will vaccinate only the 45 to 60 age group. and state government should vaccinate the 18 to 45 age group (which is basically 60% of the Indian population) with state government revenue. Please, note we haven’t vaccinated below the 18 age group. So technically, GOI has funds to vaccinate only 10–20 % of the Indian population.

Few may argue that GST collection is increasing year after year, which is true. I agree. But my basic question is - is it benefitting the Indian citizens and economy in general?? - Actually not. I have already highlighted above that corporate loan write-off has doubled since poor GST implementation. Apart from that, GST is not applicable for fuel price - petrol and diesel. Hence price keeps fluctuating. Since April 2021 - petrol and diesel price has increased 11 times.

When diesel price increases, MRP of products also increases proportionately -- as products are moved across the country through road transport.

Let’s check basic consumer product MRP increase between May 2020 and May 2021, source The Indian Express

Hence “ increase in GST collection” is not a celebration. It technically means you and I are paying roughly max 55% extra to purchase the same amount of product. An increase in MRP results in increased GST collection.

This is why the Indian economy isn’t booming despite the record GST collection.

So what’s saving India from getting bankrupt.??

India’s forex reserve - Its value has kept constantly increasing. By Sep 2020, it was $556 billion. By Jan 2021, it was $584 billion. By May 2021 - it’s $593 billion. This is not because our economy is performing better, but because the world economy is performing poorly.

The troll suppliers are taking on the poor as to how they could afford expensive mobile phones and two-wheelers. Market is flooded with second, third and fourth hand mobile phones. Like me many also gifted such mobiles to their domestic helps worth anything between Rs 2000/- to Rs 3000/- long ago even before the outbreak of pandemic. Many daily wage factory workers sold their mopads and valuables in pandemic distress to get money to travel 100s of Km on roads in scorching heat. My maid cried in desperation, "What can we expect from a government that couldn't give a bottle of water when we were on roads. We are given free rice, flour and daal but we are buying Rs 200/- + a litre oil and equally expensive cooking fuel, veggies and spices from the open market today. Some fortunates are alive because of people like you….No cash in hand given by the government".

The current slowdown in the economy originated in the unorganized sector which has been declining since demonetisation and mindless thrusting of GST without doing proper homework. Yes the economy was further hit by GST and then by the Non-Banking Financial Company (NBFC) crisis as NBFCs are facing a liquidity crunch, the high cost of capital, and burgeoning bad loans. NBFCs are engaged in the business of loans and advances, acquisition of shares/stocks/bonds/

debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance etc.

NBFCs are a shadow banking sector that borrows money from banks or sell commercial papers to mutual funds to raise money. They on-lend this money to small and medium enterprises, retail customers and so on. When NBFCs don’t have money to lend, that reduces the credit flow to the economy, hits economic growth and causes many borrowers to default on loans.

In a recent report, Moody’s said the inability of borrowers to repay loans amid the Covid-19 crisis, coupled with a six-month moratorium on repayment allowed by India’s central bank (RBI), will lead to a disruption of inflow for NBFCs, even as outflow will have to continue.

It all began in September 2018, when Infrastructure Leasing & Financial Services (IL&FS) one of the NBFCs collapsed as it defaults for the first time on repayment of commercial paper (short-term borrowing) and inter-corporate deposit (unsecured borrowing) worth Rs 450 crore ($60 million) and thereby bringing India’s $370 billion shadow banking sector to its knees.

Attempts to force digitization is further damaging the economy. This has led to the demand shortage which is now also impacting the organized sector. To revive the unorganized sector, a simpler GST (which I have been proposing) is required and credit availability to this sector improved. Businesses in this sector are short of working capital and cannot cope with GST even though they are exempt from registration under GST. The farming sector is a major component of this sector and needs support because the farmers’ incomes have been affected adversely. All this has impacted employment generation adversely. So, investment in employment generating sectors like, education, health and rural infrastructure, needs to be greatly stepped up. These need to be the government’s priorities.

It is time the lap dogs should cease transporting filth in social media to mislead the people in order to build Modi's personal brand further and ever further. The lapdogs also need to practice restraint. All the chamchas must know now that no importance is left in massaging the monumental ego of their leader. His ego prompted him to ensure his mugshots mostly everywhere … except on people's death certificates.

Modi desperately needs a team of learned financial advisors to bring the nation out of the economic crisis.