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About Economic Situation, Future Stimulus, Hopeful Sectors, MSP – FM Nirmala Sitharaman Counters Criticism

economic situation

The opposition twisted her statement and tried to ridicule her, and there always has been an effort to portraying picture of the economy not being in control under her leadership. However, without getting shrill, Finance Minister Nirmala Sitharaman confronted every criticism thrown at her with graceful counters. Her recent reply in the Parliament and interviews with The Indian Express and Hindustan Times have made things in the domain of economics clear. We have picked some of the main talking points from those interactions.

On the Opposition’s take on ‘Act of God’ Phrase

In the recently concluded monsoon session of Parliament, FM Sitharaman confronted this patronizing behaviour by saying that those criticising her “act of God” statement were acting with condescension towards a woman Minister. Ms. Sitharaman then went on to elaborate that it had the same meaning as the “force majeure” clause repeatedly invoked in legal arguments, and the opposition was unfortunately twisting words to portray false narratives.

On the Charge of Centre Withholding Money to States

The FM clarified in detail how the total transfer to States, tax plus grants, was higher in 2020 compared to the previous year. She also went in great detail to explain that even as Central gross tax revenue fell 30%, tax devolution to states has happened without any interruption, and has fallen only 12%. Grants were being frontloaded to ensure that States did not suffer.

On the Economic Challenge Posed by The Pandemic

FM Sitharaman opined that without a sure-shot vaccine and the inability to predict the end date of the pandemic, uncertainties persist among entrepreneurs. They are very worried about the extent to which they can they expose their staff and are worried about their access to raw materials in such unusual times. The relief presently is from the rural side where the pandemic has not spread that much as feared, and where economic activities have returned.

The State of Affairs In India’s Corporate Sector

Production and utilization of capacities are almost near pre-COVID levels. Many are getting their workers back, and in some instances for a slightly better deal. In some industries, the pickup in export of produce has been far better than the domestic pickup. Steel has seen a strong demand from China, and labour-intensive areas like textiles, hosiery, have started using their full capacities.

About Government Being Risk-Averse on Spending

The Aatmanirbhar package that the government announced for various sector three months ago is not a one-off affair; it is still rolling out. The scope and scale of the measures announced has expanded, and banks have been given more liquidity. FM Sitharaman also said that the government is also looking at simultaneously opening up and doing some systemic reforms, and that’s where the labour codes, your agricultural APMC factor in.

Beyond this, the FM explained that further spending is not a closed option. If the need arises for further stimulus, the government will consider.

The Signs in Revenue

Revenue pick-up is already being seen in GST collections alongside an uptick in some other state-level revenues. However, the assessment about the direct taxation is a bit mixed because it has to be taken on board that last September, the government had announced a drastic reduction in corporate tax. The impact of that will be seen in corporate tax collections — one of the main components of the Centre’s direct tax revenue. Income tax will also suffer on account of the Covid lockdown.

The Fears About Minimum Support Prices

MSP has been operational in this country for decades. The list of items has increased to about 23. However, during the Congress rule, the emphasis has always been on rice and wheat, resulting in distortion in acreage under these two crops at the cost of coarse grain, pulses, and oil seeds. The production of pulses, at least till 2014, was far less than what India needed, leading to a situation of net imports. Also, after crude oil and gold, edible oil is a significant import.

Between 2014 and 2016, the PM gave attention to ensuring India became self-sufficient in pulses. We were able to give MSP and bonus for pulse growers.

Further, government procurement will still happen. Where it has happened through an APMC (Agricultural Produce Marketing Committee), it will still happen through them.

Concerns About Enforcement Directorate (ED) Being Used for Harassment

ED on its own doesn’t book any case. The ED comes in when a case which the CBI is handling has a money laundering aspect to it. ED has very severe challenges. They need a Letter Rogatory issued for some fellow who’s gone away and who is in some tax haven with his money. That process itself takes more than 360 days. In the meanwhile, in the court, the chargesheet and the 90 days business comes in. In spite of these constraints being known, people pull up the EDm accusing it filing unsubstantiated chargesheets. This makes ED look like a trigger-happy entity.