Structural reforms needed

AuthorPublished: 16th Sep 2019  12:10 amUpdated: 15th Sep 2019  11:56 pm

Finance Minister Nirmala Sitharaman has administered yet another round of booster dose— this time focusing on housing and exports sectors—as part of policy interventions to revive the ailing economy. These measures may, at best, serve as a palliative providing temporary relief but cannot be expected to be a panacea for the larger structural ills plaguing the economy. The Rs 20,000-crore stressed assets fund for completion of 3.5 lakh houses in the affordable and middle-income segment, provided they are not already a non-performing asset or facing insolvency proceedings, can have very little impact and is unlikely to revive a sector that has been badly hit by the growth slowdown. The latest initiative could mean just scratching the surface, given the grave crisis staring at the real estate sector. The new fund will not solve the problem of delayed or stalled projects as a majority of the incomplete residential projects are under litigation or are already non-performing assets. With real estate developers under severe stress, many housing projects are stuck, leaving home-buyers in a quandary. The larger issues of demand creation has not been addressed in any way. It is estimated that as many as 5.60 lakh homes are stuck or delayed across the top seven Indian cities. These stalled projects are at the center of slowdown in the property market and key reason for mounting default risk of developers.

Apart from unveiling a revised incentive package for exporters in sectors like textiles, the Centre announced plans for hosting mega shopping festivals in four cities in March next year in sectors like gems and jewellery, yoga, tourism, textiles, handicrafts and leather, on the lines of the one hosted by Dubai. This might help generate some buzz but it is doubtful whether any substantial outcome can be expected in the times of gloom. Despite a string of fire-fighting measures, unveiled by the Centre recently, there are no signs of the investments or consumption picking up. Five straight quarters of slowing growth reflects the longest slump since 2012 while the GDP plummeted to a six-year low of 5% in the April-June quarter. The weak domestic consumption, especially in rural areas, resulting from low employment levels and non-availability of finance are the twin issues warranting urgent attention. There is a need to rationalise taxes to bring economy back on track and spur consumption growth. A board cut for income tax, corporate tax and GST will provide fiscal stimulus which works much faster than infrastructure spending plans that take longer time to implement. By the time the government borrows, the contraction may set in. The policy framework has to move away from the high tax rate and low compliance to a low tax rate and high compliance.

 


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