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    Remarks by Niti Ayog vice-chairman Rajiv Kumar forced govt to announce package this week

    Story outline

    • Though Kumar clarified his remarks on Friday, the view that uncertainty over the government’s response should not linger grew stronger.
    • The economic package, already in an advanced state of readiness, was given the final touches and word went out that finance minister Nirmala Sitharaman will speak to the media — a detailed briefing that lasted 100 minutes.
    Rajiv Kumar, Niti Aayog vice-chairman
    (This story originally appeared in on Aug 25, 2019)
    NEW DELHI: The big bouquet of measures to boost the economy announced on Friday was to be unveiled early next week, but was advanced after a controversy erupted over Niti Aayog vice-chairman Rajiv Kumar’s remarks of an “unprecedented” liquidity crisis in the financial system.

    Though Kumar clarified his remarks on Friday, the view that uncertainty over the government’s response should not linger grew stronger. The economic package, already in an advanced state of readiness, was given the final touches and word went out that finance minister Nirmala Sitharaman will speak to the media — a detailed briefing that lasted 100 minutes.

    A standout feature of the initiatives — a refusal to offer tax cuts — reflected a strong consensus in the government that the stimulus demanded by sections of the industry would not pass muster. Rather, it was felt such sops are “irresponsible economics” and would signal the government’s weakness in the face of pressure tactics with a misplaced remedy likely to worsen the problems of a sluggish economy.

    “We had cut rates for the housing sector previously. It failed to revive the sector. Some sections were trying to build a scare scenario that the economy was stalling in order to stampede the government into announcing tax concessions. The government felt it was more useful to ease credit and address structural issues,” said an official, adding tax cuts were a thick red line that would not be crossed.

    While revenue considerations too could have played a part, an exception was made in case of the surcharge on institutional investors, both domestic and overseas. Although it was the foreign portfolio investors who were at the centre of protests over the surcharge introduced in the Budget, the government was of the view that there should be a level playing field even for Indian players. The concession will result in a revenue loss of Rs 1,400 crore.

    Before the package, a detailed analysis of sectoral issues convinced the government that while there were urgent problems in terms of a skittishness in banks over lending — a situation worsened by the NBFC crisis — and nervousness in business circles over tax officials adopting coercive measures, obsolescence and lack of competitiveness were significant factors in the slowing demand too.

    The case of Parle Products, makers of Parle-G biscuits, retrenching thousands of workers made for bad optics but also raised concerns whether the firm’s woes were more due to a failing product or a genuine dip in consumption. The auto sector was seen to have limited traction in the export market while even foreign carmakers offered relatively inferior products in India. The clamour for a reduction in GST rate, therefore, went unanswered.

    The government instead decided to address “pain points” with regard to government procedures, retail credit, banking processes and its own procurement policy intended to create demand. The government, in meetings with tax officials and industry, stressed that it is not out to wage war on business, a point emphasised by Prime Minister Narendra Modi in his Independence Day speech. It was a reassuring message to the industry and markets.

    The promise to move to a faceless assessment system and change the income tax language and procedures is part of the makeover of the tax system which officials hope will go beyond cosmetic changes. The decision to experiment with prefilled I-T returns is also intended to instil confidence in consumers as is the move to allow digital KYC for opening of bank accounts.
    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

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    2 Comments on this Story

    Hemant Pisat402 days ago
    The procedural amendment and biased tax reduction may not fetch the desired outcome, as the structure, the TAX STRUCTURE is the most regressive limiting the possible revival in consumer and investor sentiment. It was not the tax doles were demanded by industry but legitimacy expected to push the sluggishness aside. Government officials sentiments are too bias, uncompromising & with lack of confidence in their own systems and procedures to meet desired results. They will remain like that, hence unfortunately people avoid & do not scale themselves up the ladder.
    Jai Bharat403 days ago
    Left hand doesnt know what the right hand is doing. Right hand here are babus when people slap the wrist on the right, then the left hand wakes up to take action ... left hand to slap people with jumlas and nothing else. This Govt has no clue what to do now all jumlas are getting over and no action. Best to blame outside world when a miniworld of 1.3 billion is within ourselves.
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