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'Economic package is like an onion'

Last updated on: May 22, 2020 10:21 IST

'You peel one layer, then another layer, then another, but in the end, you will see that there is no onion inside.'
'This package has been packaged well, but there is nothing much inside the package!'

IMAGE: Finance Minister Nirmala Sitharaman announces her fifth and final tranche of the Rs 20 lakh crore economic stimulus, May 17, 2020. Photograph: PTI Photo
 

"Aatma Nirbhar Bharat is like our Skill India or Make in India or low-cost housing. Everything is in PowerPoint for this government. The intention of this government is good, but when it comes to execution, nobody wants to find out whether it is being done," M R Venkatesh, chartered accountant, lawyer and commentator, tells Shobha Warrier/Rediff.com in the concluding segment of the two-part interview.

Maruti's managing director remarked that there was nothing in the stimulus package to create demand. Even before the lockdown, we had seen there was no demand in the market.

See, there is this solvency issue, and also the liquidity issue, but the package has ignored the solvency part assuming that the entire problem is liquidity.

The biggest liquidity part is this Rs 3 lakh crores. They say that banks will have to lend to all those who have borrowed up to Rs 25 crores, an extra lending of 20% which is Rs 5 crore.

If I have to take Rs 5 crores from the bank without collateral, as the government says, it is giving a guarantee to the bank.

The fact is that the bank manager and the borrower must sign the loan document and till today, they have been waiting for the necessary guidelines from the RBI.

If a banker is going to lend Rs 5 crores, he will also like to know what is the margin that the borrower is going to bring in and whether there is a relaxation in the margin.

For example, if the bank puts in Rs 100, it expects Rs 33 from the borrower. Does that mean the bank is going to put Rs 5 crores into our account, and we are expected to add 25% of that into our account?

Nobody is sure about this.

Now everybody knows, in the next six months to one year, the economy is going to be down. And if we are not able to repay this Rs 5 crores in the stipulated period, and if our accounts become NPA, who will be held responsible -- the government or the bank manager?

Had this package said that they would not charge any bank manager criminally for anything that went wrong, the bank manager would have taken the risk.

But the government cannot officially say this. And unless that assurance is given officially to the banker, s/he is not going to lend.

It means, back to earlier times. Even after all the much-hyped recapitalisation, the lending cycle did not start...

Yes. The problem for the banker is we are not solvent.

Giving us liquidity may solve the liquidity position temporarily, but six months later, if we become insolvent or our solvency decreases, the banker will not be able to lend, and s/he will find reasons not to lend.

So, it is back to the same problem because the government has addressed only the liquidity issue, and not solvency.

Solvency will improve only when demand is addressed, and demand will increase only when certain tax cuts are introduced, and the middle class is enthused to buy.

Unless they have money in their hands, they are not going to do it.

So, this is going to be a vicious cycle. Unless we take some bold steps, we are not going to get out of this.

The government wants the banks to lend money to the MSME sector without collateral. The government also wants the banks to give Rs 10,000 each to 50 lakh street vendors...

Not only the MSME sector, there are sector after sector that are suffering, but they are not in the MSME.

Like the hotel industry, the aviation industry, the tour operators. All of them are going to face a huge crisis; in fact they are already in a crisis.

And 95% of those employed in the formal and informal sector are not going to get their salary in May.

So, whatever little money they have, they would like to pay the school fees or buy medicines for their parents.

In a situation like this, they will not spend on a TV or a fridge or a washing machine. All these buying will stop, and this will have a cascading effect on the income and demand.

Experts say that out of the Rs 20 lakh crore stimulus package, only Rs 1.5 lakh crore will have any impact on the economy. Do you feel so?

I have prepared a chart which I looked into with my colleague.

Surprisingly, it shows that only around approximately Rs 2.75 lakh crores is spent by the government.

The rest are all liquidity measures through the RBI or the banks, or guarantee.

And in the money spent by the government, some of it are part of the Budget and already front loaded.

So, right now, the government may be spending around Rs 2 lakh crores only.

And if this is the amount that we are going to spend to stimulate the economy, which is just 1%, I am sorry to say an economy of this nature needs much more government intervention.

Like?

Like a huge amount of tax cuts in GST, huge amount of expenditure cut by the government and putting money in the hands of the people.

You may have to think about the fiscal deficit that increases. They have asked the states also to increase the fiscal deficit, but the problem is, states have very little role to play in projects apart from health.

The states do not have the wherewithal to do any projects.

States like Tamil Nadu use approximately 50% of their budget on paying salaries and 18% on interest.

So, 2/3rd of the budget is spent on salaries, pensions and interest. So, where is the headroom to spend?

Like America did after the Great Depression, the Centre should have started massive government funded projects like interlinking of rivers, housing etc. But to do that the government does not have the delivery mechanism.

Like in the Budget, in the stimulus package also, the finance minister is talking about public private partnership, the PPP model. Who is going to be part of this?

Any private sector that wants to commit commercial suicide will enter into PPP with the Government of India. Several of our PPP projects are stalled again due to inefficiency in our systems.

(Union MSME, Roads and Highways Minister) Nitin Gadkari on record said that Rs 5 lakh crores of money of MSMEs is lying with the government. And they are not releasing the bill.

And we are talking about Rs 3 lakh crore liquidity. Why is the government not releasing the money?

Because every bureaucrat thinks it is his golden duty not to pay.

If the MSME is not getting money from the government, that's the end of the matter.

Is this the way to treat a sector that contributes 30% of the GDP?

MSME is the link between the rural farm sector and the corporate world.

It absorbs products, it absorbs people, it absorbs technology.

MSME is the blood of our economy. If we are choking it, we are choking the entire system.

You want entrepreneurs and have slogans for them, but you are choking them to death.

During the socialism era, entrepreneurs were looked at as villains.

After liberalisation, we looked at domestic entrepreneurs with disdain.

The fact is, we don't care about entrepreneurs.

Bureaucrats think that entrepreneurs are evil and need to be controlled, monitored or regulated.

Unless the bureaucracy is reigned in, removed and we close down departments and ministries, nothing is going to change.

I will give you an example that shows how pathetic we are. Some foreign buyer ordered matching masks with garments from a manufacturer in Tirupur, but he was told he could not export masks from India.

The buyer did not want to take the consignment unless the matching masks were there.

The manufacturer represented to the textile ministry which referred the issue to finance. From there, it went to commerce, and then to the PMO.

The matter got revolved after 30 days what should have been resolved in 30 minutes.

In the last 30 days, it was going in circles; our response is, from one joint secretary to another joint secretary.

In the meantime, the buyer will get what he wants from Bangladesh or Vietnam,

Yes. These are times when decisions are taken and orders are placed on WhatsApp.

The stimulus package is to make India Aatma Nirbhar Bharat. Is this government more into sloganeering than proper action?

That is the problem.

Aatma Nirbhar Bharat is like our Skill India or Make in India or low-cost housing. Everything is in PowerPoint for this government.

The intention of this government is good, but when it comes to execution, nobody wants to find out whether it is being done.

They say India has improved the rating in ease of doing business. We can ask any entrepreneur whether ease of doing business has improved. There seems to be a huge mismatch.

We talk about single window, but somebody told me that you need 58,000 approvals to start a business.

How do you describe the stimulus package?

My heart says it is an excellent package, but my brain says it does not take the country forward, especially in the crisis.

Why does your heart say it is excellent?

Because the heart cannot think! Because the heart cannot question. Because the heart cannot make any calculation. Only my brain can.

My brain says, don't waste your time on this.

And, the marathon presentation of the package spanning five days by the finance minister?

It is more like an onion.

You peel one layer, then another layer, then another, but in the end, you will see that there is no onion inside.

This package has been packaged well, but there is nothing much inside the package!

This is the fundamental of marketing. When you don't have a good product, you tend to package it well.

The packaging was done as if something big was coming, but there is nothing inside; the package was just a package.

SHOBHA WARRIER