The Stimulus Package: Time Will Tell Whether It's A Bandookh Or Bazooka
The sectoral reforms announced over the past few days are well-intentioned and showcase application of energy, thought and a deep desire to reform. It takes huge self-confidence politically, to step into simultaneous reforms across multiple sectors. Some of these reforms are large-scale and will benefit crores of our citizens. Some of the reforms will bring in transparency and better pricing power to local stakeholders.
For any such large-scale initiative, the devil is in the details and execution becomes the supreme key. It has to be seen if the vision of using this crisis for structural reforms and to strengthen the economic base to be a global player of size and scale is effective, with the policies that will now be written. The policies also have to stand the test of the courts for any future disputes. And going by past experience, we also have to use Wren & Martin for well-worded policies. In today’s interconnected global economy, policy formation begins with multi-stakeholder dialogues and progresses to the policy framing stage.
Announcing major reforms in lieu of direct economic and fiscal stimulus plans does not augur well from the investors’ point of view, which reflects in market sentiments too. Any debate or arguments showcasing a comparison with other countries, who too have done less fiscal inducement and more of reforms, won’t cut much ice. After all, our economy had been in slowdown mode for the past two years. If we don’t survive to live another day, we cannot enjoy the anticipated future.
In an unprecedented crisis like this one, an analogy is not that of elective cosmetic surgery, but that of ICCU treatment and urgent emergency surgery to “save life and limb”. The assumption is that the economy is the patient who needs treatment.
Some lessons from the package announced:
Intent ≠ content
(Objective, plan, execution are different things. Time will tell us the efficacy of the plan and the effectiveness of the execution.)
Tax rate cut ≠ Liquidity
(Tax is paid only upon demand for a product or service. So notional savings don’t induce additional liquidity.)
Subsidy extension ≠ Investments
(Investors’ sentiments don’t increase with consumers getting subsidies. And fresh investments cannot be sought on the back of such subsidies; especially for affordable housing realty where the slowdown has been around for long and structural reforms of fast- tracking construction approvals are still awaited.)
Credit guarantees ≠ Liquidity
(CGs are at best, moral pressure on the banking system, to lend. And we have banks which have been risk averse and are holding onto excess liquidity, without lending.)
So far, but for small amounts of actual fiscal stimulus to be provided by the GoI, the rest of the packages don’t heal the patient. Where is the stimulus for generating either consumer demand or investor sentiments? Reforms take time to placate past failures and the scary memories of stable regulations or policy quagmires.
“Don’t worry about surgery (finances); I will give you ‘moral’ support”.
We cannot have a scenario where the “Operation is announced as successful but the patient does not survive or goes into a vegetative state!
We still need to flush liquidity into the hands of the borrowers; and the challenges of the risk-averse banking industry continues. We need to put monies in the hands of the weaker section of the community, till we are able to drastically improve our Public Distribution System (PDS). We have a responsibility of taking our weaker brethren along in our nation’s journey ahead. Development needs funding. And inclusive development needs even more funding.
Well, now, don’t shoot the messengers. The message or the writing is all over the wall (including social media).
