The economy is going into shock and the BJP ministers seem flummoxed, confounded and in a state of denial. The economy needs big bang, "feel good" steps that lead to immediate gratification and less of slogans, medium term vision and rhetoric. The following six steps may help to defibrillate it:
- Shift the focus to immediate action. Focus on stimuli for consumption, growth and employment and not the fiscal deficit and five-year plans. Find ways to give tax incentives and restore confidence of the household sector.
- Cut interest rates by 200 basis points. (Not 25 or 50 basis points — such organic cuts would be of pedantic nature and best served to the economists, the classroom professors and the birds.) This should result in great consumer confidence. This will also reduce the IRR on projects and start the capex cycle revival.
- Make income tax rates for annual income up to Rs.1,000,000 (that's merely $15,200 p.a) tax free. This would give a family of four an opportunity to have Rs.4,000,000 income tax free and reverse the intense damage on personal disposable incomes of the household sector and create a consumption boom. It will also allow the government to focus on the high rollers.
- Rationalise categories, reduce the rates, the frequency of reporting and the number of slabs in GST. Reduce the 18% category to 15% and the 28% category to 25%. If the GST is effectively tapping black money and capturing the informal sectors of the economy, there should be no hesitation to lower tax rates. The concept of tax neutrality on rates is a bad premise if we believe that large taxes were being evaded earlier. The case for tax reduction is very strong.
- Allow Indian banks an extended period of 24 months to restructure loans while the economy is in a stage of recovery. GST and demonetisation have impacted economic growth and exacerbated the NPA issue. The entire hygiene behind adhoc provisioning norms is in many ways acting as a self-fulfilling prophecy and only benefitting private sector ARCs.
- Bring back the focus on the private sector as a growth engine, and reduce the role of the government. This can be easily achieved by changing the optics from threatening to encouraging. There is only browbeating that we have heard from the BJP sarkar.
Let's try and get the "acche din" slogan back but this time let's try and deliver on it.
Neeraj Batra is the co-founder and chairman of OnCourse Vantage and tweets at @batra_neeraj