The only way you give an impetus to the economy is to reduce taxes and burden on the industry. It eases liquidity, increases investment and capital formation and increases consumption too. This in turn expands the market and exports too. However, since 2014, we have been staring at higher taxation (GST) and sucking out liquidity (Demonetization).
It is now well accepted that the liquidity crunch is threatening our economy. And we are resorting to never used measures to ease the burden. What was a misdeed of the government’s policy is sought to be resolved through RBI’s easing of norms.
- The real credit growth to micro, small and MSME which was almost 18% in 2014 went to a negative -5% in 2016 and now hovers around 6%.
- Bank lending to micro and SSI units fell a massive 28% from 3.1% of GDP in 2013-14 to 2.22% in 2017-18.
- In fact, bank credit to SMEs in the manufacturing sector as at end-September 2018 contracted by 1.4%.
- About 900,000 SMEs have shut shop since 2016, a number unheard of ever.
- In Tamil Nadu alone, 49,329 units wound up in just one year. Total registered MSMEs were 2,67,310 which fell to 2,17,981 during 2017-18.
- The fall in TN MSMEs also led to a 27% job losses. The total employed fell from 18,97,619, but in to 13,78,544.
- The based Norm compliance is being postponed by an year. Moody’s called it a negative to banks.
- The postponement will let Banks have 37000 crores to lend to MSMEs.
- However, officers in banks are a worried lot with criminality, police and CBI stepping into decisions taken by them.
- The Govt. was eyeing the 9.6 lac crores of RBI reserves. However, with RBI deciding not to touch the revaluation reserves of 6.9 lac crores, it all is fizzling out. The contingency fund of 2.31 lac crores is rarely touched. What else is left?
We are starting down the barrel. Liquidity crunch is here to stay. Cash is scarce. Industry is suffering. Employees are suffering. Banks are suffering. Tax growth will suffer. When accountants handle economy, this is bound to be the result.
In a study recently done of 37k odd MSME across the country sharing some of the glaring outcomes the study reports ( thanks to demonetization and government actions )
- For every new job created there were 5 jobs lost. Similarly for every one worker added there have been 5 who have been retrenched.
- This for units which typically employ between 5-10 people is as good as closing down.
- The average number of jobs lost per unit is 2.7.
And it is a very sad reflection of our society that not only was our economy systematically destroyed but also that it was accepted as a great idea and policy by the poor who were affected by it the most.
Image credit: Money Control