Govt’s stimulus package a glorified loan mela

If you are not a politician, you will look at the Modi government’s economic stimulus package with dismay. What was meant to be a massive economic stimulus package has turned out to be a glorified loan mela.

The government could have announced big projects and given contracts to private companies. It could have subsidised inputs such as power, coal, steel and cement. It could have tied tax incentives to job creation. Companies could have been given financial aid to pay salaries, like several governments across the world have done. Income tax holidays could have been given to people in the middle-income group, so that they had more money to spend on goods and services.

It is true that liquidity has been a problem in some parts of the economy. One big reason for that is the government’s own move to tackle India’s huge bad-loan problem. This has scared banks, who now think twice before lending to businesses or individuals. That’s why people with dicey credit records are finding it tough to get car and housing loans. Small businesses, whose margins have shrunk due to the economic slowdown are not getting loans from banks. Real estate and power are two sectors where most of the bad loans are concentrated and are starved of credit. Most businesses in India run through a web of patronage. Government policies are tweaked to help big companies with political capital. Corporates with close ties to state governments and influential politicians get government contracts. These companies, in turn, subcontract work to smaller companies which are close to politicians who need to be kept happy. These companies get easy loans, especially from public sector banks.

Ground reality - In an economy where the future seems uncertain, neither businesses nor consumers are likely to borrow...

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