Manifestos 2019 Cracking the Economic Enigma(s)

(This is the third article in a series of articles called #ManifestoMusings, based on the manifestos of the Bharatiya Janata Party and Indian National Congress for the Indian General Elections 2019)

The Indian General Election season is here!

Will it be ‘Abki baar phir Modi sarkaar (this time it is time for Modi government again)’ or ‘Jaat par na pat par, mohar lagega haath par (neither based on caste nor on creed, my vote will be on the hand)’; the hand is the symbol of the Indian National Congress. Will India finally vote for a regime mainly on development issues or are we still some way off from such a scenario? How important will caste dynamics be? Will communal and sectarian politics play a role?

These are all questions that shall matter immensely as the country gears up for the General Elections 2019, beginning from 11 April 2019.

The manifestos for Indian General Elections 2019 of the major Indian national parties: Bharatiya Janata Party and the Indian National Congress have now been released. Both parties have looked into various aspects of life and society in their respective manifestos, right from the economy and jobs to foreign affairs and defence. While one focuses on its leader (the BJP’s with the focus being on Narendra Modi), the other seems to focus on people, in general. One talks of resolutions (‘Sankalp‘) while the other talks of its ability to deliver (the Indian National Congress).

As the country gears up to vote, I would like to look at the key points that are covered (or not covered) in the manifestos, in a series of articles called #ManifestoMusings. This second article is looking at economic policy, industry and welfare-related policies and plans suggested by the two parties. The manifestos for Indian General Elections 2019 of the major Indian national parties: Bharatiya Janata Party and the Indian National Congress, have now been released. Both parties have looked into various aspects of life and society in their respective manifestos, right from the economy and jobs to foreign affairs and defense. The economic policy, relations with industries and the welfare of all citizens of the country is a point of significance that cannot be sidelined, when it comes to policy directions of a prospective party-in-government.

As both parties pitch their manifestos for claiming power in 2019, let us see what the two parties have to say on this on this.

Congress looks at Drivers of Growth, Investment and Fighting Poverty 

The Congress highlights that its two main objectives on the economic front are wealth creation and welfare of all Indians. It begins by saying

Congress economic philosophy is based on embracing the idea of an open and liberal market economy, creation of wealth, sustainable development, reduction of inequalities and assurance of welfare of all sections of the people. Such growth will be driven by the private sector and a viable public sector and underpinned by a robust system of social security.

Having been led by world-famous economist Dr. Manmohan Singh the last time they were in power, the INC prioritizes fiscal stability and the problem of fiscal deficit as a point of concern and interest. The Congress promises to achieve the target of 3% of the Indian GDP by 2020-21 and thereafter to remain under that limit. The party wants to contain the revenue deficit, as far as possible, under 1% of the GDP. A big problem with the Congress has been overspending at times, often recklessly, and to counter this charge and problem, the Congress seeks to faithfully report off-Budget and extra-budget borrowings with proper justification for such debt. They also promise to mention the means of servicing for, and repayment of, such debt. The Congress feels that the BJP government has been interfering illegally and in an unwarranted way with the Reserve Bank of India (RBI). The party promises to work towards safeguarding the autonomy of the Reserve Bank of India, particularly ` in matters reserved to the RBI under the Reserve Bank of India Act, 1939, including the formulation of monetary policy’. They however do push for accountability on the RBI’s part to, by having the governor periodically submit an account to a committee of the Indian parliament. Congress want to work with the RBI for growth with price stability using a fiscal policy and monetary policy that can bring about the same.

The Congress goes on to highlight what is sees as the four drivers of economic growth – private investment, government expenditure, domestic consumption and exports. When it comes to private investment, the Congress promises to extend support to the private sector to ‘revive the animal spirits of our entrepreneurs’, and involving them in `identifying opportunities, mobilising resources, adopting advanced technology, producing goods and services, and securing domestic and foreign markets’. Along with this, the Congress highlights the importance of government expenditure for provision of public good, with emphasis on roads, railways, waterways, sanitation, drinking water, education, healthcare and security. To see to it that the people consume more, particularly the poorer sections of the country, Congress seeks to make sure that support goods and services is good and prices are reasonable. As much as I am not too fond of consumerism, the Congress’ reliance on the trading community and drive to create a policy environment that will encourage domestic consumption is commendable. Last but not the least, Congress will try to push for increased exports as a driver of economic growth of India.

I, for one, have often taken fiscal conservatism and savings as a personal priority. The Congress seems to be incentivising the same on the personal level as well,  with rewards for savers. The party’s goal is to achieve a savings level of 40% of the GDP and a Gross Capital Formation level of 35% of the GDP, and to also work with insurance companies and banks to bring in `simple, financial products’ for households. The Congress also seeks to incentivise various kinds of investments, particularly Foreign Direct Investment (FDI), along with reviewing and working on Foreign Trade Policy. Congress seeks to provide a conducive policy climate that `shall recognise the contributions of the private sector and the public sector, promote entrepreneurship, encourage innovation, and employ advanced technology and reward risk-taking’. The Congress passes even the 51% FDI pitch by the BJP last election by welcoming FDI in all sectors, subject to exceptions on the ground of national security. They will reduce rules and regulations when it comes to FDI. Both domestic and foreign investors will be treated equally in a Congress government along with there being no expropriation and no retrospective taxation. The Congress even wants to review and restate the Foreign Trade Policy within three months, along with making sure that exports and imports are free and consistent with WTO rules. What is interesting and disappointing is that the Congress manifesto has nothing on investment, including FDI, in multibrand retail. This is possibly because of votebank politics and not wanting to antagonize small traders.

The Congress looks at increasing credits to various stakeholders within the economy, particularly the MSMEs. They say the following about the same

A robust and healthy banking system, supplemented by non-banking finance companies, is critical to delivery of credit. While the RBI is the regulator of banks and NBFCs, the government has the responsibility to ensure that there is adequate liquidity, cash in circulation and flow of credit. The BJP Government denied adequate credit to MSMEs, agriculture, trade and exports. They created the NPA scare that brought lending to a virtual halt. A one-size-fits-all approach drove companies into insolvency. Demonetisation shut out all sources of informal credit. The result is that the agriculture sector is in acute distress, MSMEs are shut or struggling to survive, trade is paralysed, and the volume of merchandise exports was flat for 4 years. Congress promises to reverse these gross distortions and, working closely with the RBI, re-start the process of credit delivery and ensure sufficient liquidity and cash in circulation.

Going by the whole ‘Make in India’ mantra, the Congress also seeks to boost the Indian manufacturing sector and wants to increase its share in the economy from 16% to 25% in the next five years. On the business front, the party promises to enact and enforce a Law on Doing Business in India that shall incorporate best practices and rules in business. The party seeks to bring every Fortune 500 company to set up a base in India and promises to incentivize the starting of new businesses.  They wants to withdraw the Angel Tax and seek to make India an innovation hub. The angel tax by the BJP government was criticized by a fair few people who said that it often led to encumbrances on genuine investors and companies. The INC also looks at the way in which public spending is carried out, with emphasis on disinvestment from non-core, non-strategic enterprises and also seeks to closely evaluate how governance needs to be carried out when it comes to market forces. The party wants to get the government out of gratuitious interventions, get the government to address notable market failure through regulation and to build the capacity to undertake things such as taxation and delivery of public goods and services. The Congress looks at ways to reduce poverty in the country and how economic policies can be framed to do that. Congress promises that in the next five years, a whopping 10 crore people will be lifted out of poverty and the ground will be prepared to wipe out poverty entirely by 2030. To do this, they propose to introduce the Nyuntam Aay Yojana (NYAY) that has been criticized for not being as all-encompassing and all-inclusive as the BJP’s Pradhan Mantri Kisan Samman Yojana can be. The BJP scheme looks at reducing subsidies in other areas such as fertilizers and food, and make Universal Basic Income the priority.

On the taxation front, the Congress seeks to `put an end to the tax terrorism unleashed by the BJP government that has put uncertainty and fear in the minds of individuals and businesses’. The party promises to enact the Direct Taxes Code in the first year of government, to bring simplicity, transparency, easy compliance, reasonable and progressive rates, tax equity and proper administration when it comes to taxation, thereby working on the principle of tax equity and fairness. The GST surge by the BJP seems to have perturbed the Congress and they have planned an entire set of policy-steps under the umbrella topic of GST 2.0:

1. Congress promises to review and replace the current GST laws with the GST 2.0 regime that will truly reflect the intent and purpose of a non-cascading, value-added, indirect tax.
2. The GST 2.0 regime will be based on a single, moderate, standard rate of tax on all goods and services. The rate will be revenue neutral to the current indirect tax revenues of the Central and State Governments and will take note of the potential of GST 2.0 to boost their tax revenues.
3. The GST 2.0 regime will levy a special rate of duty on demerit goods.
4. GST 2.0 will be easy to administer, easy to understand by the taxpayer, and easy to comply with. We are confident that GST 2.0 will promote growth, new businesses and employment. The website under GST 2.0 will be re-designed and made user-friendly with inputs from the taxpayers.
5. Congress promises that Real Estate (all sectors), Petroleum Products, Tobacco and Liquor will be brought within the ambit of GST 2.0 in a manner and time period not exceeding 2 years agreed to in the GST Council.
6. Essential goods of mass consumption (such as food grains, lifesaving drugs, vaccines, etc.) and essential services will be exempted from GST 2.0 or zero-rated.
7. All goods and services that are exported will be zero-rated and not subject to GST 2.0.
8. Congress promises that threshold exemption for small businesses will not be affected by inter-state supply of goods or services.
9. In order to support small, unregistered businesses that supply goods and services, there will be no GST liability on the purchaser through the reverse charge mechanism.
10. Congress promises to abolish the e-way bill. Tax evasion will be detected through the risk management mechanism and strengthening the intelligence machinery.
11. Congress will endeavor to allocate a share of GST revenues to Panchayats and Municipalities.
12. Congress promises that a taxpayer will be required to file a simple, single quarterly return for his/her business and an annual return. Every tax payer will be subject to assessment by a single authority based upon turnover.
13. The GST Council will be the policy-making body and will be served by a permanent secretariat of tax economists, tax policy experts and tax professionals. Its minutes will be put in the public domain.
14. Congress promises that the DTC and GST 2.0 will be essentially civil laws and any violations will attract civil penalties that will be proportionate to the tax evaded. Prosecution under DTC and GST 2.0 will be only in cases of criminal conspiracy or corruption or fraud.

The Congress ends its economic promises with a section on competitive banking and financial sector, with an emphasis on Public Sector Banks, Non Banking Financial Company (NBFCs) and Development Banks. The party promises a comprehensive review of the role, remit and and functions of Public Sector Banks (PSBs), and drive towards a situation where these PSBs maintain a healthy balance sheets. This may include amalgamation of PSBs to create only certain robust PSBs with a wide reach and presence and adequate capital. The Congress seeks to abolish the Banking Board Bureau and thereby make a change in the governance structure of PSBs. The party seeks to encourage PSBs to prioritize lending to disadvantaged sectors of society that are often denied adequate credit. The party is also concerned with the way in which NBFCs have failed and how this has affected mutual funds, bond markets and credit flow. To address this problem, a regulatory regime of NBFCs is proposed. The Congress promises to `take the necessary policy and administrative measures to develop a robust, deep and liquid corporate bond market, municipal bond market and infrastructure investment trusts’. The party also promise to promote new Development banks that shall provide long-term credit for infrastructure-building and development projects. The party wants to help Indian-owned technology companies to scale up to global standards and size by creating a policy environment for the same and setting up an Indian Global Companies Fund. The party says that it will encourage the establishment of regional and state-level institutions to give bank credit to MSMEs, along with encouraging State Governments to revive State Financial Corporations to provide risk capital and long-term credit and risk capital to such enterprises. The party sees that financial inclusion of all citizens can be done by strengthening and empowering Regional Rural Banks and Banking Correspondents to bring banking services to the citizens’ neighborhoods. The party seeks to work with the RBI to simplify its Know Your Customer (KYC) process, and promises to `take necessary measures to develop a deep and broad securities market that will offer products that will attract more investors to the securities market, give them safe and adequate returns and offer investment solutions to their long term needs’. Lastly, the party seeks to take firm measures to prevent fraud in banking, securities and financial markets. The Congress promises to deliver swift punishment to any offenders.

The BJP’s Mantra is GST, Investment-driven Growth, Make in India and Food Security for all

The BJP hits off this section on a strong note, with an emphasis on its achievements in the last five years

India was branded as ‘fragile five’ in 2014. Within five years, we have turned India into a bright spot that is not only the fastest growing major economy of the world but also enjoys macroeconomic stability. We have already become the world’s sixth largest economy and will soon be among the top five. We aspire to make India the third largest economy of the world by 2030. This implies that we commit to make India a US $ 5 trillion economy by 2025 and US $ 10 trillion economy by 2032.

When compared to all governments post-1991, this government has delivered the highest rate of average GDP growth (7.3%) over the last five years and maintained lowest rate of average consumer inflation (4.6%). The consumer inflation is presently at 2.6%. This has been achieved with lower fiscal deficits and significantly lower current account deficit as a percentage of GDP. Average fiscal deficit as a percentage of GDP during 2014-19 has been brought down to 3.7% from 5.4% during 2009-14. Reduction in fiscal deficit of this order implies less burden of debt on future generations by almost Rs.16 lakh crores. Average Current account deficit as a percentage of GDP during this government has been reduced to 1.5% from 3.3% during 2009-14.

The BJP begins by focusing on the taxation regime in the country, emphasizing the Good and Services Tax (GST) as a major accomplishment. The party says that its economic policy has been guided by the principle of lowering the tax rate and improving compliance by individuals and companies, and thereby broadening of the tax base (such that the tax to GDP ratio has reached 12%!). This increased revenue has been deployed for providing benefits to the disadvantaged sections of society and creating infrastructure in the country. The party seeks to continue rewarding honest tax payers and thereby improving compliance. The GST replaced the patchwork of taxation and levies by the states and the federal government, and this has resulted in overall lowering of tax rates and an increase in the collection of revenue. Compared to 2015-16, GST revenues for all states have increased by 50% in 3 years! The BJP seeks to continue the simplification process under this scheme by engaging in dialogue with all stakeholders. Former Chief Economic Advisor Arvind Subramanian had the following to say about GST:

There has been an almost 50 percent increase in the number of registered GST taxpayers. We are going to see an increase in taxpayer registration, which will lead to better compliance over time. Our conservative estimate is that once it stabilizes, we should get another 1 to 1.5 percent of GDP extra revenue from the GST. It is going to be a unique system, possibly one of the few VAT [value-added tax] systems around the world where you’re going to get this matching of what the supplier says he sold to a buyer and what the buyer says he has bought from the supplier. Once that matching happens, then you can try to reduce the evasion and the lack of compliance. […] Barriers to the movement of goods and services within India are going to come down. So we also expect this huge increase in trade within India, and that’s like a kind of tariff cut in a sense. That should also add to trade and growth as well and make the Indian economy a much more attractive place to invest. […] One of the big collateral benefits is going to be financial inclusion. A lot of small and medium enterprises don’t have easy access to credit because they don’t have documentation or a track record. So now the tax payments that are made electronically can be discounted, and you can create a market for bills and a backbone where these people can have better access to credit. […] India is a vast country, so individual states want to know how much they export internationally. There was no way of knowing until we did this exercise. Also, we’re now able to get a better handle on the size of the informal and the formal sectors in India in a way that we never could before. Quite apart from the tax side and the cooperative federalism boost, just the information that we’re going to get to be able to better understand the economy and, hence, providing inputs into policymaking, is going to be quite, quite huge.

The BJP goes on to talk about its aim to drive for investment-driven growth. The party commits to making a capital investment of ₹100 lakh crore in the infrastructure sector by 2024. By anchoring inflation at 4% and cleaning up the banking system, the party believes it has created the space for structural reduction in capital cost that can only help investment-driven growth.

Another key aspect of the BJP’s tenure and economic policy has been Make in India, and the BJP seeks to continue pushing for the same. They describe the progress till now as follows

With the aim of developing India into a knowledge based, skill supported and technology driven society, we have launched the ‘Make in India’ campaign. A beginning has already been made through our initiatives like Digital India, Startup India and Skill India. To bring in fast and inclusive growth, we have also carried out substantial reforms in the last few years in terms of de-regulation and delicensing, with an aim to improve ease of doing business. More than 90% FDI approvals are now through the automatic route. FDI has grown by almost 50% in the last five years. Similarly, implementation of One Nation, One Tax through GST has brought all businesses under single tax net.

The BJP also seeks to make India a global manufacturing hub, particularly with strengthening the Companies Act and framing a new industrial policy to improve competitiveness in the manufacturing and services sectors. The party seeks to bring India into the top 50 countries in the rankings based on Ease of Doing Business Index. It seeks to amend the Companies Act to impose civil liability for minor technical and procedural defaults to unclog the majority of cases from courts. The BJP wants to announce a new industrial policy to `to improve competitiveness of manufacturing and services with an eye on Industry 4.0 in order to gear up for technologies like artificial intelligence and electric mobility’. The party wants to invest in creating networks and clusters (along with the use of government incentives and public procurement to build up these clusters) that can build competitiveness in cutting edge industries.

The BJP seeks to work for the interests of the Micro, Small and Medium Industries (MSMEs), particularly with schemes like the Credit Guarantee Scheme. Under this scheme, credit of around ₹19,000 crore has been given in 2017-18 alone, and the party seeks to make sure that this reaches ₹1,00,000 crore by 2024.  Since access to technology and upgradation are key elements in the MSME sector, the BJP seeks to expand the number of ‘Technology Centres’, which would help in developing mentoring and prototyping of MSMEs, to more than 150 such centres all over the country by 2024. These centres are slated to expose these enterprises to AI, virtual reality, robotics and block-chain technology. These centres, along with other skilling centres of MSMEs and incubation centres of the National Small Industries Corporation, would also provide high level and focussed skilling to more than 6 lakh people every year. The BJP also seeks to establish a National Traders’ Welfare Board and create a National Policy for Retail Trade for the growth of retail businesses, protect the interests of small traders by providing an accident insurance of ₹10 lakh for all traders registered under GST, and to create a scheme to give merchant credit card to register merchants on the lines of the Kisan credit care, for the welfare of small traders.

The BJP has tried to make the youth ‘job givers’ and not just ‘job seekers’ by encouraging startups and entrepreneurship. They continue to do so here as well, with promises for helping startups and entrepreneurs. The party promises to launch a new scheme to provide collateral-free credit up to 50 lakh for entrepreneurs, and would guarantee 50% of the loan amount for female entrepreneurs and 25% of the loan amount for male entrepreneurs. The BJP wants to ease regulatory requirements for start-ups, target time spent for tax compliance at 1 hour per month, facilitate establishment of 50,000 new startups in the nation by 2024, create 100 innovation zones in Urban Local Bodies, set up 500 new incubators and accelerators by 2024 and initiate ranking of Central Ministries, departments, State Governments and CPSUs `for their increased engagement with startups and in bringing in innovation and newer technologies and global practices and skills’. The party also wants to continue promoting and encouraging startups through the creation of a `Seed Startup Fund’ of ₹20,000 crore. The BJP will support entrepreneurial ventures started by individuals from SC, ST, OBC or EWS communities and take forward the `Standup India’ initiative, and will also set-up new `Entrepreneurial Northeast’ scheme to provide financial support for MSMEs and for job creation in the northeastern states of India. Besides using tourism as the central point for boosting various associated service sector pursuits, the BJP also seeks to continue its push for transparency and discipline within the economy. The party seeks to continue its crackdown on illegal foreign bank accounts and Benami properties to benefit the poor and honest taxpayers of the country, and expedite its actions to bring fugitive economic offenders back to India to prosecute them for their crimes. The BJP ends this segment by talking about promoting international trade and making clearance procedures more efficient.

Speaking on poverty, the BJP says that the party is committed to bringing down the percentage of families living below the poverty line to a single digit in the next five years. It talks about affordable and proper housing for all, particularly in rural India, and promises to ensure pucca house for all those living kuchha houses by 2022. The party also highlights its drive for food security for all, with over 80 crore people from poor and lower-middle-income families by providing them food grains at highly subsidized prices. It seeks to further widen this cover to provide subsidized sugar, at ₹13 per kg per month per family, to these families. Speaking on financial inclusion of all within the economy of the country, the BJP highlights the success of the Pradhan Mantri Jan Dhan Yojana and seeks to continue working on the same:

The unprecedented success of the Jan Dhan Yojana has dramatically improved financial inclusion in India. We will take further steps to ensure access to bank branches, payment banks and banking correspondents by creating a new data-sharing framework that builds on the success of Jan Dhan and Aadhaar platforms while ensuring data privacy and security. With this scheme, we will ensure that every Indian has access to banking facilities within a radius of 5 km. We will also launch a technology enabled programme for broader financial literacy by complementing financial literacy with mass media campaigns to provide information on financial products and their use to enable effective participation of every Indian in the financial system.

The middle class in India constitutes an important section of the Indian population and the BJP speaks for the aspirations and interests of the middle class too. It recently provided major tax relief in the recent budget, and the party says it is committed to further revise tax benefits and tax slabs to ensure more cash (and by extension, greater purchasing power) in the hands of middle income families. The BJP seeks to `make all efforts to ensure that our aspirational middle class has access to education, employment opportunities and suitable urban infrastructure for a better quality life’.

There are some districts and places in the country that are under-developed. To augment their growth and to represent their interests, the BJP talks of geographical equity in the economy of the country

Inclusive development also means inclusion by geography. To this end, our Government has identified 115 aspirational districts that are being given special attention. We intend to continue with this effort to ensure that these districts catch up with the rest of the country. Similarly, we have already laid the foundation for economic and social progress of Eastern India through improved connectivity, construction of high impact infrastructure projects and provision of adequate financial resources. We intend to continue our efforts to resolve the geographical imbalance of the said region and ensure that Eastern India is an equal participant in the progress and growth of the nation. In PM Modi’s words, this is ‘Purvoday’ (Rise of the East).

In Conclusion

The largest democratic exercise comes with the largest dilemmas on whom to elect as the next Prime Minister of India. Narendra Modi or Rahul Gandhi. Both the parties have come out with well-made manifestos that cover a whole range of topics. In this analysis I have tried to be as impartial as possible in my assessment when it comes to the poll pitches for economic policy, industry and welfare. Both parties have their strengths and weaknesses, like any other party. I would like my readers to decide after going through the manifestos and my series #ManifestoMusings, of which this is the first article. Mandate 2019 is a massive decision for the fate of the country, and as responsible citizens of the country, it is our duty to take an informed and well-thought-out position.

Every vote counts, every voice is important.

These are exciting times and I look forward to seeing another chapter being inked into the history of modern India on 23 May 2019 when a new government shall take office in India.

Jai Hind!