Fiscal test: As India’s smaller firms struggle, Modi faces stimulus dilemma

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Fiscal test: As India’s smaller firms struggle, Modi faces stimulus dilemma

Posted By d474rpr

New Delhi / Mumbai: The holiday season in India is expected to be a celebration for Habib Ansari’s businessman, who usually spend October expecting a rise in retailers’ profits in a month’s supply.

This year Ansari is facing losses and a 50% drop in sales over the last three months due to the confusion caused by the launch in July of a national sales tax and the subsequent of government repression on unregistered wealth.

“Small clothing units not buy because of low demand. We have reduced our workforce to 600 from 1,200, “Ansari said of a textile center on the outskirts of Mumbai, while laid-off workers were sleeping in nearby stores.

Ansari problems how to highlight the third largest economy in Asia has cooled rapidly in five consecutive quarters, while small and medium-sized companies across India have experienced declines in sales, thus jeopardizing the creation of jobs and hurt the sentiment in the crucial industries for political base of Prime Minister Narendra Modi.

This pushed Modi to a tight stimulus that could reduce the political damage before a series of elections from December but to break the confidence of investors worried about the financial crisis.

The government plans to spend Rs40,000-50,000 crore ($ 7.7 billion) plus this fiscal year that it had planned in the budget, two senior officials from the Ministry of Finance told Reuters.

New Delhi has already reduced taxes on gasoline and diesel, but now focuses on the possibility of spending more money on rural employment, housing and recapitalization of state banks, or providing targeted relief to the sectors most affected by the shift in growth. .

“We have faced our biggest challenge in three years,” said a government official, adding that fiscal consolidation was under pressure in a context of declining incomes.

The economy grew at an annual rate of 5.7% over the three months to June, the slowest in three years, while tax revenue is down a revolution compared to the year when India growth among the major economies.

Political Damage

People close to Modi, who played power in an overwhelming victory for the Bharatiya Janata Party (BJP) in 2014, he said wants to control the political damage and ensure that the economic downturn remains temporary.

Former finance minister Yashwant Sinha and former minister Arun Shourie criticized Modi’s recent treatment of economic reforms.

But the Prime Minister must walk on a tightrope as folding to populist policies could risk investor confidence. The BJP won the honors of investors after reducing the budget deficit by 4.5% of GDP in 2013/14.

When the government proposed last month, plus fees, the Indian stock market slipped for seven consecutive days and the rupee fell to its lowest level in six months, investors were concerned about the impact on public debt.

On September 28, the government decided not to announce more loans and remains a target for fiscal year 2017/18, in line with a deficit of 3.2%, which was welcomed by the markets.

Modi could seek Parliament’s approval for up to 50,000 rupees of extra spending in the spending budget, the two Ministry of Finance officials said, which could increase the budget deficit to a maximum of three years d about 3.7% of GDP.

Former Indian chief economist Arvind Virmani told Reuters there was no room for extra spending.

Small Business Growth

Recognizing the fall of sentiment, Modi took the rare initiative last week to defend his record on a 90-minute speech, calling the economic crisis as a diversion and a promising relief. Small and medium-sized enterprises in India are reducing their workforce due to declining demand.

The launch in July expected Goods and Services Tax (GST), which turned the 29 states of India into a single customs union, it left the companies at the bottom of the working capital supply chain.

This added to the decision of Modi “desmonetizar” last November, in which suddenly prohibited large cuts to force people to declare wealth illegal or not imposed. Small companies accustomed to conducting spot transactions are now required to register under the GST and file income tax returns.

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