Third Economic Stimulus: Ditched Again

Source: The Stitch Times: March 2009

Let us take the holistic look at what our Government hasdone, in the name of providing stimulus, in three installments, to the economyand to arrest the sharp downhill slide of export trade starting with the firststimulus and ending with the third one during February, 2009 while presentinginterim Budget.

First, it should be clear that no industry- or sector-specificprovision has been made while announcing any of the three stimulus, whilefaithfully and even religiously conforming to their commitment not to provideanything for the textile and garment exports ever since the UPA Government tookover.

Briefly:The provisions as incidentally related to textile and garment export, in eachof the stimulus packages are:

FIRST STIMULUS PACKAGE (announced on 7 December, 2008)

1. Across-the-board 4% Excise duty cut
2. Rs.20,000 crore in additional expenditure
3. Benefits worth Rs.2, 000 crore for certain sectors, including handloom, handicraft, gems and jewellery, leather and textiles.

SECOND STIMULUS PACKAGE (Announced on 2 Jan. 2009)

1. Interest subvention of 2% on export credit for labour intensive sectors.
2. Additional allocations foe export incentive schemes

THIRD STIMULUS PACKAGE (Announced on 24 February 2009)

1. General rate of Central Excise duty cut to 8% from 10%
2. 4% Excise duty cuts to be extended into next fiscal
3. Service tax decreased to 10% from 12%

The Stitch Times hasalready analysed thread-bare the two packages that had been announced within aspan of a few days, this time I propose to examine the third stimulus packageand the impact that it is going to have or is likely to serve the purpose, itpurports to promote. To recap, neither of the first two packages had failed toelicit any favourable reaction or acceptability from the trade and industry,which was amply demonstrated by the comments of trade bodies.

First, what is the reaction of the industry and trade?

I fail to understand, and in fact, rue that the nationallevel trade bodies, purportedly protecting and promoting the interest of tradeand industry, continue to come out meekly on the impact that the so-calledstimulus packages have made. Their comments, I note painfully, are cursory,vague and totally unequal to the needs and requirements of the groundrealities. They, as a class, want to eulogise any Government action or what Icall Government inaction or its total indifference and apathy. This would beamply reflected in the comments of these organizations, which seem to concealmore than what reveal.

Harsh Pati Singhania, President, Ficci said, "The Indian economy is going through a rough patch and requires support. These measures would help the domestic economy and keep it moving forward, especially at a time when the external markets are in a bad shape." According to Sajjan Jindal, President, Assocham, "We are still hopeful that the RBI will come forward to meet the minimum expectations of corporate India. This is because access to liquidity at relaxed interest rates is still a growing issue, especially for large and medium-sized industries." Says Chandrajit Banerjee, Director General, Confederation of Indian Industry, "The cuts in Excise and Service tax will provide the support for the slowing industry, but the repo and reverse repo rates should be reduced by 50 bps with a similar reduction in CRR. This will not only provide the necessary boost to investment, but also trigger demand..." A. Sakthivel, President, Federation of Indian Export Organisations welcomed the announcement of reduction in Service tax from 12% to 10%, continuation of 4% reduction in Central Excise duty beyond 31 March, 2009... "

However, apparel export related organizations were more forthcoming in expressing themselves on the measly efforts made in the third stimulus package. Rakesh Vaid, Chairman of Apparel Export Promotion Council (AEPC) said, "No impetus has been provided in the two economic stimulus packages or the interim foreign trade policy" and added that the procedural simplifications announced under the Duty Entitlement Pass Book (DEPB) scheme will have only marginally beneficial impact, as there is no move to enhance new production capacity by the industry to reverse falling profit margins.

A more vibrant view was expressed by G.S. Madan, President, Garment Exporter Association (GEA) who said there is hardly anything new in the proposals that will help the garment exporting community to sustain their businesses in face of the global meltdown. He said, "Finance Minister has also failed to restore 100% exemption to export earnings under Section 80 HHC of Income Tax Act. He has also failed to provide necessary exemptions from Service tax on all export related services, Fringe Benefit tax and other Central and State levies. Reacting strongly to the Interim Budget proposals that has let down the garment exporters who were hoping that the Finance Minister would consider various recommendations of the exporting community to provide necessary fiscal relief to the garment exporters to help them overcome the present crisis being faced by them because of current recessionary trend and low unit value realization from overseas market." He also strongly recommended that at this moment a life-saving relief is necessary for this labour-intensive garment export industry in the form of a 4% increase in the duty drawback rates. He felt that only such a relief can hold back many garment exporters from closing hopeand this relief can prevent the impending job losses for the illiterate and women who comprise the major workforce for this industry.

To my mind, the last opportunity of making a course correction, as late as now when the UPA Government mayor may not see the light of the day again, has been lost out with the part-time Finance Minister (I mean the Hon'ble Prime Minister) recuperating from the heart ailment and yet another Stand-by Minister presenting what has been termed as "Vote-on-account" for the year 2009-10. Pranab Mukherjee, while presenting the Budget minced no words and was quite emphatic that he was bound by the "constitutional proprieties" and to seek only vote on account and nothing more than that.

Was it really so? Not quite, to my mind. Unfortunately, the saner and sober elements in the media do not share his views for reasons more than one. The screaming headline of Business Standard speaks of "UPA ON SPENDING SPREE DESPITE TAX SLOWDOWN" and goes on to say that "The Government has been on a spending spree this year, by an unbudgeted 4.5 per cent of GDP (or a staggering Rs.2,46,000 crore) and has budgeted spending increases next year as well." This only confirms that the Government never felt any constraint to hike the expenditure. But has that hike been judiciously used in the crisis that India is facing, thanks to global economic meltdown?

Let us acknowledge that the world economy has fallen off a cliff and we are teetering at the edge and this is THE TIME when we should have realized that even the "vote-on-account" should be invested with the sanctity of "constitutional proprieties" (which in any case has not been upheld by the present Government after having inducted as many as 7 tainted ministers in the Council of Ministers), on unreasoned basis. With the world economies hurtling downhill and each country trying to provide substantive and substantial packages for revival of the economies, it was incumbent- and more importantly judicious-to make virtue of a vice of failing to recognize as to what is so very critical to the economy. Even the suggestion that going beyond the "vote-on-account" would have attracted criticism from the Opposition, is equally misplaced, since the discussions on the "vote-on-account" revealed willing readiness to on the part of main Opposition party i.e. BJP to support the Government on any effort to push up the failing economy. However, the Opposition cannot be blamed for lack of communication between the Government of the day and the Opposition.

Coming home, the textile and garment sector has shabbily been treated, without realizing that this sector has been the goose that has been laying golden eggs, till recently and no speech of any minister would not be completed without glowingly reference to the role that this sector has been playing in the matter of employment, GDP and export earnings. Now all of a sudden, the sector feels like an abandoned child. The readers of The Stitch Times would recall that recently a press conference was held, where all trade bodies related to the textile and garment sector had gathered together to express their serious concern over the crisis in which the textile and garment sectors have landed because of pathetic indifference or callous withdrawal of the small mercies in terms of small and utterly inadequate sops granted earlier at some point of time. It was pointed out that only if the Government of India could be considerate enough to offer a total package of Rs.5, 500 crore, the textile and garment sector would not only be pulled out of steep and continuing downturn, but would also help the economy, in a small way, to perk up in terms of falling employment and export levels besides accretion in GDP. This amount, it should be clear, would have been only a very small portion of the expenditure proposed in "Splurging provisions" of 2009-10 Budget Proposals.

I, like most of you, have heard the repeated announcements before the presentation of vote-on-account in all news bulletins that export sector is most likely to get sops in view of falling trade figures. This did raise lot of expectations, but ended in a whisper with the announcement of interest subvention of 2% beyond March, 2009 to last till September, 2009. This, as has already been pointed out earlier in The Stitch Times was only 50% of the subvention that was granted earlier to the export sector but was completely chopped off, only to restore to 50% level, as a part of Great Stimulus Package II.

I must say that there has been universal feeling of perplex as to why, in the face of huge recessionary trend, which is the sharpest since the Great Depression of 1930s, the Government has chosen not to recognize and assess the gigantic need for a real and genuine stimulus package and provide a robust and adequate revival plan, before our economy in general and exports in particular collapse. In fact, in the Cover Story of our last issue of The Stitch Times, we had listed out the action points, which did in need merit serious consideration on the part of the Government, but the Government on its last leg has no time for national issues, unless these have serious political advantages in the forthcoming elections.

Originally published in "The Stitch Times" March 2009