No escape from economic stimulus

All eyes in India Inc are riveted on what the Modi government would do by way of a stimulus to reinvigorate the investment cycle in the country. There are those who say that the government is not looking at any measures to kick-start the slowed-down economy but it is quite on the cards that measures to boost the economy are on the anvil and that they would come sooner than one thinks they would.

No less a person than the Niti Aayog chairman Rajiv Kumar has, taking cognizance of the bad liquidity situation in the financial sector and weak private investment in the economy rung the alarm bells, pleading for steps that are out of the ordinary. Evidently, the time for a government-led stimulus is now. Nirmala Sitharaman’s budget last month was essentially a missed opportunity in signalling the second stage of reforms. The challenge for the government is indeed acute considering the downturn in the economy reflected in the lower tax collections.

The Centre indeed has limited fiscal space but it also realises that the economy would go downhill if it does not intervene at this point of time to stimulate demand. With the possibility of a full-blown recession looming large, there is acute urgency to usher in reforms and take steps for economic revival.

There is no doubt that a large part of the problem that the country faces today is dictated by the high credit growth between 2004 and 2011 when credit grew 27 per cent and resulted in huge growth of NPAs (non-performing assets).

Steps like demonetisation and GST have contributed to reducing the cash in the system. There doubtlessly are international factors too that have worsened the situation. To revive one severely-hit sector, the auto industry has been lobbying for a reduction in GST rates on cars to 18 per cent from 28 per cent. Given that any dramatic upturn on the tax revenue side appears unlikely, among the non-tax revenue options, dividends and surplus from the RBI, banks and financial institutions and public sector enterprises would be crucial to prevent a revenue slippage. The other option to raise funds through issuance of overseas sovereign bonds in foreign currency.

The private sector often asks for the moon in such situations as Assocham chief has done with the demand for a one lakh crore stimulus, but there is no doubt that sacrifices are required both on the part of the private sector and the government to revive the economy. A status quoist approach is certainly not the best thing to do.

Terror finance: Pakistan caught on wrong foot

The action by the Asia-Pacific group on money laundering and terror financing of putting Pakistan in the blacklist for its failure to meet its standards is a huge embarrassment for the Imran Khan government. It is, at the same time, a vindication of India’s position that Pakistan is a sanctuary for State-aided terror.

While the civilian government of Imran Khan pretends to have a grip over terror activities in that country, it is a well-accepted fact internationally that it is the military establishment that calls the shots and the government is only a mute spectator. Prime Minister Imran Khan has been waxing eloquent on his efforts to bring durable peace to the Indian sub-continent but his eloquence is sheer hypocrisy when he is unable to stop Pakistan-inspired terror which involves training, arming and infiltrating terrorists into India to cause subversion.

The Financial Action Task Force (FATF) which met in Canberra, Australia and discussed the issue over seven hours spread across two days came to the conclusion that Pakistan was non-compliant on 32 of the 40 compliance parameters of terror financing and money laundering. On 11 criteria, Pakistan was adjudged as low on 10. Despite its efforts, Pakistan could not convince the 41-member plenary to upgrade it on any parameter.

Now, Pakistan has to focus on avoiding the blacklist in October, when the 15-month timeline ends on the FATF's 27-point action plan. In June, the FATF had warned Pakistan that its failure to complete its action plan on terror financing could lead to the country getting blacklisted. Apparently, the FATF was able to see through Pakistan’s ruse of arresting terrorist Hafiz Saeed in a make-believe way without being serious about controlling terror.

- S Sadanand

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