The Finance Minister has argued that all is well with the Indian economy. The first point that the FM makes is on tax collections by the government during the last 50 days. Arun Jaitley has announced that direct tax collections have gone up by more than 14 per cent and indirect tax collection has increased by more than 26 per cent. He also stated that the Customs and excise department collections are up by 6 and 43.3 per cent respectively.
The figures are rather baffling. Sales are down across the country, and not only in the unorganized sector that deals mostly in cash. It includes the formal and the organized sector too that have collapsed. A Gfk – Nielsen report says that sales of Televisions, appliances and micro waves have all fallen by more than 38% this year compared to sales in November 2015. The fall is even more precipitous compared to October 2016 when sales had increased by more than 75%.
With falling sales, firms across the country have tightened their marketing and sales budgets and slowed down hiring. In this backdrop, increased tax collections are a complete anomaly as reported by the Finance Minister. It is possible that the increases in tax collections that are being discussed are on account of the record sales made during Diwali in October and the sharp fall in November and December will only be recorded a couple of months later.
The Finance Minister also said that there has been no incident of unrest and rioting against the demonetization move. This claim might not be absolutely correct, but it is indeed true that such a large scale measure against common people has resulted in very few complaints. In fact, most surveys continue to report a high level of approval for this move of the government. Even people who have stood in long queues and faces harassment from bankers have said they are happy to suffer inconvenience for the larger good.
The political battle has indeed been won. The perception seems to be that the government has moved in the right direction and taken a bold decision. While it is bad economics, demonetization is clearly smart politics, especially when it has been sold as a patriotic act that requires nationalist citizens to go through some minor inconveniences to reach a larger and permanent good. What is not true is that there has been absolutely no protest. Some banks have been attacked and some bank managers assaulted.
The FM has indicated that sales of petrol and diesel have gone up. He also spoke of the increase in sales of insurance policies. This must have definitely happened as these were sectors where old notes could still be used. These sectors will however fall back to the normal or even below that now that the notes cease to be legal tender. State governments too must have collected money through tax revenues that could be paid using old notes. However, with fall in real estate sales, stamp duty collections must have fallen.
The tourism sector data that the FM says shows growth is probably because people booked train and flight tickets using old notes and then cancelled them to get new cash. There is clearly very low traffic even in popular destinations like Goa. Foreign tourists have faced severe distress because of the absence of cash. A large part of the tourism industry works on cash and this includes budget hotels, taxis and small restaurants. It is very difficult to imagine that this sector has looked up in the last couple of months.
The other perception that has successfully gained ground is that huge amounts of black money has been seized and a large number of people have got arrested. What is interesting is that the there is no figure that one can go by. If the various seizures are added up, the figure comes to about 600 crores that has been seized so far, less than one per cent of the estimates of black money. Also the names that figure in these raids are all obscure people. None of these belong to large business families, well known lawyers and doctors or even any senior politician.
The income tax department in November had carried out 586 raids across the country which yielded more than Rs 300 crore in cash seizures and Rs 79 crore in new currency notes of Rs 2,000, and unaccounted income of Rs 2,600 crore. All these figures are trivial given that we have been talking of lakhs of crores of money that should have been caught, or seized or even destroyed by hoarders of dirty money. It is very clear that the raids and seizures are far too few and that the arrests account for small amounts and involve minor people.
It is intriguing that the only corrupt senior bureaucrat in the country belongs to the Tamil Nadu cadre. Or that most of the corrupt businessmen belong to the opposition ruled states of Karnataka and Telangana. Mumbai, it is estimated, generates 25% of India’s industrial output and nearly 7 percent of GDP in the country and is India’s commercial capital. How is it that there are no seizures and raids there? The city has become clean and swatch in the last two years!
The FM also said that Rabi crop sowing is 6.3 per cent higher as compared to last year. This must be certainly true and is not surprising at all. After two drought years, it was widely expected that areas under cultivation would increase. It is actually disappointing that it only went up by a little over 6 per cent. Had it not been for the farmer’s inability to procure seeds and fertilizer, the sowing area would certainly have gone up much more significantly.What the FM has not said is that incomes of agricultural growers are falling given lower prices.
As a result, several brokerage firms have estimated that sales of tractors, motorcycles, trucks and cars would fall by at least 25%. In some places, cauliflower, brinjals and tomatoes have been given out for free. Interestingly, while rural farm prices have crashed, retail prices in cities have not fallen as farmers have no money to pay for harvesting, storage and transportation. Much of the horticultural produce, fishing and poultry depend on hired workers. This will seriously get affected as the produce rots or is given away for free.