Fixing The Slowdown

The Finance Minister has announced a mini-stimulus package to arrest the economic slowdown. But the economy needs much more than piecemeal solutions.

- Joe C. Mathew

THE LAST WEEK OF August has witnessed a series of economic stimulus announcements by the Narendra Modi government, which seems to have finally accepted that the economy is in serious trouble. On August 23, Finance Minister Nirmala Sitharaman announced the first shot of the stimulus package with an upfront disbursement of 70,000 crore to recapitalise banks, a set of administrative measures to speed up GST refunds and reduce meddling of tax authorities.

Five days later, Commerce Minister Piyush Goyal and Environment Minister Prakash Javadekar jointly revealed what they claimed to be the next dose – tweaks in FDI rules to attract more investment into India. On August 30, Sitharaman announced the mega merger of 10 public sector banks into four large entities. Punjab National Bank will merge with Oriental Bank of Commerce and United Bank to form India’s second largest bank. Canara Bank and Syndicate Bank will merge to form the fourth largest bank. Union Bank of India will merge with Andhra Bank and Corporation Bank to form the fifth largest bank. Finally, Indian Bank will be merged with Allahabad Bank.

In between, the Reserve Bank of India (RBI) strengthened the government’s ability to frontload public expenditure by handing over 1.76 lakh crore as dividends and transfer of surplus reserves. If Sitharaman’s words are to be believed, this is just part of an ongoing endeavour to achieve high economic growth. The declining growth in India’s GDP explains the rationale behind the government move. India’s economic growth has been sliding since four quarters. The Q1 FY20 GDP growth at 5 per cent, the lowest in seven years, is yet another signal to that end.