Tax cuts for individuals, companies needed to boost demand, say economists | Business Standard News

Clipped from: https://www.business-standard.com/article/economy-policy/tax-cuts-for-individuals-companies-needed-to-boost-demand-say-economists-121062801313_1.html

While the measures announced on Monday are focussed more on the supply side, these steps would take a lot of time to move the needle for the economy

Photo: ANI

Direct economic stimulus measures such as tax cuts for individuals and industry would have helped to prop up the Indian economy which was hit hard by the lockdowns across several states in India, say economists and corporate leaders.

While the measures announced on Monday are focussed more on the supply side, these steps would take a lot of time to move the needle for the economy. The loan guarantees may help the businesses to borrow on favourable terms but there are hardly any new projects by Indian companies–barring few projects by top steel companies, they said.

“The direct relief measures are good insofar as they help to support the poor or farmers. In the case of health, building facilities takes time and will benefit in the medium to long run.

Direct action through tax cuts would have propped the economy, but that has not been done. The focus even last year was on the supply side where an enabling environment has been created. But in these tough times, direct action would be more effective,” said Madan Sabnavis, Chief Economist of rating firm Care Ratings.

The FM today announced additional measures to provide greater financial support to sectors impacted by the pandemic. These steps build on previous packages, and include small loans and specific assistance for the tourism sector. These initiatives could help improve credit flows to small firms, and MSME firms, But there was no direct package for sectors such as airlines, airports, malls, offline retail and hotels — which saw a total collapse of their business model.

“These relief measures are well targeted and definitely better than doing nothing. However I think direct income or cash support is also required at this juncture particularly for urban poor, said D K Joshi, chief economist, Crisil.

“What is needed is direct cash support particularly to the worst hit sectors including hospitality. Though they have given some incentives there but don’t know how it will play out. I think the government has limited fiscal space for mega support. My sense is that the government wants to support the economy via investment and not via consumption boost, as public investments have still held up. I expect that they would be required to do more spending this fiscal than what is being envisaged. On the tax cut, they should consider pruning the rates on petroleum products as high oil prices restrict economic activity,” he said.

Aditi Nayar, chief economist, Icra said free food grains will help the bottom of the pyramid, and aid in retaining labour in the urban areas instead of migrating back to the hinterland. “However, the government may also be required to consider a reduction in fuel prices as it would help dampen the inflationary pressures, and prevent inflationary expectations from getting entrenched at a higher level, thereby affording Monetary Policy continued space to support a revival in growth. Lower fuel prices would also ease the pressure on disposable incomes, allowing for a modestly faster revival in consumer sentiment and spending,” she said.

T V Narendran, President of industry lobby group CII said the ECLGS (emergency credit line guarantee scheme) has been a very successful intervention with the sanctioned amount standing at Rs 2.69 lakh crores so far. The extension of its scope and coverage are expected to provide significant support to the cash flow of the stressed sectors. “Tourism sector has been one of the most impacted sectors, with the second wave having exacerbated its duress. With a significant contribution to both GDP and employment, the economic relief package announced for the tourism sector will usher in the much-needed liquidity and help revive this employment intensive sector”, said Narendran.

The CEO of an airline said direct financial incentives for their sector would have helped them. Several airlines have laid off staff across India or are giving truncated salaries. “It will take at least a few years for the airlines and hotel sector to come back to profitability,” the CEO said, asking not to be quoted. Though a Rs 1.1 trillion loan guarantee scheme for COVID-affected sectors was announced, this will not be enough as of this Rs 50,000 crore has been allocated to the health sector and Rs 60,000 crore for other sectors.

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