The nation is eagerly awaiting the Modi government’s first full-time budget of its third term, which will be presented on July 23. Talks surrounding it are also highly intense .The budget is quite likely to mirror the economic policies of the previous two terms of the Modi government. It is also estimated that this budget will try to establish a structured framework between capital expenditures and public welfare schemes so that the country can accelerate not only GDP growth but also per capita income.
Apart from the budget, if the economic progress of the country is analyzed by linking it with the last two terms of the Modi government, then the work of the Modi government on three aspects is highly commendable. First, the unprecedented increase in tax collection through GST. Second, the acceleration in India’s banking sector. Third, the rapid increase in domestic investment in the Indian stock market. Various types of data on these three fronts praise the Modi government. However, it now appears that the Modi government is not ready to take much credit on these three fronts in its third term. There could be two main reasons for this. First, due to the problems of inflation and unemployment, the Modi government could not secure a majority in power on its own in the 2024 elections. Second, the country now needs a new economic mechanism in which there is no leakage in the progress made through economic reforms; otherwise, economic progress becomes a bubble that is always at risk of bursting, and when it bursts, it is not unexpected. We have seen this happen in many countries from time to time.
GST has been in operation in India since July 2017, and over the past seven years, tax collection through GST has recorded an average increase of about 170 percent, which looks highly positive. In the first year, 2017-18, GST collection was around 7 lakh 40 thousand crores, which increased to over 20 lakh crores in the past financial year 2023-24. This includes a negative growth of 7 percent during 2019-20 due to the global pandemic, Corona. Currently, four types of tax rates (5, 12, 18, 28) are prevalent under GST. It is also true that GST has hit the common man hard with inflation and caused economic losses to small businesses. In the long-term perspective, the GST decision is undoubtedly very good for India, but the continuously increasing unemployment figures question why there is a revenue deficit despite such high tax collection. Why are more jobs not being created? According to the figures up to December 2023, 44 percent of young people aged 20 to 24 and 14 percent of young people aged 25 to 29 were unemployed.
There has been a significant upswing in India’s banking industry in recent years. During the Modi government’s previous two terms, the expansion of the banking sector through the JAM scheme (Jan Dhan, Aadhaar, Mobile) and the direct reach of the facilities provided through it to the common people have been significant. This allowed subsidies for the poor and farmers to be directly credited to their personal bank accounts, preventing subsidy theft. Despite all this, it is surprisingly observed that a large number of bank accounts opened, but the use of those accounts inclined more towards taking personal loans rather than depositing savings. Recently, the RBI has been continuously warning banks and NBFCs to control personal loans, which fall into the category of unsecured loans, to avoid increasing risks in the banking sector. According to a report’s figures, from 2014 to December 2023, the percentage of personal loans in banks has doubled. Initially, it was about 16 percent, which has now increased to around 30 percent. The main components of personal loans include loans for housing, education, household items, and credit card payments, which have significantly increased in recent years. A surprising point here is that there has been a significant decline in loans given to industrial houses. In the early days, about 46 percent of banking loans went to this sector, which has now decreased to around 24 percent, with the most significant impact on the MSME sector.
The third main aspect is the unprecedented growth in the Indian stock market during the Modi government’s tenure over the past 10 years, along with the rapidly growing confidence of DII investors. From May 26, 2014, to July 16, 2024, the Sensex increased from 24,000 to 80,000, and the Nifty rose from 7,000 to 24,000, indicating a threefold increase in both the Sensex and Nifty. This is an unprecedented growth and cannot be called surprising because, in recent years, the confidence of India’s DII investors in the capital market has increased significantly.The Indian capital market attracted financial investments of about $22.5 billion by DII investors in the calendar year 2023, which has reached $28.5 billion in the first six months of the current calendar year 2024. Meanwhile, over the past 10 years, DII investors’ investment through mutual funds has increased from 2 lakh crores to 28 lakh crores by May 2024.Amidst this, it has also been observed that purchasing and selling F&O options has become the primary attraction for investors. As a result, small and mid-cap companies are being deprived of DII investment,which is not good for the Indian economy as it encourages speculation rather than investment on the Indian capital market. This is why SEBI has made some new rules in recent days.
Dr P S Vohra is Writer, columnist and financial thinker, View are personal
