Interview: Tapan Sen, CITU

Lending for the sake of lending makes no sense, says Tapan Sen

Print edition : September 13, 2019

Tapan Sen. Photo: By Special Arrangement

Interview with Tapan Sen, general secretary, CITU.

THE slowdown in the economy and the unprecedented slump in the automobile sector, which the Centre until recently denied, have taken a toll on the workforce in the sector. Massive lay-offs have taken place in leading automobile majors. Yet, the only section the government has reached out to is industry. On August 23, Union Finance Minister Nirmala Sitharaman announced a slew of concessions to industry and the corporate sector.

Speaking to Frontline about the reasons for the slowdown, Tapan Sen, former Rajya Sabha member belonging to the Communist Party of India (Marxist), said the government should focus on generating demand and not merely on increasing liquidity for industry. Excerpts:

What is your impression of the economic slowdown and the reactions of industry to it?

There is definitely a slowdown. Consumption has gone down because of a decline in purchasing power. The crisis is a reflection of the obsession with the supply side management form of strategy followed not only by this [NDA] government but by previous governments as well. All this talk of reform by the Union Finance Minister is nothing but more fiscal squeeze and deregulation. This will reduce the spending capacity further. Labour costs are being suppressed by lay-offs, but this will, in turn, suppress demand and capacity utilisation. Inventories will pile up as a result.

One of the reasons given for the general slowdown, including the automobile sector slowdown, is the liquidity crunch and the reluctance of banks to lend.

The intent and the manner in which the government has been addressing the slowdown is totally dubious. The idea is to get public sector banks to lend as the government cannot compel private sector banks to do so. The objective is clear: to liberalise lending and hoping it will help investment and arrest the slowdown. But this is bad economics; investors will only come if they are assured of returns. The slump in the automobile industry took place in the latter half of 2018-19. In the first quarter, they made gains. There is a general global slowdown. The services sector, too, has been hit badly.

The Union Finance Minister announced various measures to assure industry and the corporate sector. The crisis now is in the organised corporate sector where industry is discussing major cost-cutting exercises.

The unorganised sector has always been in a bad shape. Now that the organised corporate sector has been affected, the government is responding to its needs. The government is caught in its own vicious web. The economy needs a stimulus but not on the supply side. The Bharatiya Janata Party government is continuing with aggressive reforms that aim at giving massive concessions to the corporate sector. The move to reduce direct tax rates by 10 per cent would automatically cover 99.3 per cent of the corporates. A government committee has recommended that direct tax rates be reduced by 25 per cent and surcharges on income be done away with. The government, while giving tax concessions to the corporate sector, should also look at the crores that it needs to recover from defaulters. It must be kept in mind that in the last accounting year, some Rs.7.23 lakh crore was due to direct tax default, of which Rs.1.8 lakh crore was undisputed yet un-recovered. This defies explanation.

Now, there are attempts to profiteer from the slowdown. Industry is demanding more concessions in order to cut down costs. No one is arguing in favour of demand management whereas an aggressive stimulus for demand management is what is required. The consequence is industry will inflict further wage cuts. Cutting down production will automatically lead to wage cuts. Export earnings are bleak with growing protectionism. The government is unable to do anything about that. The Insolvency and Bankruptcy Code legitimised default. Nearly 99 per cent of lending is from public sector banks. They will bleed them further. The government will then declare that it will recapitalise the banks but then it will all be from the public exchequer. Lending has to be capital investment that will generate employment and thereafter growth. Lending for the sake of lending makes no sense.

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