'Profiting on the back of taxpayers is not the answer'

A former top policy adviser of Modi government on Wednesday warned against using revenues of India's "overtaxed taxpayers" to rescue the corporate sector, which has often used the "tactic" to impress upon the government that unless they are bailed out through a stimulus, the entire sector, even the whole economy might collapse.

"Before rushing to provide a stimulus package, the government must ponder first, the loss-making sectors always acquire a disproportionate voice in media and have a vested interest in representing their plight as the plight of the entire economy. But this masks the reality of many sectors quietly operating profitability and growing healthily alongside.

"Second, there are serious dilemmas in financing stimulus. If the government chooses to stay the course on its fiscal deficit target, it would be either diverting funds from more important expenditure items or sending its tax inspectors to extract yet more revenue from already overtaxed taxpayers," former Niti Aayog Vice-Chairman Arvind Panagariya said in a write up in 'The Times of India'.

Panagariya, who is currently teaching economics at Columbia University, recalled a 2015 incident when he was at Niti Aayog and a leading industrialist, whom he had known for a long time, came to him to make a "too big to fall" argument of an urgent stimulus package, in absence of which, not only the industry but also the economy would run into a deep trouble.

"I smiled and told him, I am afraid such fear-mongering does not impress me," he said.

Pointing to the automobile sector, currently facing rough weather, Panagariya said, "The case for a government-led rescue is particularly dubious. It is an industry, which has enjoyed absolute protection from foreign competition in the entire post-independence era. High tariff protection has allowed inefficient small auto plants to thrive in India at the cost of the customer".
Instead, the former policy adviser to the Government of India said the industry must deploy the huge profit it made over the last two decades to keep its sales going if it considered the problems were temporary. On the contrary, if it thought, its problems were of a long-term nature, it must restructure by closing inefficient plants.

"Profiting on the back of the tax-payer is not the answer," Panagariya, who quit the government mid-way his tenure in 2017, said.

Panagariya's prescription comes at a time when the government has initiated a mild dose of stimulus by asking the banks to cut interest rates on home and auto loans.
The former Niti Vice-Chairman said, the government should accelerate structural reforms to help the economy.