Its all about the jobs, stupid

Even though I am repeating what I have said before, I think it needs repeating because nobody is listening. In a recession or when the economy is bad, the government can take only some actions as the economy is not run by the government but rather by the people. The actions that the government can take are as follows:

(a) Reduce the taxes (direct and indirect). Reduce income taxes to place more money in the hands of the consumer so as to increase consumption.
(b) Excise and service tax should be reduced to reduce the cost of goods for the consumer to enhance demand.
(c) Service tax should be reduced to reduce the cost of services for the consumer to enhance demand.
(d) Expedite Income Tax refunds which would place money in the hands of the consumers as well as companies to spend. It would also eased the liquidity of the companies.
(e) Put smaller infrastructure on fast track so that allocated money starts working in stimulating the economy. Give a push to larger projects.
(f) Take suggestions from industry bodies to make changes in rules and regulations so that doing business becomes easy.

The government had taken some action when it reduced some taxes though I feel that they should reduce more. They are taking no action to refund taxes, push smaller infrastructure projects or take steps to make it easier for people to do business.

Instead what the RBI has done is reduce Repo, Reverse Repo by 50Bps. Now this is mumbo jumbo to most of us including me. I had heard a number of big time industrialists that these mumbo jumbo things should be reduced. As a layman, what I know about this mumbo jumbo is that a reduction in this mumbo jumbo will increase money supply and the banks will be propelled to lend. But is of funding that is the problem?

Let me tell you that it is not the lending or availability of finance that is the problem. We don’t need to be a rocket scientist to understand this as the answer is evident from the steps taken by the US government and the response to such steps.

What people are worried about is their jobs. Everybody’s confidence is shaken. Even is loans are easily available and even at lower interest rates, do you think people will buy new cars? I doubt it. People understand that loans have to be repaid and you can’t repay your loan if you don’t have a job. With 30-40% decline in auto sales, do you auto companies are looking for money to finance their investments? No they are looking for people who will buy the cars as they already have capacity to build them.

The above was reluctantly admitted by Mr. Rahul Bajaj on one of the TV channels. First, he said that their dealers were not getting credit and so sales were down. Then he said that even the demand was down because of confidence level and job losses. I think Mr. Bajaj is not realizing what his dealer is thing. Good I have an excuse to tell the company that funds are not available because otherwise he will will have to carry more stock and lose money.

You know the day this mumbo jumbo was reduced, the business channels were going on and on about it. They had analyst predicting all kinds of scenarios. I think all of us need to realize that no one can predict when the recession is going to get over. So as suggested by me, lets forget about this mumbo jumbo and push the government to do what it should be doing, that is, refund taxes, push smaller infrastructure projects at lightening speed and take steps to make it easier for people to do business.

avinash narula

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