After holding out for seven weeks, following her maiden budget, Nirmala Sitharaman finally blinked. For about a month now, pink papers and business-friendly pundits had been crying foul about India Inc’s shrinking sales.
But, since you can’t sell a sob story about the rich, it was spun to make it about the poor.
Newspaper headlines spoke of the crisis in chai-biskoot sales. About how the poor aren’t even able to buy a Rs 5-packet of biscuits. About the oversupply of tea in the market, and the crash in tea prices. About how rural India has stopped buying toothpaste and undies.
Dire warnings were given about massive job-cuts in the offing. Parle, makers of India’s largest selling biscuit Parle-G, said they would have to lay-off 10,000 people, unless the government lowered GST rates. Auto-makers, and their suppliers, warned of 10 lakh job losses unless the government acted immediately.
Various manufacturers associations put out newspaper advertisements asking for help. One, by an association of textile mill owners talked of massive job losses, while another, placed by the Indian Tea Association reminded the government that the livelihoods of over a million workers were at stake.
To make readers feel that this was all about the poor, the textile mill advertisement used a sketch of a farmer with an ox-pulled-plough, while the tea association notice had the familiar picture of a tea garden worker. Never mind, that tea gardens are notorious for their inhumane working conditions.
But, it wasn’t as if India Inc was just complaining. The commentariat also, helpfully, provided the solutions. The bulk of them was about how to fix the crisis in India’s auto industry, the worst hit by the slowdown.
Experts asked the government to hold off on implementing new emission norms and the hike in registration fees. They also demanded a national ‘scrappage policy,’ by which car-buyers would get government subsidies to replace their khataras.
The biggest cry was for pushing out more cash into the shadow-banking system, so that they could give more loans. One in three cars and more than half the two-wheelers sold, used to be financed by NBFCs. They have been badly cash-strapped, for the past one year, and have cut-back on loans. Banks are much more conservative, and only give loans to credit-worthy customers. This, according to auto-dealers, is the single biggest reason for the collapse in vehicle sales.
If the mainstream spin was about jobs and slowdown, on social media things were more direct. The gentlemen of Dalal Street, many of whom attacked critics of Modinomics as anti-national liars, spent the past few weeks excoriating the FM on Twitter and Facebook.
Although, these market-men of Mumbai ranted about the condition of the economy, their real concern was mostly about the extra tax on the super-rich and 40% of foreign investors. After all, despite their loyalty to Modi ji, no one likes to see their investments tank so much, so quickly.
As everyone knows, Nirmala Sitharaman gave in on most of these things. Not only was the tax of FPIs reversed, but even India’s own super-rich will no longer need to pay the additional surcharge on their capital market gains. Auto-makers got much of what they had asked for along with an additional gift: The FM said government departments will soon start replacing old cars.
To induce people to buy homes and cars, banks were told to pass on the recent repo-rate cuts to their customers. And to help banks with more funds, the government announced it will immediately release all of the 70,000 crore rupees, that the budget had allocated for recapitalising public sector banks. Banks will also be nudged to release funds to NBFCs. This should make car-financing smoother.
Other things that affect the affluent, and were giving the government bad press, were also tackled. The controversial ‘Angel Tax’ was removed entirely. In some senses, it was an admission that Sitharaman’s Budget Speech announcements, asking the taxman to go easy on startups, hadn’t made any real difference on the ground. New norms were announced to calm fears of ‘tax terrorism’. And, what should come as a relief to corporates, CSR violations will no longer attract a jail-term.
Note that everything announced by the FM in her ‘mini-budget’ had to do with the affluent. There was nothing for the poor, who are not being able to buy biscuits or replace toothbrushes.
One could argue that if the auto-sector comes back on track, lakhs of people will get their jobs back. But, will that really happen?
The talk about the slowdown causing job-cuts was always a red-herring to garner sops for India Inc. Take a look at India’s largest car-maker, Maruti Suzuki Limited’s, financials and you will see that its employee cost was just 4.2% of its total expenses in 2018-19. Even in the first quarter of this fiscal, where it has seen a huge drop in sales, its employee cost was just 4.7% of total expenses.
Let’s take Britannia Industries, which says it can’t even sell 5-rupee biscuit packs. It’s employee cost in 2018-19 was 4.7% of total expenses. The company’s standalone employee cost in the June quarter of this year was about 4.1% of total expenses. Again, a very minor amount when it comes to affecting its overall profits.
We know that the salaries and emoluments of top executives make up a substantial chunk of the total wage bill of any company. In 2018-19 Maruti, for instance, paid its 12 directors a total of Rs 12 crore. In the same year, Britannia paid its 14 directors, the CEO and the CFO a total of Rs 22 crore or about 5% of the company’s total employee expenses.
These people are unlikely to be asked to go, and even if they are, they will be replaced with other, equally expensive people. The job cuts, if any, would take place at the bottom level, usually amongst those hired on contract, for relatively low wages. So, even if 10% of them are sacked, companies like Maruti or Britannia won’t be able to save more than 0.2%-0.3% of their total costs.
In other words, manufacturing companies can easily ride through these tough times without sacking their workers. In fact, any sop given to them, is likely to go towards adding to their bottomline, instead of saving jobs.
What Sitharaman should have done, instead of giving freebies to the affluent, is to announce additional government spending in MNREGA and plans for filling vacancies in government jobs. The Modi government could have raised support prices for crops and, at the same time, allocated more money towards PDS, to reduce the amount the poor are spending on food, so that they could spare some cash for other goods.
That would have revived demand from below, instead of applying a salve on the superficial scratches that this slowdown has given to India’s top corporates. It appears that the government realised that you need the rich on your side to manage the media narrative, without which it is difficult to win elections.
Aunindyo Chakravarty is a former senior managing editor at NDTV.