Minister Narendra Modi announced a series of incentives to the poor,
farmers, women and small businesses on Saturday in a New Year’s address,
and defended his recent decision to abolish high denomination bank
notes.
The
televised speech was widely seen as an opportunity for Modi to shore up
support after a radical move on Nov. 8 to withdraw all 500 and 1,000
rupee bills, accounting for 86 percent of currency in circulation.
Millions of Indians were forced to
queue outside banks for hours to deposit old money and withdraw as much
new currency as was permitted, causing widespread anger and raising
concerns about India’s economic growth in the current quarter.
The so-called “demonetisation” was designed to
crush India’s huge shadow economy, increase tax revenues and promote the
use of bank accounts and digital transactions, but perceptions that the
ambitious operation was botched have hurt Modi’s standing.
It comes only weeks before Uttar
Pradesh, India’s most populous state with 200 million people, holds an
election that will test whether the popular leader has been
significantly weakened.
Modi praised Indians for their forbearance.
“In
this fight against corruption and black money, it is clear that you
would like to walk shoulder to shoulder with us (the government),” Modi
said.
“For us in
government, this is a blessing … Corruption, black money, and
counterfeit notes had become so rampant in India’s social fabric, that
even honest people were brought to their knees.”
In welcoming news for Modi’s government, State Bank of India (SBI.NS),
the country’s largest lender by assets, announced on Sunday it would
cut lending rates by 90 basis points, after a surge in deposits in old
notes. [L4N1ER03W]
Lower lending rates could increase credit growth and spark a revival in private investments.
NO “BIG BANG OFFERINGS”
On Saturday Modi had
urged banks to do more to increase lending for the poor, while
announcing a slew of measures including an offer of a 4 percent discount
on interest rates for home loans for up to 900,000 rupees ($13,200)
taken out in 2017 by middle class Indians.
Modi
also said the government would increase credit guarantees for small
businesses and provided additional incentives for digital transactions.
There
were steps to help pregnant women and senior citizens, as well as
financial support for farmers, an apparent bid to win backing among the
huge rural population of Uttar Pradesh that has been hit hard by the
cash overhaul.
Modi did not say how the government
would pay for the measures, although economists said the package was
unlikely to be too costly. It was unveiled as the government gears up to
announce its annual budget, probably some time in February.
“It’s
clear that Modi is chastened and he had no big bang offerings today,”
said Mohan Guruswamy, chairman of the independent economic think-tank
Centre for Policy Alternatives.
“He is clearly doing this to win back political support.”
The
Uttar Pradesh poll will be a litmus test for Modi and his ruling
Bharatiya Janata Party, and will go some way to determining the prime
minister’s chances of winning a second term in office in national polls
scheduled for 2019.
While he has introduced several
major reforms to Asia’s third largest economy, the cash ban is seen as
his biggest political gamble to date.
Members of the main opposition Congress party were quick to criticize the speech.
One senior member, Prithviraj Chavan, said the address was vague and lacked accurate accounting details.
“It
was his day to present a report card and specifically disclose the
benefits of ‘demonetisation’, but clearly the entire drive has been a
failure,” he said.
In his speech, Modi sought to cast the move as something all Indians should support.
“I
urge all parties and leaders to move away from a ‘holier than thou
approach,’ to come together in prioritizing transparency, and take firm
steps to free politics of black money and corruption.”
($1=67.9445 Indian rupees)
