It is not unusual for banks to give loans to buy high-end luxury cars like Audis, BMWs and Porsches as they have to some lucky deep-pocketed corporators in Navi Mumbai, but for finance minister P. Chidambaram to expect banks to give low-interest loans to consumers to buy cars, two-wheelers, TV sets and other “white” goods to push up sales in the coming festive season is somewhat misplaced generosity to the middle class.
It is not unusual for banks to give loans to buy high-end luxury cars like Audis, BMWs and Porsches as they have to some lucky deep-pocketed corporators in Navi Mumbai, but for finance minister P. Chidambaram to expect banks to give low-interest loans to consumers to buy cars, two-wheelers, TV sets and other “white” goods to push up sales in the coming festive season is somewhat misplaced generosity to the middle class. Banks are already in bad shape and giving them '10,000 crore to bring cheer to consumers will hardly help. As a stimulus measure to boost demand it is a poor handmaiden to the consumer already struggling under huge food and fuel inflation. It would have been a lot better if the government itself had cut levies like sales tax and excise duties which would have automatically brought down the cost of the items it wants the middle class to have this festive season. Or it could put more purchasing power in the hands of the middle class by lowering food inflation that is eating into household budgets. (Imagine a kilo of onions costing '70-80 per kg and the government being unable to do anything about it for months). These steps would spur demand, get rid of inventories, encourage production and in turn provide additional revenue to the government. Reserve Bank governor Raghuram Rajan has said the government is yet to decide on the contours of its stimulus measures, so there is still time to think in terms of tax cuts!
