S. Sethuraman
Prime Minister Narendra Modi cast himself a new wonder of the world by the electoral heights he scaled at home in May 2014 Lok Sabha polls and by the frenetic pace of his travels over a year, to assert India’s rising stature with its fast-growing economy, reckoned as one of key drivers of global growth. He scored huge gains in the matter of foreign capital financing for long-term development.
The world does recognise his assertive leadership and capability to be a game-changer but not without reservations over some of his government policies which, let alone the lagging economic recovery, are perceived to be disruptive to social harmony and antagonistic to civil society.
Overall, Mr Modi thus ends his first year in office with national as well as global expectations he had raised, somewhat belittled, notwithstanding some bold initiatives his Government has taken for economic renaissance in times to come. But Mr Modi and his majoritarian BJP-led NDA cannot fail to notice the extent of disappointment over performance so far.
This is not confined to opposition parties he may disdain but widely shared across the spectrum, whether businessmen, investors, the job-aspirant urban youth, or the distressed rural community. It is well known, even without Mr Modi himself having to proclaim in corners of the world, that he works very hard toward a re-ordering of Indian political and economic system.
Coming to the first year record, whatever achievements his boastful Ministers have been trumpeting, the ground reality is quite different. This view has gained acceptance even among his most ardent supporters in the country and the economic parameters are still baffling in several respects. And it cannot be denied that it is the sustained drop in oil prices that benefitted perhaps the most for India in not only lowering inflation but also beefing up government finances.
So much so, along with sharp cuts in civil expenditure – whatever its impact on growth and services – besides the oil bonanza, the Finance Minister Mr Arun Jaitley has been able to claim bringing down of fiscal deficit to 4 per cent of GDP – even less than the budgeted 4.1 per cent in fiscal 2015. He counts on this as one of the factors which should goad RBI to make a further rate cut in June.
The economy has remained sluggish through 2014-15, and this is linked to a host of factors. These include lack of investment revival due to high corporate leverage, poorer earnings of companies from demand constraints in a situation of lower levels of economic activity, repressed wages and the excessively high market prices of food and other consumer goods, not exactly captured in official price indices.
Manufacture is yet to pick up from bottom levels and there are few segments, barring automobiles or real estate sector, to provide job opportunities. Exports are losing ground. Mr. Modi’s “Make in India” campaign is entirely dependent on investment flows, readily available skills, and technology imports and there are no early returns thereof expected. His promise of jobs and “achha din” are not realisable near term goals but one pushed into the unknown future.
Meanwhile, despite several bouts of clarifications the Finance Minister has attempted, foreign equity investors are still concerned about “retrospective” tax, though Mr Jaitley has dubbed it as “legacy issue” and hopes a new panel he has named would clarify the position for the benefit of investors.
In his two budgets he had talked of his commitment to a stable, non-adversarial tax policy environment. Mr Jaitley has apparently not carried conviction and he has now put down, as his second year priority, as one of “making taxation more reasonable”, hopefully perhaps for everyone, not only for foreign investors. Nor his Government’s efforts on easing of business conditions for investors have helped to improve matters.
The major bottleneck remains the infrastructure inadequacies, which are being tackled piecemeal and are time-consuming to overcome, especially with insignificant flows of investment. There may be some progress on the power front but road building has been slow and railways, to which Mr Modi has attached highest importance as the vehicle of growth, are yet to get on with project award and implementation.
As the first quarter of second fiscal year is nearing end, there are few signs of economy on firm recovery and apart from infrastructure building, with the promise of public investment, Government has to clear other obstacles to project approvals and commissioning. There are other risks to growth, domestic and global, and in addition, India faces the prospect of a poor monsoon. Rural distress has already heightened in the wake of unfavourable weather conditions. Altogether not a rosy outlook in 2015-16.
On reforms agenda, Government has met with a fair degree of success in pushing some of the important legislative measures especially in regard to insurance, coal and mining sectors, black money etc but the hurdles are still to be overcome on GST and land acquisition. It is on the latter that the Modi Government has hit a road block and there are no easy solutions in sight.
Mr Modi is understandably chastened by the political resistance to neo-liberal policies of his Government, as tried by UPA in its early years, and may have come to realize that the approaches have to become more farmer-friendly and labour-intensive, whether in manufacture or services. He will have to re-strategise for growth and employment, balancing the interests of all stake-holders – agricultural and industrial – in the economy. He should also bring the states together in a common endeavour of development march in step, which his “Team India” signifies.
Mr Modi has tried recently to fight back against his government being labelled more pro-corporate to the neglect of rural areas and the poor. He has had to burnish his image as one no less “pro-poor” than his political rivals. Some of the Government’s policies and reforms may get toned down in the coming months to stay ahead in the battle of perceptions and credibility.
Mr Jaitley, like his predecessor Mr Chidambaram, links social spending to higher growth of the economy. As revenues increase in future, he said, he would earmark expenditure for rural infrastructure including irrigation. “Inclusive growth” has thus far remained more a slogan with the presumption that equity is taken care of, as higher growth takes place. This again is subject to keeping deficit levels “fiscally prudent”. Thus, social equity gets a short shrift. Is the Modi Government ordained to follow the same route? (IPA)
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