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Slow But Steady

Populist economic policies are no longer the mainstay of the government of the day. Narendra Modi has also changed the grammar of foreign policy

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When people voted for the Narendra Modi-led BJP at the 2014 hustings, they desired change and economic progress. In its one year after assuming office, the Modi government appears to have begun working towards fulfiling its mandate, albeit a little gradually.  In fact, it had to hit the ground running as it inherited an economy characterised by low economic growth, rising prices and a huge fiscal deficit. As policy changes take time to show effect, the ‘Modi dividend’ came to the rescue as it immediately bolstered business confidence;  Keynes’s ‘animal spirits’ were roused in the anticipation of swifter governance and business-friendly policies under a Modi prime ministership. As a consequence, in just about a couple of months, the Sensex soared, the Index of Industrial Production started showing signs of recovery, albeit slowly, exports started picking up and  there was a huge surge in capital inflows from abroad.

Subsequently, the government got down to work and gradually unveiled reforms to break the prevailing policy logjam. Its major reforms include: a proactive foreign policy, a new coal and spectrum allocation policy, increased FDI in defence, insurance and rail infrastructure, emphasis on financial inclusion, decontrolled fuel prices, a new land buying law, smart cities, Digital India and Make in India initiatives, dismantling of the Planning Commission and the Swachh Bharat  and Namami Gange mission, among others. 

Have these changes started bringing in the desired results? The Economic Survey, released on the eve of the Budget, indicated a robust economic recovery with economic growth expected to touch 8 per cent for FY 2014-15. Latest data also suggests improvement in investor sentiment and industrial activity. For instance, Indian companies have raised a staggering Rs 58, 801 crore in equity capital from the capital markets in 2014-15; more than double of Rs 29,381 crore in 2013-14. Similarly, the Sensex closed at 27,957 at the end of FY 2014-15; a 25 per cent rise over the 2013-14 figure. 

What are the government’s most significant achievements? In my view, the most striking is the change in the mindset of the present government on economic issues. Populist economic policies are no longer the mainstay of the government of the day. Huge freebies in the form of fuel and fertiliser subsidies had completely eroded the resources of the UPA government; between 2004 and 2014, around Rs 11 trillion were spent on subsidies creating a fiscal crisis and a consequent squeeze on public funds for investment. This kind of mindless profligacy appears to have been halted. 

Narendra Modi has also changed the grammar of foreign policy. Economic considerations have entered as a principal factor in the country’s foreign policy matrix. The $35 billion investment promised by Japan, a $20 billion investment pledge by Xi Jinping and his Chinese compatriots, the €2 billion support from France for sustainable development, Airbus’s promise to increase outsourcing in India from €400 million to €2 billion over the next five years and discussions on possible investments with Satya Nadella of Microsoft, Indra Nooyi of PepsiCo, Jeff Bezos of Amazon, Mark Zuckerberg of Facebook are a result of Modi’s astute mixing of business and diplomacy. My sense is that we are going to see more and more of economics being used as a goal and instrument of the Modi doctrine of foreign policy in the coming years. This is a radical departure from the approaches of all previous governments to foreign policy in our country.

The erstwhile Planning Commission was a behemoth that was completely discordant with the needs of the present day liberalised economy. A completely new institution was needed to advise the government on economic issues in a globalised world. The government’s decision to establish the NITI Aayog in place of the Planning Commission is welcome. Apart from being a think-tank, the Aayog is also expected to foster better centre-state relations as the Planning Commission was a hindrance to federalism. 

I also feel that the over 12 crore Jan Dhan Yojna (JDY) accounts are going to be the biggest potential game changer in the country as they would ensure that welfare benefits reach targeted beneficiaries. The linking of JDY accounts with Aadhaar and mobile phones would identify real beneficiaries thus eliminating leakage of resources. The LPG subsidy scheme is a pointer in this regard. In just a matter of few months, the government transferred Rs 8,000 crore through direct benefit transfer in the LPG scheme.

Another major achievement of the government is the auctioning of spectrum and coal mines. After the reform in allocating natural resources, the auctioning of 67 coal blocks so far has unlocked Rs 4,00,000 crore of which Rs 3,35,000 crore are for states. Likewise, the auctioning of telecom spectrum has yielded Rs 1.1 lakh crore to the national exchequer. 

What are the areas where the present government needs to be more sure and swift?  Modi came to power on the basis of overwhelming support of the youth of the country. Job creation was a main plank of the BJP manifesto. Unfortunately, things have not moved much on this front. With 10 lakh new entrants to the labour force every month, about 1.2 crore jobs need to be created every year. In addition, the accumulated backlog also needs to be cleared. If we need to salvage our ‘demographic dividend’, jobs need to be the primary focus of our growth strategy. And for this, the manufacturing sector needs to be rejuvenated as it is this sector which is labour intensive in nature. Currently, only 12 per cent of the workforce is employed in manufacturing; about 60 per cent is still in the low productivy farm sector and a substantial portion of the rest is employed in low-paying service sector jobs. Boosting the manufacturing sector would require removing bottlenecks in land acquisition, improving the ‘ease of doing business’ and a substantial upgrade of physical infrastructure, namely, roads, power, ports and airports. 

By talking of Swachh Bharat, the Prime Minister has brought the issue of lack of toilets and open defecation to the forefront of policy making. However, looking at the progress made so far, the 2019 deadline set by the Prime Minister to make India clean appears to be very unrealistic. Cleaning up the Ganga is another pet scheme of Modi where things need to be speeded up.  



(This story was published in BW | Businessworld Issue Dated 01-06-2015)

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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