A wake-up call to Modi and BJP
Prime Minister Narendra Modi has shown himself to be a silent spectator, often on crucial occasions of public disquiet, whether over the “growing intolerance” generated by rabid elements of the Sangh Parivar, including the killing of some of the rationalists, or on challenging issues for his proclaimed “maximum governance” and “Vikas” juxtaposed with RSS-Hindutva agenda goals.
The Modi government, on its part, has no doubt moved quickly to reassure international investors that India’s growth and reform path remains steady and would be pursued with greater determination. Yet certain vital reforms like the goods and services tax (GST), labour and land acquisition laws cannot pass through Parliament, which meets on November 26 for the winter session, without the support of the opposition, mainly the Congress in Rajya Sabha, now charged with “obstructionism”.
On its part, the Congress is getting back at the Bharatiya Janta Party for blocking the GST Bill it had sponsored, while the latter was in opposition is not easily forgotten. But the stakes are high and it is, therefore, urged that the Prime Minister take the lead in re-establishing norms of parliamentary conduct and reach out to the opposition. With a consensus, the government could overcome the obstacles in the way of key reforms. That would help a “transformative economy” that the PM aims towards.
With all his foreign travels due in November-December, the Prime Minister also needs to take note of some adverse media comments abroad, misgivings even in certain countries, on the way social and cultural issues have established a divisive environment in Modi’s India. Still, the Prime Minister remains a charismatic leader who could also promptly respond to concerns over tolerance and plurality.
He goes to the G-20 Summit in Ankara this weekend (November 15-16), from London, heading an emerging economy best positioned to grow to its potential of 8 to 9 percent in a not so distant future, while China is engaged in rebalancing its economy with multi-year moderating growth. Brazil and Russia are in recession. Modi will cite the reform push of his government for inclusive growth and job creation.
The G-20 Summit has to take stock of global growth and trade growth shrinking to 3 percent and 2 percent respectively in 2015, and has to come up with a strategy that could lift economies with “effective demand-side measures that support today’s growth and maintain stability”, as the International Monetary Fund (IMF) pointed out in a note at the Summit on Global Prospects and Policy Challenges.
To offset the fall-out from the Bihar poll results, the NDA Government has announced certain reforms that could be pushed through executive action, like further liberalising Foreign Direct Investment (FDI) entry into major sectors and accelerating processes to do business easier, besides making growth-enhancing public investments in infrastructure, notably power and roads. Yet, despite continued low oil prices – which came as a boon to Modi Government to cut subsidies and improve public finance – growth in the first half of fiscal 2016 had not picked up over the past year level.
Getting rid of the current slackness in the real sector – agriculture and industry -other than services must get more attention from the government, which keeps making bullish statements on growth outlook and reform agenda but with no credible job gains yet. Although China’s rebalancing has helped India to become the fastest-growing emerging market economy, IMF projections for the current year and the next for India remain subdued. Growth is slightly revised down to 7.3 percent in fiscal ’16 from earlier 7.5 percent but retained at 7.5 per cent for 2016/17.
While the Organisation for Economic Co-operation and Development (OECD) is broadly complimentary of India’s progress, its economic Outlook on November 9, puts down growth to 7.25 percent in current fiscal and then to rise to 7.3 and 7.4 percent in the following two years. There is a demand for greater public investment, faster clearance of key projects and further easing of doing business, which should promote private investment, with a special thrust on structural reforms, according to its report.
Global uncertainties for emerging and developing economies remain unabated. And new vulnerabilities for them are cited by IMF, referring to the transitions under way – the divergence of monetary policy in advanced economies, rebalancing in China and the end of world commodity super-cycle. The OECD points out that a more significant slowdown in Chinese domestic demand could hit financial market confidence and growth prospects of developing and advanced economies.
For emerging market economies (EMEs), the challenges have increased, reflecting weaker commodity prices, tighter credit conditions and lower potential output growth. Capital outflows and sharp currency depreciations may expose financial vulnerabilities. Of immediate interest and concern to emerging and other economies is the likelihood of US Federal Reserve affecting a first rate hike by the end of December.
Though India can manage external vulnerabilities, the IMF says that a Fed lift-off could increase financial market volatility, “with potentially disruptive moves in capital flows and asset prices”. RBI Governor Dr Raghuram Rajan welcomes the US Fed changing course at a time when “loose” monetary policies of advanced nations are leading to disruptive consequences for emerging and developing economies. The monetary policy in India, with rate cuts, remains accommodative.
While the Federal Reserve would be withdrawing accommodation, monetary policy easing will continue in Euro Zone and Japan. According to the IMF, this is justified by economic slack and very low inflation in those advanced economies. Even for the Federal Reserve, the IMF has cautioned that its decision should remain data-dependant, with the first increase in Federal funds rate waiting until labour market gets further strengthened and firm signs appear of inflation rising toward the Fed’s target of 2 percent.
The G-20 has been called upon to agree on policies to secure strong and durable growth that should be “decisively implemented”. The road ahead will be bumpy with economically turbulent transitions, especially in China, and if not successfully navigated, global growth, which is assumed to recover sharply to 3.6 percent in 2016, could be derailed with the high levels of poverty and unemployment.
(The views expressed are strictly personal)