An uphill climb for Modi

The Modi Government cannot merely rely on ruling BJP’s formidable presence in the Lok Sabha to weather the political storms that have swept across the nation posing issues of propriety, nepotism, and even corruption involving Ministers of a Government that came to power committed to “zero tolerance”for corruption and “maximum governance”. The Monsoon Session of the Parliament beginning July 21 would thus be a crucial test for a Government just at the beginnings of its second year of office.

Prime Minister Narendra Modi can no longer remain silent when the Congress-led opposition parties have threatened to disrupt the Session, seeking actions on a series of charges they have leveled for weeks against the BJP Ministers at the Central and state levels, mainly over the handling of criminally-charged former IPL chief, Lalit Modi, (taking refuge in London), and the Madhya Pradesh Vyapam scam, which had taken several lives.

The political embarrassments for the government have dented its image at home and, to some extent, abroad though investors, having taken stability of the regime for granted, are more concerned with what the Prime Minister and his government are able to accomplish, in a surcharged atmosphere, on the lavish promises of reforms to help business accelerate investments.

The Monsoon Session takes place at a time when the economy is still struggling to recover in the second year, however, bravely the highly-articulate Finance Minister, Arun Jaitley touts achievements, and talks of India moving into a higher growth trajectory. Yes, certainly in cutting subsidies, taking advantage of the sharp falls in global oil prices. Building further on UPA’s “Direct Benefit Transfer” scheme, he has “saved” Rs.12,700 crores while the DBT has been extended to almost 130 million people.

There are only presumptions that the poor are taken care of by DBT in the absence of any monitoring and accounting of people availing of it through banks or otherwise. Finance Ministers, past and present, have found it the easiest way by reducing subsidy outgo in order to make themselves credible in the matter of fiscal consolidation. None of the governments has been able to prove whether there is nexus between growth and equity. The mantra is “the higher the revenue, the more the money to spend on poor”.

Given the appalling extent of rural distress and anti-farming policies of past and present, the Modi Government is trying hard to remove the impression of its being pro-busines and anti-farmer. All catch-phrases that are employed liberally by Modi himself as well as the advertised programmes of Government are redolent of concerns for the poor, such as giving up LPG subsidy would help “light the flame in a poor man’s kitchen”.

Government has little noteworthy to show up on manufacturing, exports and jobs in its first fourteen months, whatever the official claims of an economic turnaround within one year from a “macro-economic basket case”. Similarly, talk of having “reined in” inflation (ignoring the fall in global commodity prices and the “base effect”) does not bear scrutiny. Corporate investments have not revived nor seem likely in the near future, given debt servicing burdens and a missing demand boost.

Jaitley’s promised budgetary support for infrastructure is yet to hit the ground to crowd in private investment. But the Finance Minister, whether the country meets the official growth target of over 8 per cent in the current fiscal or not, confidently talks of India’s moving to higher growth of 8 to 10 per cent as “eminently achievable”. Partly, he relies on buoyant indirect tax revenues, judging from first quarter receipts, partly on monsoons turning good, and Government getting GST legislation through.

Again, GST or the much more contentious Land Acquisition Law amendments are now before two select committees where parties are locked over serious differences. Both legislation have to go through the opposition-dominant Rajya Sabha and non-Congress parties are as much opposed to several provisions in GST and Land Acquisition. It is becoming doubtful if Jaitley could adhere to launching of GST from April 2016.

A lateral move of the Prime Minister to get maximum support of Chief Ministers at a meeting of NITI Ayog for his land ordinance was a dismal failure. Beside boycott by Congress Chief Ministers, several other state CMs were also absent. Even though Modi sought to frame the land issue as one for “rural development”, the emerging view, mainly of BJP CMs, was to leave it to states to follow their own acquisition procedures, in the absence of consensus.

If this is so, it would become a major retreat for the Modi Government and could have adverse impact for the Prime Minister’s urban-centered development priorities (corridors, smart cities and for the locations of “make in India” ventures). Though Modi believes in Centre and States coming together as “‘Team India”, coined by him, his government’s inability to make headway on a structural reform would be poor advertisement, which could prolong the suspense of investors.

All this may not take away the star attraction India still has, as the relatively stronger emerging economy, at last able to grow statistically at least better than China, and amid the current tremors in the latter’s financial markets, India qualifies better for investments. It is a different matter that for all the substantial liberalisations for foreign direct and portfolio investment flows, the response cannot be said to be commensurate with expectations.

In order to make it easier for larger inflows, the Modi Government has decided to club all FIIs (Foreign Institutional Investors), NRIs (Non-resident Indians), and other foreign investments to be constituted as a “composite cap.” But India does not expect any serious effect on financial flows from changes in the monetary policy of advanced economies, especially US Fed proceeding to increase interest rate later in the year.

Currently, global factors are not unfavourable for India, as low levels of oil and other commodity prices are set to continue through the year. But India’s poor record in exports over the last seven months has more to do with trade policy management at home, especially for a vigilant Minister of Commerce who has valiantly fought against WTO pushing for cuts in food subsidy but seems more preoccupied with investment policy liberalisations than looking into a miserable trade turnover.