Millennium Post

Don’t give us a winter of discontent

Parliament’s winter session, starting on November 24, may prove tougher and more tricky for the Modi Government, not as smooth-sailing as the budget session, with the country still left, without a sense of economic growth pick-up and social developmental directions, beyond the promised ‘maximum governance’ and a plethora of catchwords for disaggregated ‘yojanas’.

It is true that prime minister Mr Narendra Modi works the hardest and has enforced discipline and has everything at his command, with maximum centralisation of powers, to give the appearance of orderly conduct of affairs. Government has gained weight in its six months, if not so much in depth, with the council of ministers having been expanded to 66.

Cyclical developments have helped to turn things look better, especially the global commodity plunge, chiefly oil, helping the finance minister Mr Arun Jaitley to effect at last a subsidy-saving deregulation of diesel prices, along with the steady decline in WPI and Consumer Price Inflation (CPI). These have also strengthened business sentiment which started looking up with a strong and stable government assuming office in May, but it has in no way nudged the corporate sector to make new investments.

Not merely domestic, but also the foreign investors, eagerly await to see how Mr Modi, having raised high expectations of transformational changes, would begin to launch his agenda of reforms. The economy meanwhile is lurching toward a 5.5 per cent growth in the current fiscal, driven largely by some improvement in the US economy and the expectation of continuing slow recovery in the rest of the developed world as well as the easing of oil and other global commodity prices.

There is nothing on record so far of the Modi government having taken any step which directly impacts on current output. Certain economic moves such as pricing of gas or setting procedures for auction of coal blocks for power projects or decisions on liberalised flow for FDI would have no effect in the near future.

The Modi government may be energising actions for quicker clearances of long-delayed projects but these are again of significance for the future. Not many of them would get commissioned even in the coming fiscal year.

In his triumphant travels over the last two months with assertive participation at a series of summits of world leaders and winning hearts of diaspora in far-flung locations, Mr Modi has only fuelled hopes further and raised the stakes for India to deliver. He will no doubt tell Parliament on his visits abroad, as custom demands, but he should also be prepared to tell Parliament and the nation what actions he would take in fulfilment of those expectations.

It is in recognition of the vigour of his leadership and of running a virtually a majoritarian government, that there is global assumption of India undertaking major reforms not only in the areas of macro-economic performance- fiscal and monetary policies and, financial sector- but also in improving business environment, manufacturing  (including land and labour market), infrastructure, education and health sectors.

International institutions have assumed that India is turning the corner, and with likely structural reforms taking hold, growth could surge from 5.4 per cent in the current year to 6.6 per cent in 2015-16. But there are questions as to how far, in spite of all the hype it has created for itself, the Modi government would be able to push ahead with some of the critical reforms as in regard to land acquisition or labour reforms designed to give large businesses the flexibility demanded in regard to employment.

Though the government has the overwhelming support in the Lok Sabha, to be able to have its way unencumbered, no legislation of a controversial nature can be got through the Rajya Sabha, where the Congress and other opposition parties including the Left are in majority. Mr Jaitley hopes he could build some consensus on at least such changes in the laws sought to be amended as would not harm farmers or workers. It is doubtful because from the beginning, the ruling BJP had not given the opposition the recognition due in a democracy.

A series of policy announcements abruptly by the Modi government including the abolition of the Planning Commission, where even the States were not consulted, and moves by the home and education ministries to enforce Hindi for communications all over the country have all encountered resistance from the states and viewed as federal over-reach.

Prime minister Modi’s ‘minimum government’ has shown itself up in a series of communal and other incidents triggered by rightist religious outfits. Whatever his shining successes on the electoral and foreign policy fronts, on which he has expended considerable energy already, the government has still a lot to do to set its house in order. This extends not only to toning up the working of public institutions by appointing suitable heads but also removing administrative bottlenecks that hamper timely execution of budgeted programmes. Supply side constraints which have contributed to food price volatility have to be tackled more seriously with marketing and other institutional arrangements.

Meanwhile, new risks to the global economy have surfaced with accentuation of EU economic sluggishness with negligible growth and deflation and Japan sliding back to recession.  There is some concern that it may have some spillover for the US economy itself, otherwise thought to have stabilised its recovery.

Whatever the demands for RBI lowering the repo rate in its policy announcement on 2 December, including by the finance minister, a cut at present is ruled out as the fall in inflation rate is ascribed to ‘base effect’ and there is a likelihood of oil prices again firming up. But government has to move, with some urgency, to the framing of a new monetary policy framework with inflation targeting, as suggested by RBI.

In its survey on India, OECD has said that monetary policy should ‘err on the prudent side to restore confidence and avoid a rebound in inflationary pressures’. The choice of a 4 per cent CPI target with a relatively wide band is reasonable given the distorting effects of high inflation and the volatility of consumer prices due to the large weight of food and energy in Indian consumption, it said.

At the same time, a tight fiscal policy should help to sustainably reduce inflation though the stance of monetary policy will also have to remain tight, according to the survey. The pursuit of fiscal consolidation would have to be without cuts in growth-enhancing spending. IPA

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