Growing fast, greater challenges

Curiously, Prime Minister Narendra Modi gave the nation neither a cogent account of his Government’s two-year record of “vikas”, by way of outcomes toward the “achhe din” he had promised in 2014, nor did he hold out any early promise of meeting job and such aspirations of the people who had voted for him.

India’s social record – basic education, health, and poverty - remains appalling even in relation to many lesser developed countries in Asia and Africa. The economy claimed to be “fastest-growing” is locked up in a multitude of challenges which are conveniently downplayed by a drum-beating government.

Instead, Modi turned the second anniversary of his rise to power and total command in governance into another gala show, with tall claims on his corruption-free stewardship of the nation.  The underlying theme of his enduring political campaign is that his Government needs, even more, power for a total grip over Parliament for him to accomplish all his “transformative” reforms.

To this end, the Rajya Sabha is sought to be packed with BJP nominees this year and the party’ strength would be boosted to a level to extend its domination into the Upper House, not later than the next biennial (2018), well ahead of the next Lok Sabha poll 2019.

The immediate focus is on UP where BJP wants to regain power in 2017 by worsting both the dominant ruling SP and the power-in-waiting, BSP of Mayawati. Hence, the Prime Minister and the campaign-in-chief, aggressively promoted by BJP as the most shining pro-Dalit leader, launched the 2017 poll campaign at Saharanpur on May 26.

He is already committed to doubling of farmers incomes by 2022, and one can expect all economic policies and welfare schemes to be designed to cover Dalits, making up over 20 percent of UP population.  There is a gnawing fear that without UP under his belt, Modi, whose glory had begun to fade somewhat in the light of his below-expectation performance, might have to fight a losing battle in 2019.

Overall, the elaborate anniversary ritual mocked at the acute rural distress and unrelenting farmer suicides, mostly in BJP-ruled states. As usual, Modi revelled in running down the Congress Governments of the past with the choicest epithets. One would hope that the Modi Government would get back to tackling the immediate challenges, with the two-trillion dollar economy in disarray in several respects.

Finance Minister Arun Jaitley may have contained the fiscal deficit in 2015-16 at the budgeted 3.9 percent of GDP. But there are many tougher macroeconomic tasks ahead including structural reforms for job-creating growth and financial stability.

Also, it would do well to the credit of this Government from the Prime Minister downwards to become less insolent toward parties and opinions, which may be legitimately critical of certain approaches of theirs, and try and harmonise views on reforms and other issues in furtherance of rapid economic and social advance. A free and thriving democracy like India needs to be fully safeguarded as a global model.

The Rajan episode, ignited by BJP nominee and political maverick Subramaniam Swamy, totally disrespectful of a universally acclaimed economist in Governor of RBI Dr Raghuram Rajan, and calling for the premature termination of his prestigious stewardship of our Central bank, reflects an undesirable slur on the Modi Government for its stony silence.

Modi would like the media not to go into this ugly side of the way things may go even beyond the Prime Minister’s control but the latter himself becomes discreetly silent whenever necessary to suit the interests of his party and the RSS.

Also, the Finance Minister Arun Jaitley’s few casual remarks have been ambivalent, underscoring perhaps the reservations that this Government may have about an extension of Dr Rajan’s term beyond September 2016. Surely, Jaitley, just back from another investment-seeking foray, cannot overlook the damage for his Government abroad the way the Rajan matter blows over.

The Modi Government may be comforted by the rise in GDP by 7.6 percent in the year ending March 2016 as against 7.2 percent the previous year. (The gross value added – GVA –was 7.2 percent (7.1 percent). But there is no concealing the fact that it was jobless growth with lower inflation helping a rise over the previous year.

But what is disturbing is the declining investment rates and slowing manufacturing growth at 2 percent, going by IIP, as against 3.9 percent in 2014/15. Gross fixed capital formation has been on downtrend to less than 30 percent at current prices over the previous year’s 30.8 percent at current prices.  Basing estimates on corporate returns, CSO has enhanced manufacturing growth to 9.3 percent in 2015-16. WPI and CPI stood at 3.3 and 4.9 percent respectively during the year.

India enjoys the limelight as a vibrant economy, “one of the fastest growing countries”, as OECD has said in its June update of economic outlook, with growth projected to remain strong (7.4 and 7.5 percent in 2016 and 2017) fuelled by private consumption depending on increases in public wages and declining inflation. 

No early revival of private investment looks likely as deleveraging continues for corporations and banks, the Outlook notes. While fiscal consolidation and enactment of the Insolvency and Bankruptcy Code, setting a time limit for resolution of insolvency, are welcomed, OECD assessment for growth this year rests more on fiscal rather than monetary policy. 

For fiscal consolidation, it stresses quality improvement by increasing tax revenue from personal income and property taxes and further rationalisation of subsidy programmes. Spending mix should be tilted towards physical and social infrastructure.  Contrary to NDA claims on fast-tracking of stalled infrastructure investment projects, OECD said these had again risen to more than 8 percent of GDP, with the private sector accounting for the bulk of the delays.

On monetary policy, with the RBI policy review due on June 7, analysts see little room left for further rate cuts, with inflation expectations remaining high and the CPI inflation above the long-term target (4 percent). At the last review in April, Governor Rajan brought the repo rate further down to 6.5 percent and hopefully accommodation could come with lower lending rates by banks, with benefits passed on to consumers and investors.

Jobless growth and lower productivity are among major concerns voiced in the OECD outlook report.  These vitally impinge on India’s potential for higher growth. Job creation in the organised sector (enterprises with 10 or more employees) has been slow, leaving most workers in the unorganised sector, with little job protection. 

The government is banking on this year’s normal monsoon forecast for a strong growth revival.  But private investment may not pick up until after some cleaning up of banks’ balance sheets and corporates see demand resurgence.       

  IPA