Driving for regimentation
Amid the cacophony about "revolutionary" moves and electoral boosts, the Modi Government has hardly made any effective impact on economic growth and jobs or ensured social harmony in its first three years, even as its focus turns increasingly on how to further fatten its majoritarian hold over the country in 2019.
At best, it has proceeded on the well-trodden path of jobless growth without a revival of domestic investment to be able to lift the economy out of a quagmire, growth being struck at or around 7 per cent. It has no doubt refurbished some of the social welfare schemes, poorly implemented by its maligned predecessor UPA regime, with benefits to targeted recipients.
External environment or "global uncertainties" had less to do with our slowdown at a time oil prices remained relatively low and both fiscal and current account positions could be held within manageable limits. Government's inability to secure investment revival or enlarge the role of public investment in infrastructure is as much to do with stagnation as the delayed projects awaiting clearances - a hangover - and the crisis in the banking system.
More recently, there have emerged hopeful signs of a vigorous movement, besides preparing GST for introduction in July, on resolute action to enable banks to bring down stressed assets (NPAs) without fear or favour and RBI has also moved in with effective mechanisms with oversight panels. These are designed to shield bankers in cases where write-offs of non-recoverable loans become necessary. RBI is empowered to oversee solutions to bring down the "unacceptably high" levels of non-performing loans (NPAs) with public sector banks of over Rs 6 lakh crore, though primarily, the banker himself is encouraged to make decisions.
A major take away from UPA is undoubtedly the Goods and Services Tax (GST), which BJP and Finance Minister Arun Jaitley abhorred while in opposition, but in power, they have embraced it with great fervour. The Prime Minister sees it as "One Nation, One Tax" (whatever his other attributes for this "One Nation"). The Modi Government regards GST as the biggest tax reform since independence ranked next to the "boldest demonetisation" Prime Minister Modi had foisted on the nation on November 8 last, unmindful of misery it cast for the vast majority of cash-dependant poor and small traders.
The people at large are now paying the price of that botched move, which has been justified on several and changing counts. First to get hold of 'black money', apparently unsuccessful, then checking tax evasion, partly fruitful and welcome, and later as one reform designed to make India a "cash-less society". But what has caused greater worry for people is the Government's requirement for every individual, in rural or urban areas, literate or otherwise, falling in step for Mr Modi's digital economy in a "New India". That is, every citizen should get himself "Aadhaar-empowered", possessing the biometrically verifiable identification.
Issues such as the manner of this Government enforcing its fiats and privacy rights of citizens are now before the Supreme Court, whose earlier order on not making Aadhaar mandatory for every scheme has been cynically ignored by the Government. With constitutional questions including fundamental rights at stake in the Modi Government's recent moves, some designed to bypass Rajya Sabha, the highest court in the land is looked upon to pronounce its opinion through a full Bench which could also help to put the Apex Court's credibility above reproach. The areas where Aadhaar is necessary should be specified and incorporated into legislation.
Liberals view with alarm the Government's overreach and look to the forthcoming Supreme Court decision to clarify whether the checks and balances of Constitution stand or not. The underlying fears are such moves of the executive would lead to regimentation on a national scale where the citizen's rights would be subsumed by the "public interest" cited by any public authority. That should be possible with BJP in control of most states in India.
Economic prospects for fiscal 2018 are still mixed. The push on GST and actions in the banking sector can help to some extent in the revival of investments and growth which is projected at 7.2 per cent again by IMF in its Asia-Pacific Regional Outlook on May 9. Growth would rise to 7.7 per cent in 2018/19. The temporary disruptions (primarily to private consumption) caused by cash shortages in the wake of demonetisation are expected to gradually dissipate in 2017 as cash shortages ease, IMF notes. Growth would be depending on a favourable monsoon and continued progress in resolving supply-side bottlenecks.
The investment recovery is likely to remain modest and uneven across sectors as deleveraging takes place and industrial capacity utilisation picks up, the Outlook points out. A stronger recovery will also depend on the levels to which weaknesses in India's bank and corporate balance sheets are addressed.
In a study of the demonetisation episode, IMF says the economic repercussions from the currency withdrawal remain a key domestic risk in India, in part as the near-term adverse economic impact of accompanying cash shortages remains difficult to gauge. Its impact on the informal economy and cash-based sectors, relatively large and most affected by the cash crunch, is likely to be understated because these sectors are either not covered in the official statistics or are proxied by the formal sector activity indicators.
(The views expressed are strictly personal.)