Revived planning for transformation
Maybe, at last, Prime Minister Modi himself and his senior colleagues realise that neither growth nor jobs could materialise, as was hoped to be conjured up while making wild promises on development to the electorate in 2014. And so, the “incremental” changes as at present will not do with so much of unfulfilled expectations.
Whatever the record of the first two years mainly focused on making environment easier for investors - let alone several missteps on the way - the hoped-for revival of investments by corporates at home proved a damp squib. The government has had to step in with public investment in infrastructure. Overall, the economy, is stuck where it was in mid-2014, and claims of Finance Minister Arun Jaitley, for his Government, of having restored macroeconomic stability, by bringing down inflation and reducing external deficit, to trigger growth revival are questionable, if final economic data of 2013-14 are not to be ignored.
After the August 2013 global financial market turmoils (taper tantrum), UPA Government’s fiscal tightening measures and more significant monetary policy changes initiated by new RBI Governor Dr. Raghuram Rajan (who took charge on September 3), had the effect of stabilising the domestic markets and the exchange rates, restoring confidence. His two NRI deposit schemes fetched a surfeit of dollars to build up the reserve cushion. This, in turn, made it possible to lower the current account deficit in 2013-14 itself, to below 2 percent of GDP from 4.7 percent in the previous year. On inflation, taking the more relevant CPI as a benchmark, Dr. Rajan had calibrated the monetary policy on a disinflationary path to hit 5 percent by January 2016.
For the NDA Government, it was the unexpected windfall from a sharp lowering of international oil prices more than any other step on its part that helped to lower inflation, cut down on fuel subsidies and adhere to the fiscal deficit target. We no doubt keep trumpeting about India being in a “sweet spot” in the midst of turmoils and a general global growth slowdown but still remaining the “fastest” growing economy. Macroeconomic conditions are still not conducive for recovery to gain steam at home, given the June surge in CPI inflation and continuing industrial slowdown. Nor external demand for exports with worsened outlook even among developed nations including the USA. A modest US Federal Reserve rate hike in September is also on the cards. India’s growth is mainly centered on the monsoon with its uneven spread in the sowing season. All these factors will go into the RBI’s monetary policy review on August 9.
As for the aspiring middle-class millions enticed by 2014 promises of “achhe din”, the wait is set to become interminable for the rise in real incomes and creation of productive jobs, from increased public capital spending or investments by private sector. Coaxing of corporates has not yielded results yet as the latter await a better climate, further reforms, especially GST, and rise in domestic demand to utilise spare capacity.
No doubt, there is a palpable sense of despair in Government that assumptions and calculations built around policies have gone haywire. Modi, in his watchdog role, keeps reshuffling jobs in Ministries for better effect on governance. All this cannot be covered up by hype with more alluring promises.
Hence, with a certain disillusionment perhaps, the Prime Minister turned to considering a 15-year Plan for bringing about “transformative change”. He had caused a demonstrative effect on his reform-mindedness by abruptly dissolving the Planning Commission in August 2014. The twelfth five-year plan of this Commission runs out this year. Realising, however, the need for a central mechanism to promote cooperative federalism, a policy think-tank in Niti Aayog was created in January 2015. This had been trying to find its feet, producing meanwhile some papers in designated areas of social and economic betterment. Now, it should come into its own with the Prime Minister’s direction to develop a longer term vision of “transforming” India.
Already one comes across banners across cities and towns proclaiming “Our Country is Changing”. For the Modi India, it is a voyage of re-discovery of this ancient land set to advance into a modern technology-driven great power but firmly rooted in its Hindu traditions and faith, eventually to be turned into a “Hindu Rashtra” The idea seems to be that citizens should be imbued with this kind of patriotism and look forward to a great transformation that would be within grasp within 15 years where both agriculture and industry would advance in new directions creating enormous opportunities for productive jobs and rising incomes.
Meanwhile, BJP faces more challenges in governance amid rising social tensions, and yet it hopes to work its way to extend hold over the entire country through coming state elections. The Niti Aayog is to work first on a seven-year National Development Agenda, to take effect from 2017/18.
Presumably, this document could outline politically winnable priorities over the next two years. That would be well-timed for the Prime Minister to turn to what he does best - seeking a renewal of mandate in the 2019 Lok Sabha elections. Already, with two years of drought-like conditions and mounting rural distress behind, Prime Minister Modi changed his tunes to sound increasingly pro-poor, pro-farmer – though it may have taken away the shine off his image, built up assiduously as a reformer par excellence by party men and cronies.
And now, he has also to fight the anti-Dalit image the BJP outfits have triggered in states, such as the recent violent incidents in Gujarat and simmering tensions in UP, ahead of the big electoral battle of 2017, with high stakes for BJP both to capture power in the largest state and facilitate its repeat performance there in 2019 Lok Sabha poll..
The Modi Government had no doubt taken several steps on the road toward further liberalisation for business and also begun investing in physical infrastructure like roads and railways. But financial stability involving the banking system has come under severe strain. Grandiose schemes like “Make in India”, had not taken off with an expected bang.
Having to deal with emerging realities and political compulsions, Modi has thus come to shift his sights from the present “incremental” changes to a longer term road map and commended to the Niti Aayog the country’s inherent strengths like natural and human resources to be leveraged and judiciously applied in formulating its15-year road map.
(Views are personal.)