The dreaded time for annual results
It has been almost one year since the present union government took office. In a nation’s life one year is just another tiny milestone crossed. For a political leader, however, it is much more important than that. In this period, the government is expected to lay the foundation, take steps to rerail the economy and set up schemes that will help the ruling party’s bid for a solid mandate in the next election. Prime Minister Narendra Modi’s well-planned campaign for last year’s general elections had given the impression that his government would follow a model aimed towards securing office again in 2019. Now is the time to take stock of the situation.
On the positive side, the outlook for the Indian economy is gradually improving. The general consensus is that the current fiscal will see a growth rate of 7.5 to 8 percent. The government had shown its commitment with some critical enactments related to raising the level on Foreign Direct Investment (FDI) in insurance and the Mines and Mineral Bill (MMDR Bill), among others. It also took decisive moves on FDI in the defence sector, auctions for coal blocks and spectrum allocation. Appreciating the Centre’s resolve to keep the fiscal deficit under check, the rating agency, Moody, raised India’s credit rating outlook to positive.
Opinions are, however, divided over the most worrisome factor, which is the rate of inflation. Retail inflation for March stood at a 3-month low of 5.17 percent, as against 8.25 percent recorded in March last year. Wholesale Price Index (WPI) shrunk for the fifth successive month to minus 2.33 per cent in March. Nobody, however, can deny that a major contributor to falling prices has been sheer luck. The government was lucky that global crude prices came down sharply, as a result of which the retail price of petrol and diesel was cut. Unfortunately the positive external effect of falling crude prices was offset by a poor monsoon in 2014 and unseasonal rains in 2015. The latter event brought much damage to the Rabi crop. Food price inflation, double-digit inflation for vegetables and pulses in early 2015, remained a major cause for concern.
The Reserve Bank of India, concerned with the retail inflation rate, has been cautious in reducing benchmark interest rates. Even when the central bank had reduced the repo rate, commercial banks were reluctant in reducing their lending rates. Due to the high cost of funds, investors have not shown undue haste in joining the much advertised “Make in India” campaign. As far as banks are concerned, most are saddled with bad debts, both potential and actual. This legacy issue continues to haunt the government.
The legacy issue had its origin in the ten-year long period of uncertain governance under the previous adminstration. This saw increasing interference of courts in administrative matters. Then media then latched on to the mood of the people. Political aspirants with a keen sense of media management created a ruckus over Anna Hazare’s fast in Delhi on an issue that has effectively been forgotten. Amidst such a din the economy came to a standstill, besides external factors like the global slowdown and rising crude oil prices. The nationwide disgust of voters saw Modi winning a massive mandate. Now was the time for the new government to manage the economy as well as the sky-high expectations from India’s electorate. The first year review will judge how much of these expectations have been fulfilled.
Politicians must remember that people have little patience to empathize with the logic that legacy issues were the result of long years of inefficient and more often than not corrupt administration. Its true that the same cannot be cured in just one year. It is important to note that the administrative system is much more complex. Thus, the government cannot overcome such legacy factors in a matter of a few months. Many necessary steps to be taken are beyond the government’s authority. For instance can the government help over-leveraged corporations to clean up their books? How can the government get necessary legislations passed in an atmosphere of intense political animosity?
While these issues are real there are more important questions. Do hapless citizens have the patience to listen to such theoretical politico-economic arguments? The problem has turned more acute of late due to the complete loss of faith of the average citizen in the administration – be that a lowly placed babu, police constable on the beat, or the super-successful Prime Minister in the international circuit. The public expectations that won Narendra Modi a record victory is the most critical factor in measuring his government’s success.
The annual result that is due to be announced immediately after the end of the budget session of Parliament will test Narendra Modi’s skill in managing expectations. Not that the government has remained dormant, as was the situation earlier. The measure of the present government’s success is how satisfied people are with its performance?