Millennium Post

The onset of Ordinance Raj

Will 2015 deliver growth and jobs without further burdening the masses, who are already facing retail prices beyond affordable levels? Irrespective of the statistical illusion presented by lowering inflation figures, for which the current government has taken undue credit, the average Indian consumer remains full of hope for the coming year.

Finance Minister Arun Jaitley seems to be in an ebullient mood, following his desire to advance reforms via ordinances. However, he may not be too bothered by the rising prices of basic food items like rice, pulses, edible oils, milk and other products, since he is working towards a “path-breaking budget” to promote growth through liberalisation, privatisation and globalisation (LPG).

The New Year has begun with a flurry of economic policy announcements by the Modi-led government, following a disappointment-fueled first seven months in office, with both corporate investors and aspiring millions unhappy. Since promising ‘Acche Din’ with much fanfare, Prime Minister Narendra Modi has carefully avoided setting any time line for those good times to come.

Prime Minister Modi has centralised all decision-making powers to himself. He likes to do things his own way, laying down commands for a new model of social and economic development that is in total opposition to the narrative presented during the post-independence Nehruvian era.

The formation of NITI Aayog, after the dissolution of the Planning Commission, is ostensibly a National Institution for Transforming India, and the Government resolution setting out its objectives makes it clear that it would be bereft of any planning or allocative functions. The new body will only provide “strategic and technical” advice, in response to a changing world.

The current institutional mechanism has laid emphasis on cooperative federalism by involving states, with all their divergent needs of development and resources. The new body basically plays the role of a “think tank” and this ensures the Centre’s authority, with the Prime Minister having the last word.

The pattern of the current government’s exercise in authority has clearly emerged. Prime Minister Narendra Modi sets the agenda at the Cabinet level and outlines his ideas and thoughts in catchy slogans for the nation to pick up and act, whether it is “Make in India”, Jan Dhan Yojana, or Swachh Bharat. Irrespective of whether these ideas possess long term solutions for the economy, there is a parallel socio-religious campaign by the Sangh Parivar that Modi cannot leave behind.

Rather than assuage concerns of political parties and groups in Parliament over the attacks on India’s secular and pluralistic structure embedded in the Constitution by the Sangh outfits, the Prime Minister has preferred to remain ambivalent on their re-conversion programmes. Had he intervened in the Rajya Sabha winter session, responding to the opposition demand for clarifications, the Finance Minister  could have passed at least a couple of bills, including the coal auction and/or the insurance bill providing for a higher Foreign Direct Investment cap.

Instead, the Modi-led government has ushered in an Ordinance Raj, voicing its determination to overcome what it has chosen to call “political obstructionism”. The government’s majoritarian assertions are now in full display. Besides the first ordinances on coal and insurance in late December, the Centre has taken the same route for some controversial amendments to the UPA’s land acquisition enactment of 2013, which had come into force on January 1, 2014.

The minister has justified these amendments, saying it strikes a balance between farmers’ interests and industrial growth. He has sought to ease rules for acquisition of land for five key sectors, including defence, rural and social infrastructure, power, and affordable housing for the poor. All this should benefit rural growth and generate employment opportunities, according to him. But the ordinance route may not entice foreign investors, though the Government has sought to convey its intent over reform measures. Most corporate would rather await parliamentary approvals.

While the amended land acquisition bill could kick-start delayed power projects, the Congress and other opposition parties have remained opposed to the “anti-farmer” approach taken by the government’s ordinance.

The current government, despite possessing a majority, remains averse to political accommodation. It will have take recourse to one or more joint sessions of Parliament to make headway with its reform agenda. Great expectations have built up over the Budget for 2015-16, a year after modest recovery at 5.5 per cent GDP growth in the previous year. In recent weeks, Jaitley has indicated that he would opt for greater clarity and stability in tax policy, through a historic start with the Goods and Services Act, and set in motion policies to incentivise and facilitate the flow of investments, domestic and foreign, given the enhanced caps for FDI in several areas, including defence and railways.

The Budget will unfold a series of steps required to boost manufacturing, under the “Make in India” programme, besides some tax breaks and other incentives to attract investments, with emphasis on areas where import dependence at present is relatively high. The Budget instrument may be also used to promote exports, especially to USA, the only major economy moving towards a degree of buoyancy.

While the plummeting oil prices have proved a boon for India to reduce the value of its imports substantially, cut fuel subsidies and limit the current account deficit, there are uncertainties ahead even though the downtrend continues at present. The fall in prices below $50 a barrel led to fresh volatility in global stock markets, with Dow Industrials tumbling more than 300 points on January 5.
The plunge in prices has continued with ample supplies and tepid demand in importing countries. It may also affect revenues of not only governments of oil-exporters, forced to cut their lavish budgets, but also importers like India that may experience lower revenues from oil taxes.

Jaitley faces several challenges on the fiscal front. The obstacles that exists in front of him include enhancing investments, especially step-up in infrastructural spending, giving a major fillip to the manufacturing sector and provide a revised road map on fiscal consolidation.    IPA
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