Performance over last one year should be evaluated in the light of the conditions which NDA government inherited and therefore we should evaluate the government on its policy initiative. Government job is policy formulation and it is doing that in a quite meaningful manner but the message is not reaching to the masses. Middle and junior level leadership of NDA needs to be more active and should engage with the people and let them know the initiatives taken by the government.
Details of its achievements
One year ago saffron tsunami changed the political landscape of the country and a full majority government was in Delhi after almost three decades. Great power came with great responsibility and expectations were soaring high from the newly elected government. Now the government has completed one year in power and assessments are made for its achievements and misses during this period.
Although the government has achieved a lot on the foreign policy front and India’s image has changed to an aspiring global power, I have restricted this analysis on economic performance only. The biggest achievement of which Modi government can boast is the fact that no corruption scandal has come to notice. Performance over last one year should be evaluated in the light of the conditions which NDA government inherited and therefore we should evaluate the government on its policy initiative which has started showing its impact at the macro level. There are certain global factors also which have impacted in both the ways. The big economic scenario can be divided into following parts-
Policy initiative at macro level
- Ease of doing business and accelerated decision making– Policy paralysis was the biggest concern of the industry in the previous regime and this government has done away with various procedural requirements (e.g. Companies Act, 2013 has been amended and mandatory filing related to commencement of business has been done away). The government appeared committed to eliminate unnecessary procedures and eBiz portal has been launched wherein 11 services can be availed online which are going to increase in future. Similarly export-import procedure have also been simplified and list of mandatory documents have been reduced to three in each of the cases.
Partial reform is being done in the age old labour laws and the decision making process is being accelerated and various projects which were awaiting clearance from different ministries have been approved which has increased the pace of a slow moving economy. International agencies are now optimistic and the projected growth is expected to surpass China in 2015-16 (source – IMF report) which gives a reason to cheer.
- Make in India – Service sector has overtaken manufacturing sector over the past few years in terms of GDP share and India needs to accelerate the manufacturing sector to provide job opportunities to its young. Growth achieved on the back of service sector only is more vulnerable to financial turmoil as well. This fact was understood by the prime minister and the government launched the ambitious “Make in India” project to deliver the growth and create job opportunities which was promised during the election.
Making Indian goods price effective, taxation, infrastructure, accessible finance is the key to the success of Make in India. The government took initiatives to ensure that Make in India gets transformed into reality and various schemes were announced which included incentives for MSME sector as well (like MUDRA bank, concessional finance, separate fund for R&D, venture capital fund etc.).
India needs foreign capital primarily to meet the gap between investment in the economy and domestic savings. Although a dollar received by way of FDI is always equivalent to a dollar only and nothing more than this unless it is channelised in those sectors which provide boost to the economy also (i.e. trade oriented FDI) but principally we agree that we need the foreign capital. The government increased the FDI cap in defence & insurance sectors and now FIPB is empowered to clear FDI proposals up to Rs. 3,000 Crores which is going to reduce the time lag in approval process.
- Schemes for financial inclusion, JAM trinity and direct benefit transfer– Schemes like Jan-Dhan Yojna, insurance schemes and pension schemes are primarily aimed for the financial inclusion of the poor and their empowerment. However the ambitious Jan-Dhan Yojna far exceeds the objective of financial inclusion and it is also aimed to check the subsidy leakage. All the subsidies shall be directly transferred to the bank account of the beneficiary which will be linked to Aadhar Card and mobile number. If implemented successfully, this scheme is going to prove a milestone for the NDA government both politically and economically.
- Infrastructure development – Infrastructure development essential for industrial development and so far the government has taken certain concrete measures in this direction. There are two prime dimensions of infrastructure viz. transport and power which are the key for the development. The government is working to improve the road as well as water route connectivity and projects like Sagar Mala, Bharat Mala are approved.
Additional capacity of 24,500 MW has been added in the first year of this government. Civil nuclear deal with USA and uranium supply agreement with Australia are also signed which is not only a big step in the energy security but also a strategic move in foreign diplomacy.
Investments made in the infrastructure sector will usually take one & half year to show their impact on economy and job creation.
- Fiscal consolidation and more revenue share to state governments – Previous government factored an unexpected buoyancy in the revenue collection and gave a tough task of managing fiscal deficit targets to his successor but thanks to slump in oil prices, disinvestment and recently concluded auctions, the government was able to manage it.
Revenue share to the state governments is also increased to 42% and thus making them financially more powerful.
- Transparent tax stable regime – Finance minister Arun Jaitley has pushed for a tax stable regime and clarified that the taxation will be transparent with minimum retrospective amendments. Finance minister has announced gradual reduction in corporate tax rates in 2015 budget which was required to increase our competitiveness.
However recent controversy over applicability of Minimum Alternate Tax (MAT) on FIIs for the earlier years could have been avoided with a little bit of pro-activeness.
- Black money –Black money is an economic as well as emotional issue (which gets converted into political one) in our country. Considering the fact that the recovery of the ill-gotten money is dependent on the information received from the other countries, Modi government has done exceptionally well in this area. The government formed a SIT in the last year and recovery proceedings have been started from the individuals against whom evidence exist (more than 3 thousand crores have been brought to tax). The matter has been raised on international forums (e.g. G20) and now the government has come out with a legislation which provides a final opportunity to the tax evaders to come clean after paying their dues.
- Inflation and balance of payment – Monetary policy of the RBI has kept CPI index below the psychological benchmark of 5%. It is partially attributed by the slump in crude oil prices and now some additional effort would be required to check it due to gradual rise in the oil prices. Balance of payment situation is also improved and forex reserves has also crossed 350 billion USD for the first time.
- Successful auction of spectrum & coal block – Recently concluded auctions were held in a transparent manner. Defying the zero loss theory the government got more than 3 lakh crores from these auctions which helped the finance minister to meet the fiscal deficit target.
Things which could have been done in a better manner
Although the government has a lot to improve the economic environment but there are few things which could have been done in a better manner-
- GST rollout – GST bill has been passed by the loksabha but it is now referred to a select committee as NDA don’t have the required strength in the upper house. Implementation of this legislation would be a significant step towards ease of doing business as various procedural requirements related to indirect taxes will be merged together. Floor management could have done in a better manner and certain compromises worth passing this legislation.
- Land acquisition bill – This bill is entangled due to politics of povertarianism. Operationalisation of new industrial unit in any case takes significant time and the more this key legislation is delayed the lesser time NDA government is going to get for the implementation of its dream projects. Genuine concerns should be addressed and in case opposition continues to oppose it then a joint session of parliament can be a resort.
- Slow progress of Public-Private-Partnership (PPP) model – Investment mobilization is to be led by the PSUs and they are doing it but participation of private sector is required for infrastructure projects as these involve huge investment. Long gestation investments carry a natural risk in and certain minimum guaranteed return needs to be factored to make PPP model attractive.
Government job is policy formulation and it is doing that in a quite meaningful manner but the message is not reaching to the masses. Delhi assembly and Kolkata municipal elections has proved this fact. Middle and junior level leadership of NDA needs to be more active and should engage with the people and let them know the initiatives taken by the government.
By Shshank Saurav