Economic Highlights

New Delhi, 23 May 2015

High-paced Production But…

SHOW WINDOW NEEDS SPRUCING

By Shivaji Sarkar

NDA’s production house is full but its show window needs beefing up.  It is a mixed fare. On the plus side, the Government has passed many bills to boost investor confidence, prices are down, FDI inflows have increased, forex reserve is at a high, non-oil imports are rising, earnings through disinvestments have created a record at Rs 24,277 crores, industrial production is inching and the rupee continues to tumble.

For Prime Minister Modi’s Government it has been a year of consolidation. But given the people’s high expectations, the Government has the problem of breaking from the past, changing the approach to solve problems in a transparent rule-based manner, creating a new system and end the previous process of rent-seeking. The political system that was keen on fast-paced changes to bring the economy on track faces many obstacles.

Despite this, Modi has been able to restore investors’ confidence in the Indian economy. World Bank, IMF and rating agencies like Moody’s and Standard & Poors have indicated firm growth through policy changes. In quantum terms, might be the NDA Government does not have many achievements to count but the few that have happened are indicative of a better future.

The past one year signifies two major initiatives: Modi’s 18 countries tour which increased dialogue, garnered billions dollars commitments of investment, new technology and turning India into a manufacturing hub in 25 sectors through Make in India.

Two, fall in inflation in wholesale and retail which signifies the beginning of increasing purchasing power, a requisite for boosting industrial production. Modi brought large investments commitment from diverse countries like US, China, Japan, South Korea, Australia, Canada, Mauritius, Singapore and  Netherlands along-with lukewarm responses from France and Germany. But so far, the European Union has not responded favourably.

Besides, falling oil prices have wiped out the so-called under recoveries (Was it ever there?). At least the oil companies alibi has vanished, but it has created a new problem. In one case, oil companies had to buy petro-crude at $ 80 a barrel and sell it at $ 60. According to the Government, this caused an outgo of Rs 30,000 crore, resulting in the consumers being burdened with two hikes within a fortnight which had a cascading effect on prices.

Significantly, Modi’s move to generate solar power in a huge way might reduce dependency on import of oil and other fossil fuels in times to come. An encouraging beginning which, if sustained would result in every Indian house self-generating power, thereby freeing them from horrendous power bills of monopoly companies. It should also herald an era in energy sector research which India lacked so far.

It is debatable we should go for nuclear energy, however, with Canada supplying 3000 tonnes uranium over the next five years will help achieve continuous and sustained nuclear power generation. Remember, Canada helped set up the Rajasthan Atomic Power Plant Station (RAPS) with Candu-type reactors in 1960s. But for current supply, the plant load factor of N-plants was threatened to get reduced. Canada is the third country to supply uranium to India after Russia and Kazakhstan.

Moreover, FDI is being viewed as a key growth developer wherein the NDA Government has allowed FDI in railways and defence sectors, followed by labour reforms, complete deregulation of diesel prices and easing of FDI rules in construction. This has led FDI growth of around 40 per cent to Rs 1.76 crore in 2014-15 from Rs 1.26 crore in 2013-14. 

During the last fiscal, the Foreign Investment Promotion Board (FIPB)) has cleared 241 of the 350 proposals it had received. This, healthy inflow of foreign investments into the country has helped India's balance of payments (BoP) situation.

Further, the Government has adopted the ordinance route for coal sector reforms, increase of FDI cap in the insurance sector from 26 to 49 per cent, auctioning of iron and other minerals mines and amending land acquisition laws. Moving ahead on its reforms agenda, Modi has also inched closer to its aim of rolling out the Goods and Service tax (GST).

Several other initiatives of the Government, including efforts to revive stalled projects, re-scheduling of premium payouts for road ventures and relaxation of environmental clearances have also alleviated some sector-specific concerns.

Effectively, the NDA has allowed companies operating in regulated sectors to increase foreign investments. This is because overseas Indians now fall outside the FDI ceilings and the space vacated by them can be filled by foreign investors.

At the same time, domestic companies can attract investments from NRI’s without violating foreign investment norms. The underlying thinking is that this could stoke a fresh round of fund flows into the country.

India's current account deficit will "hopefully" be less than 1 per cent of gross domestic product (GDP) in the fiscal year that begins in April, Finance Minister Arun Jaitley asserts. The deficit narrowed to 1.5 per cent in 2015 first quarter from 2 per cent in the earlier quarter on the back of slumping oil prices. Analysts aver India should move into surplus for the first time in eight years.

The positives are many. Over 15 crore people have joined the Jan Dhan Yojana, large numbers are keen on taking recourse to Atal and other pension schemes and 12.5 crores  are getting direct subsidy on LPG. The States are getting 48.5 per cent of the total central tax kitty from the present 37 per cent. They also have more flexibility in implementing even central schemes.

But, somehow, not all of this has touched the hearts of the people. They want Modi to do more for labour, not just Government servants who would reap a bonanza through the Seventh Pay Commission in 2016.

Farmers too have many apprehensions, notwithstanding the land bill is being touted to benefit them, alongside the aam aadmi has yet to feel the fall in statistical inflation; income tax payers want TDS abolished; and the poor, too want freedom from it in their bank accounts.

In sum, Modi is not having an easy time. Some of its friendly organisations want the Government to have a more pro-people look and also come out of the bureaucratic web to serve them faster. A task, which the Government has to address in the coming months to give a bright look to its shop window. ----INFA

(Copyright, India News and Feature Alliance)