Economic Highlights

New Delhi, 28 December 2015

Modi’s Risk-Taking

TOWARDS FASTER GROWTH

By Shivaji Sarkar

India emerged as the fastest growing large economy in 2015 and a possible regional leader. Modinomics is doing some wonders for paving a possible faster growth in 2016. The positives have come from large promises of FDI from Japan, Germany and the US. Global crude oil price fall has added to hopes.

As the year closes, there are reports that oil is set to touch a low of $20 a barrel. While it reduces energy expenses, it has its concerns too. Is India’s love for solar and alternative power sources the reason for global price fall? India would have to be on guard and not budge or slow down on looking for non-oil energy sources.

That India is not faltering is evident from the commitment it could have from Japan’s Softbank on investment of $20 billion in solar power. It promises to generate 20 gigawatt of solar energy. Will that have a singular effect on global oil prices? Experts do not deny this. The oil price fall is attributed to shrinking of western role in the ISIS-Daesh – largely headed by former Baath Party of slained Saddam Hussein - controlled oil fields in Iraq and Syria, in alliance with Turkey.

So if the Daesh changes tack from terrorism, it has the capacity to change the world economy and politics. Will 2016 see such a change? It is difficult to predict. But a significant Indian move by a visit of External Affairs Minister Sushma Swaraj to Pakistan may be the harbinger for it. The way India has made the beginning for a civilian coalition with Pakistan and Afghanistan at the Heart of the Asia meet, it has the potency to alter the mid-East politics and Talibanisation. It seems a little far-fetched but her meetings with Pakistan Prime Minister Nawaz Sharif and Afghan President Ashraf Ghani could usher in a new era of peace and prosperity in South Asia. Add, to this the follow-up by Prime Minister Modi.

The way it plans to make the country a hub of international defence production with the help of France and Japan and some large Indian houses, it seems to change the world arms market scenario in the coming years. Initiatives are potent. It is criticized also as some say it would be a captive of world vendors.

But one has to realize that by itself the country can neither invest such large amounts nor create the basic infrastructure. This ‘Make in India’ has also to boost its indigenous defence and aircraft industry in the public sector. That is likely to create not only a fine balance but also ensure a fair competition – a necessity for being the leader in the market.

The initiatives in the external and defence production arena show, instead of being cautious, India is on to a risk-taking, till now unknown. Businesses grow on a bit of adventurism. Should we see 2015 as a new dawn for India, where it moves out of the protection to take a leap? May be.

Yes, India has concern for its rupee. It has yet to find a mechanism to boost its strength. It has tottered as China cuts rates and devalues its currency. Economic advisors have not yet been able to find a formula to give falling rupee a news of life. This blunts some of the positive positioning. The benefit of low oil prices if could have been transferred to the consumers, the growth rate could have been faster.

This NDA Government is suffering the impact of poor Manmohanmics vision. It needs to come out with a new economic policy and concept to fast track the nation 2016 onwards. The Government finances have problems. The Reserve Bank finds problem with declining corporate profitability – of course, after a five-year period of whopping profits, and low debt servicing capacity. It has led to tightening of norms to monitor loans above Rs 10 lakh from earlier threshold of Rs 1 crore.

India has its share of problems for a lack of public policy on many spheres, inherited by the Modi government. Since the ushering in of green revolution, the country has not done much for its agriculture, which sustains at least 54 to 58 per cent of the population – 80 crore to produce a GDP of 14 to 18 per cent against 14 per cent manufacturing GDP. Agriculture is not one entity. It is varied and complex. It includes myriad crops, finance, marketing, chemicals, land, property, labour, transport and so many others. It is the greatest private initiative all with private money.

If a proper policy initiative is taken it can change the economy for the better. Subsidise or not it can create a stable price regime that can sustain the industry and people alike. The country awaits Modi to bring in that vision – some dream he had created during his 2014 poll campaign.

Sadly, India’s private sector is not taking up the challenge that Modi is keen on taking. It still seems to be ensconced in the socialistic mindset of 1960s. It, except for one or two houses, wants to remain a lackey. It does not invest, keeps sitting over its reserves, and pries on public bank money never to return it.

So the GDP growth has been powered only by private consumption and public investment. It is a concern. The proposed wage hike for Government workers may impact plan for next fiscal. India's eight core industries, representing major infrastructure sectors, grew at 2.3 per cent in the April-September period of the current fiscal, compared to a rate of 5.3 per cent in the same period of the previous fiscal - the fall in growth rate caused by lower expansion in electricity, coal and cement sectors and negative growth in steel and natural gas sectors. 

Meanwhile, RBI Governor Raghuram Rajan cut the interest rate – something industry loves but common depositor considers a direct tax on them. The common man also suspects the GST. They have seen every “tax reform” raising the rates. They do not want a central GST but an agreed rate across the states so that their expenses come down.

The people regale the increase in forex reserves to $352 billion in November 2015 against $270 billion in 2013. The Net FDI has also increased to $17 billion up from $15.8 billion a year ago. So despite negative export growth, bad monsoon and inflation, India is apparently on a better course. ---INFA

(Copyright, India News and Feature Alliance)