100 Days Of Modi 2.0: Some Hits And Misses
A bold decision on J&K, but a pall in the markets, job losses and a slowdown in manufacturing, add up to more misses than hits for Modi 2.0
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Prime Minister Narendra Modi sailed through the first 100 days of his second tenure in office in his trademark swashbuckling style.Abrogating Section 370 and thereby the special status of the erstwhile state of Jammu and Kashmir, vindicated the decisiveness and determination that his leadership is known for. Scrapping the special status of the now Union Territories of Jammu and Kashmir and Ladakh had also been among the promises made in the election manifesto of the Bharatiya Janata Party (BJP).
The region of Jammu and Kashmir has for decades been a site of terrorism and violence perpetrated indiscriminately on children, women and civilians at large. Yes, there will be some political ramifications of the decision, but the Modi government will be remembered for the decisiveness it has demonstrated, which had been missing among the preceding political leaderships.
The support that flowed in from nations across the globe (barring Pakistan and China) for the bold step was definitely a reflection of the diplomatic efforts of the government and the Prime Minister himself. Prime Minister Narendra Modi has, beginning with his first term in office, worked tirelessly at establishing India’s credibility at global platforms like G7, G20, BRICS, or closer home among the heads of states of BIMSTEC. Amidst the euphoria over the masterstroke in tackling a long festering national crisis, comes the downslide in key economic indicators, just as the global economy seems to be on a downswing too. Chief Economic Advisor Krishnamurthy Subramanian told BW Businessworld that revitalising the virtuous cycle by reviving investment and enhancing industrial productivity was the need of the hour. “We must note that Part A of the Budget speech focussed significantly on investment in general and infrastructure investment of Rs 20 lakh crore per annum in particular,” he pointed out.
Economist Jagdish Shettigar, who was closely associated with the Atal Bihari Vajpayee government, sees policy lacunae in the first 100 days of Modi 2.0, in the dwindling levels of consumption and continuation of the minimum support price (MSP) formula for tackling agrarian distress. While he acknowledged that the external sector was a reason for the downturn, Shettigar pointed out that the surcharge (super rich tax) on wealth creators announced in the Budget was not a progressive step either.
Moving closer to its rural housing target has been among the major achievements of the Modi government. So far 84 lakh houses have been constructed for the rural poor of a target set for a crore houses. Another triumph has been in keeping parliament on an overdrive in terms of Bills passed. In the first 100 days of the Modi 2.0 government, the Lok Sabha has worked for 281 hours (135 per cent of the scheduled time) and the Rajya Sabha has worked for 195 hours (100 per cent). The BJP counts its success in Parliament among its list of achievements.
Banks and equity markets
In his conversation with BW Businessworld, Krishnamurthy Subramanian blamed the quality of credit given out by the banking industry from 2008-09 onwards for the present crisis in the sector. The first stimulus from the government was upfront capital infusion of Rs 70,000 crore into state-run banks to mitigate the liquidity crunch in the economy. The Union finance ministry also took administrative measures to speed up GST refunds and reduce meddling of tax authorities.
“I have appointed a high-level taskforce to identify projects for upgrading infrastructure across the country with an investment of Rs 100 lakh crore. This will include greenfield and brownfield projects costing above Rs 100 crore each,” Sitharaman has said. She recounted the government decisions to merge ten public sector banks (PSBs) into four strong lenders with countrywide networks and global reach, to boost credit and revive economic growth. A short-term liquidity crunch still prevails, though.
The government has also announced an upfront capital infusion of Rs 55,250 crore into the ten public sector banks involved in the mergers and Bank of Baroda. “The banks will benefit from each other’s strength. A growing economy needs good banks. That was the reason behind merging banks,” Sitharaman has clarified. The bank mergers aim to increase the liquidity of banks. A transparent one-time settlement policy, online loan tracking, fast track collaboration for loans between public sector banks, will benefit the sector greatly.
Finance Minister Nirmala Sitharaman reversed the market-unfriendly decision to place a tax surcharge on incomes from foreign portfolio investment (FPI), but the evident slowdown in the Indian economy and a weakening rupee made foreign investors pull out Rs 31,700 crore from the domestic equity markets anyway. The trend contrasted with the Rs 83,000 crore FPI inflows between February and May this year, triggered by hopes that Modi would return to power. The recent sops announced by the government have so far failed to lift market sentiment, as recession fears grip equity markets world over.
The finance ministry also aims to increase exports by MSMEs and import substitution through indigenisation. Union Minister for Micro, Small and Medium Industries, Nitin Gadkari, has expressed optimism about “a lot of scope for diversification in the MSME sector”.
Foreign direct investment
The Union Cabinet has tweaked foreign direct investment rules (FDI) norms to make investments in sectors like mining and single brand retail more attractive to overseas players. Foreign direct investment inflows have jumped 28 per cent year-on-year in the first quarter of the ongoing fiscal to $16.33 billion, according to statistics released by the Department for Promotion of Industry and Internal Trade (DPIIT) from $12.75 billion between April and June last year. The FDI inflows have increased every quarter, soaring by over 50 per cent from Q4 FY19, when it was $10.8 billion. Total FDI inflows have shot up by 26 per cent (y-o-y) to $21.3 billion in the June quarter of FY20.
Among the feathers in the cap of the Modi 2.0 government is the ushering in of the long-awaited policy direction for special economic zones (SEZ), which have spurred the growth story of many emerging nations. Piloting the Bill in Parliament, Union Minister for Commerce and Industry, Piyush Goyal, announced that the Indian government had already received eight applications from trusts of reputed companies who propose to invest Rs 8,000 crore in India. According to Goyal, the SEZs had generated 20 lakh jobs, brought in investments worth Rs 5 lakh crore and earned export revenue of Rs 7 lakh crore by end March 2019.
The Union government has set up a taskforce to draw up plans for building infrastructure worth Rs 100 lakh crore ($1.4 trillion) over the next five years. The finance ministry has announced a taskforce under the chairmanship of Secretary, Department of Economic Affairs, to draw up a “national infrastructure pipeline” from 2019-20 to 2024-25. The national infrastructure pipeline project will include greenfield and brownfield projects worth Rs 100 crore each.
The Prime Minister has set up two Cabinet committees, the Investment & Growth Panel and the Employment & Skill Development Panel to spur investment and create jobs. Both the panels will be headed by the Prime Minister.
Road & Transport
After it came to power for a second consecutive term, the Modi government approved a ‘100 Days Action Plan’ of the Ministry of Railways, chaired by Piyush Goyal. The very first Railway Commando Battalion ‘CORAS’ will now tackle the menace of terrorist attacks on the Railways. According to a paper released by the BJP, the Indian Railways has registered the best ever safety record, with zero passenger fatalities between April and August 2019. The Railways have received a makeover too. As part of the ‘Swachh Bharat, Swachh Railways’ programme, 24,493 bio-toilets have been installed in trains between April and August this year.
The Motor Vehicles Amendment Act, approved by President Ram Nath Kovind in August, aims to spur adherence to traffic rules by imposing more stringent penalties for violation of traffic regulations. “Passing the MV Act amendment is a big achievement for our government. The high fines will lead to transparency, and (will) not result in corruption,” Gadkari, who is also Union Minister for Road Transport, has said.
Beginning 2 October 2019, which will mark the 150th Gandhi Jayanti, single use plastic material will be banned. To mark the occasion, Prime Minister Modi also launched the ‘Swachhta Hi Seva’ mission.
The many hits on the policy dart board, have some misses too, primarily the persistent deceleration of the rate at which the GDP has been growing. The US-China trade war and an uptick in crude oil prices are some of the global cues to which economies around the world are responding. Some policy measures of the Indian government too are being held responsible for the slower pace of the Indian GDP, now growing at around six per cent.
Data released by the government shows that production in eight core sectors grew by 2.1 per cent in July against 7.3 per cent during the corresponding month in 2018. The manufacturing sector grew by an abysmal 0.6 per cent. Jagdish Shettigarh, economist and Chairperson, BIMTEC, is concerned by the slack demand, especially in FMCG (fast moving consumer goods). He said the government should have put more money in the hands of consumers through direct tax cuts.
India has the world’s second largest working-age population of 688 million, whose future seems in jeopardy as the economic slowdown leads to job losses. The unemployment rate in India rose to 7.2 per cent in February 2019 from 5.9 per cent in February 2018, according to the Centre for Monitoring Indian Economy (CMIE). The automotive industry is in doldrums for a myriad reasons and has recently shed 3,00,000 jobs. The Union government is expected to respond to the industry’s demand for a cut in the Goods and Services Tax (GST) on automobiles, in a bid to energise the sector.
On balance, the first 100 days of the Modi 2.0 regime has many hits on the policy dart board, but a few misses have rendered the road ahead to a $5 trillion economy, rather stony and long.