Setting The Economy On A Stable Course
As a nation, we need to improve the capability of the government as a whole to govern, with better quality outcomes, with more diverse knowledge and experience backing decision making
The latest report by the UN World Economic Situation and Prospects (WESP) projects that India will remain the fastest-growing major economy, with a GDP growth rate of 7.6 per cent in the fiscal year 2018-19. The timing of this report is interesting as this month marks the completion of 4 years since Shri Narendra Modi was sworn in as the 16th Prime Minister of India. The historic mandate was won on the promise of acche din and 4 years into the government's term is a good time to take stock of its performance.
The Government has been working hard to bring the economy on an even keel and set a stable course towards long-term, sustainable growth. The world has also taken notice of these efforts. India climbed 30 places in the World Bank's Ease of Doing Business (EODB) Index. Moody's upgrade of India to a solid investment grade level is a significant positive. Let's look at how some key macroeconomic indicators (Fiscal Deficit, Inflation, FDI and Forex Reserves) have moved in the last 4 years.
Though the Government could not meet the 2017-18 target of 3.2% for the fiscal deficit, it has been steadily bringing it down. From 4.4% of GDP in 2013-14, it was brought down to 4.1% in 2014-15, 3.9% in 2015-16, and to 3.5% in 2016-17. Revised Fiscal Deficit estimates for 2017-18 are Rs. 5.95 lakh crore at 3.5% of GDP. The projected figure for 2018-19 is 3.3%.
The NDA government inherited an inflation rate of 8.33% in May 2014. Since then, they have done remarkably well to keep it well below the 5% mark. The latest reports peg India's annual retail inflation in April 2018 to be 4.58%. With the oil prices firming up, inflation is an area to keep a sharp eye on.
The government has done consistently well on the Foreign Direct Investment (FDI) front. FDI has increased steadily in the country with total capital inflows reaching USD 209 billion during April 2014 to December 2017 period. The opening up of key sectors such as civil aviation, construction & development, power exchange, etc. has definitely helped in this regard.
The foreign exchange reserves growth in the first 4 years of NDA government has outpaced the growth rate of preceding years. On April 6, it touched the lifetime high of $424.86 bn. This comes as a good news as global crude oil prices has started rising again.
Moving beyond the macro, cleaning up the economy has been a clear focus of this government. Demonetization, the extension of Aadhaar to a number of new areas such as real estate, the bankruptcy and insolvency code, the effort to move to a less cash-oriented economy, RERA, the effort to go after defaulters, etc. are all pointers in that direction.
The Goods & Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) are by far the biggest achievements of the present government that will overhaul India's economic system in the long run. Implementation of GST required tremendous effort to get it cleared through all the states but the government was able to manage this with some skill. The road to getting a perfect GST was always going to be a longer one, and it is good to see the government acted swiftly and wisely to iron out the initial issues. Now that the GST regime is well and truly underway, we have started witnessing the cascading effect of an efficient system on retail prices. For food items, agri products and items of daily use like soap, hair oil etc. the new rates are lower than the rates in the previous tax regime. With more taxpayers coming into the GST net, tax collections are witnessing an upward trend and tax evasions are getting easily detected.
To take the bank NPAs head-on, the government legislated the Insolvency and Bankruptcy Code (IBC) in 2016. The code has sharpened the arsenal of regulatory bodies against crony capitalism and will prove effective in recovering bad debts. The code has already started showing results with many Indian and global companies showing interest in buying out stressed companies, thereby ensuring that banks do not lose out completely when a defaulting company goes bankrupt. Of course, this clean-up has led to some short-term pain, but these steps were not only necessary but are good for cleaning up the Indian economy for the long term.
Another related and extremely key sphere where the Government deserves a pat on the back is on transparency, ethical practices and doing away with government's discretionary powers. The Central Government has made the allocation of resources and contracts quite transparent. A case in point is solar and wind projects bidding, where auctions are conducted over the internet in real time for all participants to see, and therefore it is a completely transparent process.
The infrastructure push is another area of visible positive changes. Resolving problems in, and kick-starting the highway building program, the reforms in the power sector, the focus on clean energy, the growth in civil aviation, the efforts on cleaning our rivers, the DMIC and the eastern freight corridors, the starting of the bullet train project and railway reform in general, are pretty credible efforts by the government within a relatively short period. The NDA government has made road construction a priority sector by increasing the pace of road building to over 20 km/day, up from 9 km/day in 2014. The government is targeting to complete close to 200 road projects worth about Rs 1.5 lakh crore by mid-2019.
Make in India is a laudable objective and threw a new spotlight on the manufacturing sector particularly an acceleration in job creation is becoming critical. The significant upward movement in ease of doing business and fundamental reforms that the government has undertaken will help this cause. It is still early days and it will require concerted efforts across policy, skilling and capital if this initiative has to achieve its objectives. Similarly, the focus on cleanliness through Swachh Bharat across a broad societal and community level is also highly commendable.
An important agenda for future would be institutional reforms. As a nation, we need to improve the capability of the government as a whole to govern, with better quality outcomes, with more diverse knowledge and experience backing decision making. This means reform of the bureaucracy at the local, state and central levels to make it more effective and efficient. It also means reforms of the judiciary. Both these are absolutely essential if we want to make India an easier place to live in and do business in - both of which go hand in hand and the PM has been quite right in pointing this out. There is also a need to get more areas of the Indian economy out of governmental control and the Government can look at the banking system, railways, the oil and gas sector, the power sector, etc., which are currently controlled by public sector enterprises.
To summarize, considerable progress has been made by this government in the last four years. Most importantly, the intent is strongly positive - to fast forward India to the next level of economic development and improve the standard of living for all our citizens. Given the enormity of the challenge, however, it will continue to require more effort through future governments to make this happen.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.