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Modi’s Report Card

HEALTHY ECONOMY, JOB CRUNCH

By Dhurjati Mukherjee


As the Modi government enters the fourth year of its term, its economic report card looks relatively good. When the Government assumed office in 2013, the economy was in a rather bad shape — growth had slumped to below 6 per cent, rupee crashed to 68.85 to the dollar on August 28, 2013. The twin deficit problem – high fiscal and current account deficits – rendered the Indian economy highly vulnerable and inflation was raging around 10 per cent.

Foreign institutional investors (FIIs) had put India in the ‘fragile five’ group BIITS (Brazil, India, Indonesia, Turkey and South Africa) and sold heavily, impacting the currency and stock markets. Further, policy paralysis in the last phase of the UPA government had impacted business confidence and economic growth. However, the situation started changing since last year and the stock market is presently at record highs and investors, both foreign and domestic, pouring money into the market. This transition from “fragile five to fabulous few” is an impressive track record. It may also be pertinent here to mention that during the three financial years, foreign direct investment reached $ 156 billion with the flow in 2016-17 alone being a record of $56 billion.

It can definitely be stated that the economy is in a much better shape. In the emerging markets, India is in a macro sweet spot. In the last two years, the economy grew 7.9 per cent in 2015-16 and 7.1 per cent the year after. It is estimated that growth in the current fiscal would be around 7.4 per cent which is likely to be the highest among large economies in the world.

Over the years, international institutions changed their outlook towards India. The International Monetary Fund (IMF) last year referred to India as the “bright spot in the gloomy global economy”. Thanks to fiscal consolidation in successive Budgets, the deficit has been brought down to 3.2 per cent and current account deficit at 1 per cent. The favourable ratings enjoyed by the government is testimony to the overall economic and fiscal improvement.

The rupee strengthened to around 64.40 to the dollar. In the last three years retail inflation averaged 5.2 per cent. Presently, the CPI inflation is below 3 per cent. Exports, after three years of lackluster performance, have started picking up and India has emerged as one of the largest recipients of FDI in the world.

A significant achievement has been the passing of the Real Estate Bill — Real Estate Regulation Act — demonetisation exercise to curb black money–subsidy on home loan interest along with its focus on affordable housing have played a key role in reviving the real estate sector to some extent. With lower inflation, policy rates have come down, giving a big relief to home loan borrowers as they have resulted in the lowering of home loan rates.

Along with lower home loan rates (which have come down to 8.3 to 8.5 per cent currently as against 10.5 per cent around 3 years back), residential property has also become more affordable now, making it a double bonanza for home buyers. Lower income groups have greatly benefitted from this reduction who now have to pay lower EMI. This has been possible due to demonetisation though not much black money could be unearthed.

Another impressive record is a genuine attempt to improve governance. Gearing up the bureaucracy, expediting industrial licenses, enforcement of rules, close monitoring of projects etc. have demonstrated that the Government has a professional outlook though this is yet to manifest itself in the Railways sector. The digital drive should also check corruption and poor people get wages directly through banks. However, it needs to be pointed out that private investment is yet to pick up and the banking sector is steadily recovering from stressed assets. The recent ordinance amending the Banking Regulation Act empowering the RBI is, of course, a bold initiate to address the NPA problem.

 

Though the neglect of the rural sector has been a long-standing problem, it goes without saying that in the last two Budgets adequate fund allocation has been given to welfare projects and schemes, benefitting the village population. While housing has been given a thrust with 10 million new rural houses to be constructed by 2019, rural electrification has accelerated with every village set to receive electricity by May next year. The Prime Minister Awas Yojana and the Swachh Bharat programmes need special mention here. Added to this is the development of roads and highways linking rural and semi-urban areas.

However, the Government is faced with a huge backlog on unemployment. The lack of growth of industries has been a major reason for this. Economists and even the Congress has termed the growth ‘jobless’. It stated that while 21 lakh jobs were created between the first two years of UPA-II, merely 4.4 lakh jobs have come in the first two years of the NDA Government. The Government’s labour bureau figures showed that job growth plummeted in key sectors to its lowest levels in eight years in calendar years 2015 and 2016 at 1.55 lakh and 2.33 lakh respectively. This is a serious issue and needs to be considered, if necessary in consultation with experts.

There are expectations that with the focus being given on small and micro industries, on the one hand, and developing entrepreneurs who would get assistance from banks for setting up their units, on the other, results may be better in the next calendar year. The Government should also think of giving incentives to labour oriented units so that unemployment problem does not become a burden.

The distress of the farming community is well known. During the Congress years in 80s and 90s and even in the start of the new millennium, Indian planning was oriented towards the urban sector with insufficient resources allocated for the rural sector. Though Modi had promised input cost plus 50 per cent profit for their yield, this has not been so — even ensuring 15 per cent profit has become impossible. It is now time that the minimum support price be fixed keeping in view input cost and profits. There is no need for subsidising the urban middle class at the cost of the rural poor, as Prof. Michael Lipton had observed long back.

Thus, Modi has to look at the grey areas and take positive steps before the next Lok Sabha elections are due in 2019. Social unrest has to be curbed at any cost and this can be done by engaging the youth in productive activities while also ensuring that anti-secular feelings should not be allowed to continue. —INFA

(Copyright, India News and Feature Alliance)

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