MODI@3 Years

Modi the name was transformed into an acronym by Union Minister, Venkiah Naidu, who explained it as “Making of developed India”.  This is reminiscent of Congress President D K Baruah, eulogizing Indira Gandhi as ‘Indira is India & India is Indira”. Personality cults are wonderful electoral weapons but could deteriorate into authoritarianism & hence “eternal Vigil” is the price we need to pay for democracy. As the NDA - II govt. completes 3 years in office, on May 26^th  it is time to dissect its performance.

Impressive Headline indices: The GDP growth rate of 7.1% for FY 2016-17 & a slightly higher fig of 7.2% announced in the Budget speech by the Finance Minister for FY 2017-18 makes India the fastest growing large economy in the world; it is this reputation that has ensured the highest ever FDI Equity inflows of $43.47 in FY 2016-17 & the similar trajectory is expected in FY 2017-18 too.   The fiscal deficit has been progressively reduced to 3.5% & CAD to 0.3% for FY 2016-17 & inflation has been projected by the MPC (Monetary Policy Committee) at 4.5% for H1 & 5% for H2 FY 2017-18.  

Disciplined Bureaucracy: Central Ministers do not speak at cross purposes now & the bureaucracy has been disciplined with punctuality instilled; forced retirement to inefficient bureaucrats has been served vide the Rule which states that compulsory retirement in public interest can be served on achieving the age of 50/55 or 30 years of service; this is a double edged sword though, for assured tenures could induce slack but, perhaps, promote independent decision making.  

Military Modernization: The UPA’s tenure was marked by Defence Minister A K Antony – in a bid to maintain “Mr Clean” image - blacklisting foreign suppliers whenever an accusation of corruption arose; this affected the pace of modernization of the armed forces. Modi govt. has substantially implemented the OROP (One Rank One Pension) & has accelerated procurement vide the G2G(Govt. to Govt.) contract route to avoid bribery allegations; actual receipt of capital equipment, though, is 3-5 years away, though, since the gestation periods in this sector are high. Reviving the 2008 UPA proposal of private sector participation in Defence Production attempted by this govt. will serve us well; however instead of having only one private sector player per sector across 4 priority sectors – fighter aircrafts, helicopters, artillery & Submarines – it would be prudent to have at least 2 of them competing with govt. entities.

Reforms: Attempts to make India an insured society – thereby creating a safety net - vide Rs 12/- paid by the insuree for an accident insurance of 2 lakhs & Rs 330/- for a life insurance of 2 lakhs along with the Atal Pension Yogana for the sexagenarians are indeed welcome. Focus on renewable target of 175 GW – 100 GW for solar & 75 GW for wind et al - for making India energy independent along with the UDAY scheme for reforming state power companies, Ujwala scheme of pushing LED lighting for energy efficiency & auction of coal blocks to eliminate graft - as ordained through a Supreme Court ruling - is a remarkable achievement.

Getting the FDI limits increased & pushing much of it into the automatic route except in 11 sectors  & the dissolving the FIPB (Foreign Investment Promotion Board) & getting the GST passed – through opposed by the BJP while in opposition – are important milestones achieved by this govt. Likewise use of the JAM (Jan Dhan – Aadhar – Mobile no) trilogy to reduce duplication & hence subsidies have led to impressive savings; going forward attempts must be made to use Aadhar creatively  but after addressing privacy concerns.  Attempts to redistribute LPG savings by issuing new connections to 5 crore BPL families is a sound social & environmental policy objective which deserves praise.

However, concerns remain on other vectors.

While Headline figs. are indeed impressive, it has not been sufficient to coax a rating upgrade; perhaps international rating agencies still see the dropping exports, anaemic credit growth, weakening savings & investment rates as concerns. We are left to vicariously take pleasure from a ratings downgrade, of China, by Moody’s.

Jobs: India needs to generate 12 million jobs a year & the figs for the last 3 years are less than 5% of the target; as an example only 2.1 lakh jobs were generated in 8 key sectors for FY 16-17. Saudi Arabia had announced that no expatriate worker would be in govt. service by 2020; it is reasonable to expect similar directives from other countries in the Middle East where about 7 million Indians earn their wages; the anti-immigrant & xenophobic rants in the US, UK & other Western democracies would mean more of Indians returning home, imperilling the $62 billion remittances that we secured last year thereby effecting India’s external account. This could effect India’s CAD in the medium term & return of workers from abroad would worsen the already deteriorating domestic job market. Vast job cuts in the IT & Telecom sectors is but a precursor of many more to come.

Rise of Vigilantism: The hacking of Akhlaq in UP, Pehlu Khan in Haryana, lynchings in Jharkhand  & the Hindu Yuva Vahini imposing morality codes in UP, creates a unease in society which could fuel violence & give space to organizations like Al-Qaeda, ISIS  et al to thrive; countries like Pak could add fuel to such fires; attempts to clear – hold – develop areas currently under Naxal occupation – though welcome -  would lead to reactions of the Sukhma kind & all forces inimical to India could possibly unite. A strong law & order machinery, supported by pinpointed intelligence, working without fear or favour is therefore necessary to maintain India’s internal security.

Foreign Policy: The policy of “Act East” & “Link West” is broadly on the right trajectory. However inability to manage Pakistan or Chinese hegemonistic designs – of the BRI (Belt Road Initiative) kind – is a cause for worry. While relations with Bhutan & Bangladesh are on an even keel, the deteriorating relations with Sri- Lanka & Nepal & the lack of improvement of our strategic depth in Myanmar & Maldives is a cause for concern. The Russia- China – Pak nexus would in the medium term give us much headache squeezing us out of Afghanistan & Central Asia.

Financial Architecture:  Capacity utilization in the industry is at 72%; investment rate is seeing a steady fall from the 2008 peak; the exhilarating GDP growth rate hides the fact that credit for the year 2016-17 has growth by only 5.08% - the lowest since 1953-54 - & NPAs of the banking sector continue to rise.  A cogent strategy of tackling the “Twin balance sheet” problem – as advocated by the Chief Economic Adviser - has not seen much traction.  “Made in India”, “Smart Cities, “Digital India” etc. would remain mere slogans without adequate investments.

Conclusion

The Modi juggernaut is running unabated with electoral successes in critical states like UP – even post demonetization - & creative politicking has helped them form governments in states like Goa & Manipur. Social schisms generated along with a nationalistic narrative - by keeping Kashmir on the boil - could serve their electoral fortunes well. However, using of the “caged parrot” – the CBI – on the opposition leaders alone would serve to unite them against a common foe.

Going forward, the economic situation would worsen courtesy a further increase in Bank NPA’s, retrenchments in sectors beyond IT & Telecom & return of Indian immigrants. Desperate economic situations generally lead to the escalation of crime & social schisms shall only accentuate the process. A deteriorating neighbourhood & Trump’s impetuous strategies shall keep the Indian Foreign & Military establishment on its toes.

In short the next two years would be trying for the govt.; perhaps, massive public investments in infrastructure & NREGA spends in rural could be the saviours.