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In its first two years, the big achievement of the NDA government led by Prime Minister Narendra Modi can be said to be the change in the narrative about India, seen earlier as an economy paralysed due to policy inaction and large-scale corruption. The new government launched a large number of programmes and schemes, many of which were the UPA’s brainchild but never quite pursued with conviction by the UPA government. Cobwebs in the infrastructure sector were removed, for example, coal and telecom spectrum auctions were made transparent and the persistent backlog in environment clearances done away with. There seems to have been a new purposefulness in economic policy-making with the Reserve Bank of
India restoring confidence in the global markets about stability in India’s monetary policy. In the very first year, the government took a leap forward in fiscal federalism by accepting the Finance Commission’s recommendations to part with a larger (42 per cent) share of taxes with states and lend them flexibility in spending based on their priorities and unique needs. Simultaneously, the Central government embarked on a big public expenditure programme in key infrastructure sectors such as roads, highways and railways. These have an enormous multiplier effect. States too have taken the cue and continue to chart a capital expenditure plan that can spur growth.
It has taken two full years for some green shoots to emerge, which, however, are yet to strike root. As the series of reports on the state of the economy in this newspaper (beginning May 24) show, a consumption-led demand boost may aid growth in the current financial year. Consumption accounts for 55 per cent of the economy, and will continue to be the mainstay given the country’s demographics. Government expenditure — both at the Centre and in the states — can stretch only so much, constrained as they are by commitments to meet deficit targets. And the external environment is not helping either.
FDI inflows have been good, but for the recovery to be meaningful and sustainable, it is imperative that private investment, moribund now, picks up pace. It is time for the government to reflect on why all the “ease of doing business” and Make in India programmes, MUDRA, Start-Up India action plan and Stand-Up India schemes are not resulting in a critical mass of activity for the economy. What is at stake is the future of India — with millions entering the work force very year, who may be skilled under government schemes but fail to get a job given that the private sector is hardly investing.