While it seems intellectually fashionable to indulge in handwringing and say “nothing is happening” in India on the economic front, is that truly an accurate assertion or just the lament of the blind? Or more accurately, the lament of those who can see but don’t want to see? First a few facts.
According to one estimate, India has overtaken China, for the first time, with the largest inflow of foreign direct investment (FDI) — $63 billion — making it one of the most attractive global destinations for capital. Private equity investments are close to an all-time high of about $15 bn as well. The $1.5 bn Ahmedabad-Mumbai high-speed rail link is happening as a result of a loan at 0.1 per cent interest over a 50-year time period from Japan — terms unbelievable by any yardstick of finance.
The implementation of the 14th Finance Commission recommendations has reduced the Centre’s share of tax revenues from 68 to 58 per cent of all taxes. As a result, despite some reduction in the Centrally sponsored schemes, the total resources, especially the untied funds, flowing to states have increased substantially, providing states with much greater flexibility in deciding their spending priorities. Isn’t this true cooperative federalism?
The country has seen some excellent macroeconomic management despite populist tendencies and electoral pressures. The fiscal deficit has reduced successively in each of the last three years — from 4.6 to 4.1 and 3.9 per cent — and has a target of 3.5 per cent in 2016-17, which if achieved would be the lowest fiscal deficit since 2007. Does this fiscal prudence not deserve credit?
The much abused Enron power project was revived by getting all stakeholders together in a room by the Prime Minister’s Office (PMO) in just four meetings, thereby creating about 500 MW of power generation capacity and preventing thousands of crores of bank loans from becoming non-performing assets (NPAs).
However, this government, too, has its share of promises yet to be fulfilled. For example, the GST is still far away thanks to legislative deadlock (and not executive inaction); PM’s vision of Digital India was inspiring but remains yet to be delivered.
Further, in general, the performance of several ministries remains mediocre and several key initiatives such as Ganga Rejuvenation, Smart Cities development, banks recapitalisation etc are non-starters.
But should that become an excuse for ideologically-neutral, right-thinking people to not appreciate the significant successes of this government? What else has been achieved in the last 24 months?
First, the new hydrocarbon exploration and licensing policy (HELP) enables the private sector to price gas freely, and move to a discretion-free revenue share model, instead of the discretion-infested profit-sharing model. This will ensure that the overall import bill burden will reduce.
Second, Uday (ujwal discom assurance yojana) is the first serious effort by any government to sort out the debt issues in the power sector, by putting in place an incentive-compatible framework.
Thirdly, the quality of public expenditure in terms of the proportion of the Union budget going towards capital expenditure has increased substantially. For example, in the Railways, it went from $8,800 million during 2014-15 to $14,000 million in 2015-16.
Contrary to the popular perception of centralisation inside the PMO, financial powers have in fact been decentralised by allowing ministries to decide on proposals up to $150 mn instead of $75 mn earlier, which is leading to faster and more efficient decision-making.
Fourthly, a number of overdue reforms have been undertaken. These include raising the bar for FDI in insurance, decontrol of diesel prices, the introduction of FDI in Railways and defence, passing the real estate regulation act and the substantial liberalisation of FDI rules in several other sectors.
Fifthly, the Indo-Mauritius tax treaty has been reformed to stem the round-tripping of black money.
Sixthly, this government is on its way to creating a monetary policy committee, with zero representation from the government, to ensure genuine autonomy for the RBI
Lastly, the Jan Dhan bank accounts, the Aadhaar identity number and mobile phone connectivity form the trinity that will reform India’s broken delivery system. Direct Benefits Transfer (DBT) works through bank accounts and has huge network effects and can’t run without the banking system and all the criticism about empty accounts will vanish once these network effects kick in.
In sum, these have been significant achievements, driven by a proactive PMO, which has built consensus around tricky issues, forced recalcitrant ministries to reform and brought in interesting reforms such that the foundations of long-term growth are created. Even the blind must celebrate for evidence suggests so — throwing the baby out with the proverbial bathwater is hardly prudent. India’s presidential PM and his office are quietly transforming the economic landscape and leveraging his personal global outreach to gain key economic benefits for India.