Opinion Question for Year 2

Hot-button issues like land acquisition and environmental clearances alone cannot account for the lack of a recovery in the investment cycle. According to the reply of the ministry of finance to an RTI query, for instance, only 8 per cent of stuck projects in February were due to problems in land acquisition.

According to projections at the end of one year of the Narendra Modi government, growth in 2014-15 and 2015-16 will be 7.4 and 8 per cent, respectively — up from 5.1 and 6.9 per cent in 2012-13 and 2013-14. For now, however, electricity demand, a powerful indicator of economic revival, remains tepid — industrial demand has been so weak that even the likely spike in domestic electricity consumption has not offset it. Fifty-seven thermal power units, and counting, have shut down due to the lack of demand for electricity. These facts belie the industrial revival story being promoted by the government. When seen with other worrying snapshots of the economy — motorcycle and tractor sales, indicative of rural growth and prosperity, are depressed; corporate earnings are grim; the cumulative growth in the IIP at 2.8 per cent in 2014-15 is no better than in 2012-13, a major slowdown year; and agricultural growth actually came down in 2014-15 — it is clear that the problem of subdued aggregate demand and industrial activity persists.

Hot-button issues like land acquisition and environmental clearances alone cannot account for the lack of a recovery in the investment cycle. According to the reply of the ministry of finance to an RTI query, for instance, only 8 per cent of stuck projects in February were due to problems in land acquisition. Further, data collated by the Centre for Monitoring Indian Economy shows that over 20 per cent of the stalled projects in their sample were actually held up because of the lack of promoter interest. So, the question to ask is: how can sentiment be revived? Could a public sector led investment push be the way forward? A rate cut by the RBI would certainly help.

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In the coming year, the Modi government needs to sharply focus on addressing sector-specific issues in manufacturing, roads, as well as power generation and distribution. For them to be able to Make in India, businesses must not lose their way in a thicket of regulation. States like Maharashtra have shown the way forward — the number of days it takes to get electricity and construction permits has been reduced by the Devendra Fadnavis government from 67 to seven and 162 to 60, respectively. In the power sector, the debt overhang of the state electricity boards merits urgent attention and restructuring. To deal with power generation projects abandoned by private parties, the government or PSUs could, in a transparent manner, buy out assets. The challenges for the Modi government in the next year are many, if it wishes to revive low animal spirits.