Updated: November 26, 2014 12:04:23 am
The Narendra Modi government completes six months today. At the time it took over — or when Modi was anointed the BJP’s PM candidate — the Indian economy faced challenges on four major fronts: currency instability, high inflation, political uncertainty and a growth-cum-investment slowdown. The Modi government can claim that the first three don’t pose significant worries now. The rupee is no longer vulnerable to speculative attacks, while actually being the best-performing emerging-market currency this year after the Chinese yuan and the Indonesian rupiah. Inflationary pressures have receded substantially, helped no less by global oil prices falling by nearly $ 30 per barrel in the last six months. Also, never before in 30 years has India had a government as politically secure as this one — and in a position to implement second-generation economic and governance reforms.
But there seems no respite still when it comes to the fourth challenge of growth and investment. On Friday, the government will be issuing GDP growth estimates for the July-September quarter. Going by the latest data available on industrial production and also results declared by companies, the numbers aren’t likely to be encouraging. This, after what looked like a promising April-June period, which saw the economy register a 5.7 per cent annual growth, the best in nine quarters. That momentum does not appear to have sustained. True, since Modi’s swearing-in, the market capitalisation of listed companies at the Bombay Stock Exchange has gone up by over Rs 13 lakh crore or 15 per cent. During this period, foreign institutional investors have pumped some $ 25 billion into the country’s equity and debt markets. However, all this sentiment — palpable even through the election campaign — is yet to translate into concrete investments on the ground.
This government’s true test will be in the next few months leading to the budget and thereafter. It has been lucky with oil prices, which have enabled huge savings in fuel subsidy. But getting the investment cycle going again requires more than just luck. If companies are still shy of putting money in greenfield projects, it will necessitate an all-out effort by the government to resolve uncertainties — especially those relating to land acquisition, obtaining statutory clearances and the taxation regime. Besides, it may have to invest directly in carefully chosen railway, road and other infrastructure projects with demonstrable multiplier effects. The money for this can come only by redirecting wasteful consumption expenditure to growth-promoting investments.
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