While there is nothing sacred about two years in power, it is always tempting to take stock of the situation when evaluating any government’s performance. It is true that we can neither give credit to the government for the good economic numbers nor blame for certain under performance as there are lagged effects.
This government has been known to be a keen performer in terms of introducing policies and ensuring that they are implemented which is really what any government can do being an enabler. There were high hopes on this front and on the whole the performance was good as there have been more successes than failures.
Let us look at the successes. The first victory was the Jan Dhan programme which was aimed at opening accounts for all the households. While the RBI has tried to do the same with more bank licenses being issued and creation of new banks, at one stroke this scheme achieved a lot even while the banking system was at the planning stage. Also by making all direct cash transfers to these accounts, the government has made them non-zero balances ones. Around 220 million accounts have been opened with the zero balance proportion being just around 25% presently.
Second, the government has opened FDI in defence and railway equipment, insurance and pensions. This move has been positive for sentiment. While these sectors have not witnessed any FDI inflows, overall FDI has increased last year (2015) with the Financial Times reporting that India was the largest recipient of FDI in the world. We got in $39 billion which was higher than that in 2014 by $10 billion.
Third, the government was keen on rationalizing subsidies and has taken definite steps in marking to market the price of diesel and petrol (which admittedly was started by the earlier government). Further by exhorting the higher income groups to give up LPG subsidy, some dent has been made here.
Fourth, the government has committed to capitalizing banks to the extent of Rs 70,000 odd crore and has made allocations for the same in FY16 and FY17 of Rs 50,000 crore. Further, the PSBs will be overhauled in terms of governance which has started with the Bank Bureau Board being established. However, disinvestment and mergers is still work in progress.
Fifth, on taking over the coal and spectrum issues were sorted out with transparent auctions which really set in motion projects held back on this score. The power sector in particular benefited from these moves.
Sixth, there has been continuous focus on infra in roads and railways because these are two sectors where the government has direct access and can really turn the corner.
Where has the government slipped up so far? The first is on the political side, where it has not been able to take a recalcitrant opposition along. This has come in the way of getting through legislation and the two bills that have been pending for quite a while relate to the GST and land reforms. These two bills have been opposed not because of ideology but due to other political issues which are raised just before the Parliament convenes.
The second challenging area has been restructuring the public sector banks. While admittedly this is going to be very difficult, the government has not made any progress in terms of merging them or brining about strategic disinvestment. Setting up a bank bureau board is one thing but implementing the recommendations is the challenge.
Third, the overall disinvestment programme continues to be a failure with a feeble attempt being made towards the end of the year by making PSUs invest in one another, which releases resources but does not bring about a genuine disinvestment. Taking decisions when the stock market is down is always going to be difficult as no one wants to face the issue of impropriety at a later date.
The fourth area where progress has been limited is labour reforms. What has been done is peripheral in nature and brings in some discipline – but the hire and fire policy which India Inc. hopes for is not being pursued by the government – and probably rightly so as we still have not built a viable social security network.
There are three programmes which have begun or been launched with a fair deal of enthusiasm. But it remains to be seen if they will be persevered with as they do resemble schemes started earlier too, which lost steam when it came to ‘resource time’. The first is the Smart Cities project which has started off with 20 from the proposed 100. As it requires a partnership between the centre, states and municipals, while the initial amount has been pledged by the Centre, it has to be followed up by the states.
The states would have to provide for such allocations at a time when their budgets are strained by the second scheme of UDAY bonds, which have to be issued to cover the debt of the DISCOMs. The interest component kicks in straight away which will push states closer to the 3% fiscal deficit mark, with most of them at the periphery. The third venture namely the National Agricultural Market (NAM) is an audacious scheme which seeks to link mandis which will enable farmers to sell anywhere they want.
All these three schemes are laudable, but the problem in our country is that there is a loss of interest after the launch of the programme essentially because of a fund crunch. The Centre can only contribute a part of the effort, and it has to be followed up by the states. These three will have to be monitored closely as their mirror images which were there in the earlier regime: JNNURM, FRP (Financial Restructuring Programme of DISCOMs) and New Model APMC laws (replaced with NAM), got diluted along the way.
There were other headlines which were made to prop up the economy, which are more in the nature of slogans rather than specific programmes which are backed by funds. In a way these are slogans which are backed more from the point of view of creating an environment for doing business. These are: the Make In India campaign (which lists 25 sectors and is a very broad statement of intent), Startup India (which seeks to encourage start-ups, though banks will be wary of funding the same), Digital India (where IT firms have committed very large investments over an undefined period which has not resulted in significant amounts as of today), Swach Bharat (which continues the existing programme of Nirmal Bharat but does not add more).
On the whole there have been more hits than misses which does credit to the government. In fact, even the misses are really hard to surmount for any government in power. But the fact, that there is a new push being given to some of the programmes is creditable, and the government can on the whole be pleased with its performance.
The writer is chief economist at CARE Ratings. Views are personal
Published Date: May 23, 2016 17:43 PM | Updated Date: May 23, 2016 17:43 PM