Prime Minister Narendra Modi’s speech, on the country’s 70th Independence Day, had all the designs of a smart CEO offering a presentation to his shareholders about the progress made in his term so far and where he intends to take his company (read economy here) from this point. As expected, Modi listed out the National Democratic Alliance (NDA) government's achievements in the past two years and made a strong argument to show that how his government has brought in transformation across segments. Also, note that Modi refrained from launching any major attacks on the Opposition (possibly looking at the Goods and Services Tax roll-out) or speaking about controversial issues of Dalit atrocities and cow vigilantism in his Independence Day speech, where the government as taken heavy criticism regarding the way it has handled these issues.
The larger thrust of Modi's speech was the price rise and empowerment of the poor — crucial ahead of the state Assembly polls next year. The prime minister devoted much time to explain what his government has done to control dal prices and stressed why the kisaan needs to be empowered. Modi also spoke of how the NDA government has joined hands with the Reserve Bank of India (RBI), agreeing on a four percent (plus/minus two percent) inflation target till 2021 to enable the Central bank to fight inflation. In short, this is a strong response to his critics who accuse him of not acting on the price issue and being lenient to rich corporates, and not the poor. That apart, there were a lot of mentions about the development work and reform process — revamping the post office (payment bank) network and railways — and the state-owned BSNL and Air India to operational profit.
Modi’s emphasis on the four percent inflation target and price rise gives one the impression that the RBI will have a free hand in dealing with the price rise and it wouldn’t be under constant pressure to go for larger rate cuts succumbing to the pressure from the North Block. This is crucial in the backdrop of the government and the RBI preparing to form the joint monetary policy committee (MPC) mechanism, creating a new chapter in the history of India’s monetary policy. Even more important, Modi has acknowledged the importance to ramp up agri-production to check prices. Modi didn’t forget to repeat how India has emerged as the fastest growing economy among major economies and how world agencies (IMF, World Bank and credit rating agencies) are praising India’s growth potential.
The GST — the big victory of his government in his term — also found mention in the speech giving due credit to Congress and other parties. As mentioned before, the larger thrust of Modi’s speech was empowering the poor. There is no bigger independence than independence from poverty, the prime minister said. Employment-generation, Modi added, is key to achieving poverty alleviation. “We are doing everything possible to increase employment in the nation. Why should a small grocery store not be open 24 hours? Why shouldn't the women of the nation work at nights if they want to? The government will make all arrangements that if people want to work, they will be allowed to work," Modi said.
Price issue is crucial
Modi’s focus on price rise is well understood since this will emerge as one of the key political issues going ahead especially given the crucial polls in Uttar Pradesh next year. Also, this is an issue that the Congress and other Opposition parties will present with much vigour in the electoral battle and this has already been signalled by Congress vice-president Rahul Gandhi in the recently-concluded Monsoon Session of Parliament. Rahul took a dig at Modi with his ‘Arhar Modi’ jibe — accusing Modi of failing to address the issue of price rise effectively — and at the NDA government for allegedly favouring the rich and ignoring the poor.
The NDA government’s two years have been severely hit with deficient rains and severe supply problems. The worst hit were pulses. In these two years, overall, there has been an increase of 73 percent in pulse prices if one goes by the whole sale price index. Of this, the worst has been the price of urad dal (up by 120 percent) followed by arhar dal (84 percent) and gram (76 percent). The dal price trend is significant in the Indian context since these are traditionally, the cheapest protein sources for a majority of Indian households, whether or not they can afford the expensive eggs and milk.
The NDA government has, however, managed to check the sharp rise in the from the peak of 58 percent in on-year jump logged in November 2015 to 26.6 percent in the latest reading. With the monsoon panning out well so far this year, food prices are expected to ease going ahead. As far as the vegetable prices are concerned, overall costs went up by 26 percent during the NDA’s two years with certain items such as cabbage (up 138 percent) and brinjal (69 percent) topping the list. The recent spike inflation (CPI) is primarily on account of food and vegetable prices.
In July, the CPI stood at 6.07 per cent. That number is above the two to six percent target of the band agreed upon between the Central bank and the government in early 2015 and is way above the RBI’s March, 2017 target of five per cent. Despite the expected easing in consumer inflation after September, the five percent (March, 2017) and the subsequent four percent (a year later) looks challenging for the RBI, according to economists. What this would mean is that the RBI’s future course of monetary policy will be filled with caution. Expecting a large quantum of rate cuts in the foreseeable future wouldn’t be a wise idea, which will keep interest costs high.
One must note that Modi clearly avoided speaking on crucial, sensitive issues such as atrocities against Dalits and cow politics and chose to speak on non-controversial macroeconomic issues. One could summarise the prime minister's Independence Day speech as a repeat of his two-year performance report card, plus a strong counter to his critics, including Rahul, on the issues of price rise and poverty alleviation.