3 years of Narendra Modi govt: Here's how to separate rhetoric from statistics
Are three years adequate to judge the performance of a government or do we need to look at a longer time period?
When the NDA government came to power a lot was expected; and even more was promised. It is for this reason that there is constant evaluation of the performance as one would like to judge by separating rhetoric from statistical numbers. Are three years adequate to judge the performance of a government or do we need to look at a longer time period? As a corollary, how much power does any government have to turnaround the situation in any country? These two factors are important when evaluating the performance of the government.
Let us first see what is it that a government can do, and then evaluate how the NDA has fared. The most important aspect of a government is administration which involves both policy formulation and implementation. On this aspect there has been high-energy performance with various ministries working hard in changing their respective landscapes to make a difference. It has also been followed up with efficient implementation that makes one fairly confident that we are in the right direction.
First, in agriculture there are the seeds of a National Agriculture Market that have been sown.
Second, for industry, there have been several measures to ease doing business which is manifested in the World Bank doing business ranking as well as global competitiveness index.
Third, in the area of domestic investment, the stalled projects have been cleared and thrust been given to infrastructure from the government’s side by focusing on roads, railways and urban development.
Four, on the fiscal side, the deficit has been trimmed, subsidies rationalized and better directed which has helped to make money work better. Tax reforms are epitomized by the GST which will finally roll out in July. The government would soon be deciding on working on the recommendations of the FRBM Committee on deciding on the future fiscal path involving fiscal deficit and overall debt to GDP ratio.
Five, for foreign investors, there is more leg room provided through higher limits which is vindicated by increased inflows in the last two years.
Six, on the monetary side, the MPC has been made operational with inflation targeting besides setting up new kinds of banks.
Seven, the biggest reform which is still work-in-progress is controlling NPAs. The IBC is a major step taken and the present passage of banking regulation to empower RBI can be viewed positively.
Eight, in the power sector, UDAY is a major step to revive DISCOMs and here getting several states to accept the norms have been an achievement.
The government definitely needs to be applauded for doing active house-cleaning as this does place the economy on stronger footing in terms of providing the right prerequisites for higher growth.
How do the statistical numbers stack up? Here it is a mixed story as the numbers are not commensurate with the measures taken. GDP growth is still in the 7 percent range. More importantly, there is a modicum of opacity on the employment scene. There have been more stories of right sizing than employment in most sectors with even the government and public sector companies going slow on job creation. This is a worry because growth without employment is not good for a country which prides itself on a demographic dividend.
Alongside, notwithstanding the revision in the base years for IIP, growth cannot be considered to be close to being normal and clearly growth in capital goods is down. This gets reflected in the investment numbers where gross fixed capital formation has come down to a low of 27 percent of GDP. Private sector investment is not enthused and low. This has been affected by low capacity utilization which makes new investment meaningless. The NPA mess has made funding a challenge and hence the future of investment is also uncertain at this point of time.
While a lot has been said about inflation, the fact is that the weather and international crude oil prices have driven price movements, and hence one can never praise or blame governments for low and high inflation numbers. Just as how the government was quite helpless when the price of tur dal touched Rs 200/kg in 2015, when prices came crashing down to Rs 50-60/kg in 2016, nothing could be done to revive the state of farmers. But factually, inflation has been low by the end of the three years period.
What about the fiscal situation? While the budgetary numbers have been made to work better, the government has opted for austerity and this is probably one reason as to why the economy has only been ambling along. While the government has been spending on the three big areas, the amounts are quite inadequate to make a difference as a sum of around Rs 3 lakh crore in capex of which 1/3 is for defence is a very small proportion of GDP to generate strong backward linkages. In fact, a negative fallout of UDAY has been that states have been burdened with higher debt which makes spending on infra more difficult.
On the positive side, the external environment has been favorable in terms of oil prices which have led to a comfortable current account deficit. This has helped to stabilize the rupee with the Indian currency becoming one of the best performing ones. With foreign investment flows being very active, notwithstanding moderation in FPI, the forex reserves have crossed the $ 375 billion mark.
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