No sooner than the numbers for Quarter 1 — 2017-18 were announced, a concerted chorus of "I told you so" was heard from the motley cast of Narendra Modi critics waiting in the wings. Adding to the noise was two of BJP's old loose canons, Yashwant Sinha and Arun Shourie, coming out of the scrap yard for some sonic boom test.
Delhi's media eco-system is notoriously contagious. Though winter is still some way off, ever since a senior journalist smelled "something in the air", other members of the capital's elite press-corps have started talking of "hawa-badal".
Predictably, op-eds started appearing and social media chatter became louder about how the prime minister and BJP chief Amit Shah have been put on the back-foot by a resurgent Congress under Rahul Gandhi 2.0. Critics of the government, who had all but given up hope for an opposition comeback in 2019, are excited at spotting rays of a new dawn on the horizon.
By general consensus, the government was widely seen to have faltered on four major counts. It is accused of failing to tackle the over-hang of demonetisation, poor implementation of GST, containing prices and inability to create new jobs. Positive endorsements from the IMF, World Bank, investment bankers and a few contrarian economists were contemptuously dismissed.
The government's response may have sounded a tad defensive but it was heartening to find that neither the prime minister nor the finance minister were in denial. This was evident from Modi's speeches on a couple of occasions, like at The Institute of Company Secretaries and when the prime minister was addressing karyakartas in Gujarat's Gandhinagar the other day.
Even more reassuring to note their resolve to stay the course on economic strategy and not resort to any knee-jerk reactions like fiscal stimulus though it might be politically expedient in view of the forthcoming state elections.
Though the criticisms may be largely valid in theory, the evidence cited in support is primarily a product of armchair analysis in cosy echo chambers of Lutyens' Delhi. In any case, notwithstanding Rahul Gandhi's assertion that he can fix the problems in six months, macro-economic interventions will take more than a couple of quarters to yield results.
In the interim, therefore, Modi requires a "holding strategy" with deft manoeuvring on the ground. It has been argued with some merit that many pain points in demonetisation and GST rollout could have been mitigated if the bureaucracy and tax-administration were better prepared and proactive.
Here, it may be instructive to look at some contrarian insights that this writer, as a roving marketer, has gleaned from trawling the hinterlands.
Let us start with demonetisation as it is considered to be the biggest villain of the piece. There is no denying that demonetisation had worst affected deep rural, where the banking network is least developed. In the cities, small-towns and "rurban" areas, the situation largely settled at a new normal in about eight to twelve weeks, after the initial scurry for "converting" old currency to either new notes or cash in the bank.
Stories of people driven out of jobs and left to starve due to notebandi at best make poor fiction. So far, one has not come across a single vendor or ancillary producer whether from MSMEs or the unorganised sector, whose business was disrupted by a liquidity crisis. The same can be said even of Kirana stores. If they have suffered it was because of demand slow down not shortage of bank notes.
Statistics published since then indicate, all old currency in circulation came back to the system and even deposits in "shell companies" were subsequently withdrawn. A layman may, therefore, ask why should there be a cash crunch in the economy?
One sector that is highly dependent on cash is transportation. Truck drivers have to pay for fuel, toll tax, their own food and lodging on the way all in cash. But, they receive their payments from big consignors always by cheque or bank transfer. Can anyone cite examples of logistics fleet grounded because truck owner did not have money to pay drivers or buy diesel?
The sector that has been worst affected, as per popular perception and perhaps even otherwise, is real estate. But, how much of it is really because of cash? Those familiar with the industry say - the slump is largely because "speculative" investment has gone down and builders are still trying to artificially prop up prices in the hope of a recovery. At the same time, real buyers are staying away expecting a natural market correction and lowering of mortgage rates.
But, a bigger issue that has not received adequate attention is the acute shortage of building materials, sand and gravel, across the country.
This is partly on account of bans imposed by the NGT and new state governments coming down heavily on illegal sand and aggregates mining. States like Uttar Pradesh, Bihar, Madhya Pradesh and Tamil Nadu have been reeling under sand crisis for months now. That is not only affecting residential construction but also infrastructure projects. The bureaucracy remains embroiled in other existential issues of governance to look at such nuts and bolts problems of the economy.
Now, let us move to GST. Unlike demonetisation, though opinion may be divided about the implementation and tax structure of GST, there is no disagreement among experts that GST was the mega tax reform that was long overdue. Considering the gargantuan scale of the exercise, it would have been naïve to expect a totally seamless transition.
The Opposition, on their part, had smelt an opportunity for muddying the waters and waylaying the government on GST. They were, therefore, rooting to push it back by a few months hoping the turmoil would carry through into the next fiscal year damaging BJP's prospects in 2019.
The government certainly anticipated the potential of disruption in the course of implementation. Therefore, Modi and Arun Jaitley put all their weight behind getting GST through by June 2017 so that the major brunt of it could be dealt in the low season of Q2 (July - September) securing the last two quarters of 2017-18 for recovery.
In what turned out to be a battle of nerves, the government stuck to the original deadline. In the process some trade-offs had to be conceded, particularly by way of the multiple tax rates that have come to haunt it far too soon.
But, make no mistakes, it is not something the government would not have anticipated. In a country, where rollbacks are customary, the finance ministry was surely prepared for some corrections along the way. Now, we might see the rationalisation of rates happening sooner than one would have normally expected, possibly, even before the state elections in Gujarat and Himachal Pradesh.
Inflation is arguably the area where Modi government's performance has been the best. This is also largely borne out by statistics. The orchestrated uproar on petrol and diesel prices was a political red herring. There is reason to believe a trader-politician nexus engineered spurt in tomato and onion prices. But, it was well controlled and not allowed to blow up into an "Arhar Modi" kind of crisis like in Bihar, circa 2016. The government's resolve to stay on the path of fiscal discipline indicates it is not going to take chances with inflation and risk a repeat of ABV government's fate in 2004.
In the ultimate analysis, without any doubt, job creation remains the most serious of the four weak spots in Modi's portfolio. But there are no quick fixes for it. The Congress and the UPA bought time on it with doles like MNREGA.
While a higher industrial growth might provide some temporary respite, long-term job creation will come only through the next wave of reforms - especially on the fronts of labour legislations and land acquisition laws. But the government does not have either the time or political capital left for further economic adventures so late into its term. So, "Make in India" will have to wait till 2019 for a real take-off.
What the government cannot certainly afford anymore are governance boo-boos and fiscal adventurism. Narendra Modi has to crack the whip and use his legendary administrative skills to ensure last mile "on-time, in-full" delivery of the many path-breaking social welfare programmes he has introduced and may further launch in the coming months. The benefits of "Direct Benefit Transfer" (DBT) schemes have to be seen and felt by the bona-fide recipients.
Infrastructure projects will have to go on a massive overdrive and schemes like Pradhan Mantri Awas Yojana and Smart-Cities need a massive push.
Of course, there will have to be some pre-election sops and bonanzas for various target constituents - but all of that will need funds that can come only through better revenue mobilisation. It is precisely on this score, getting more people into the direct and indirect tax net, Modi's big gamble on demonetisation and GST may actually bail him out - much to the chagrin of his detractors. However, there has to be a strong whip to tax officers and mandarins in the North Block to eschew pinpricks and harassment of the common man.
The real challenge remaining before the Modi sarkar is governance. With virtually the entire country having gone into election mode, both politicians and bureaucrats are distracted. And, this is true not just for BJP ruled states but non-BJP states too. It is here that Modi's genius in doubling up as a star election campaigner and skills as a CEO par-excellence will be tested to the hilt.
Updated Date: Oct 20, 2017 07:05 AM