Events & Issues
New Delhi, 24 May, 2017
Modi’s Report Card
HEALTHY ECONOMY, JOB CRUNCH
By Dhurjati Mukherjee
As
the Modi government enters the fourth year of its term, its economic report
card looks relatively good. When the Government assumed office in 2013, the
economy was in a rather bad shape -- growth had slumped to below 6
per cent, rupee crashed to 68.85 to the dollar on August 28, 2013. The twin
deficit problem – high fiscal and current account deficits - rendered the Indian
economy highly vulnerable and inflation was raging around 10 per cent.
Foreign institutional investors (FIIs) had put India in the ‘fragile five’ group BIITS (Brazil, India,
Indonesia, Turkey and South Africa) and sold heavily,
impacting the currency and stock markets. Further, policy paralysis in the last
phase of the UPA government had impacted business confidence and economic
growth. However, the situation started changing since last year and the
stock market is presently at record highs and investors, both foreign and
domestic, pouring money into the market. This transition from “fragile five to
fabulous few” is an impressive track record. It may also be pertinent here
to mention that during the three financial years, foreign direct investment
reached $ 156 billion with the flow in 2016-17 alone being a record of $56
billion.
It can
definitely be stated that the economy is in a much better shape. In the
emerging markets, India
is in a macro sweet spot. In the last two years, the economy grew 7.9 per cent
in 2015-16 and 7.1 per cent the year after. It is estimated that growth in the
current fiscal would be around 7.4 per cent which is likely to be the highest
among large economies in the world.
Over the
years, international institutions changed their outlook towards India. The
International Monetary Fund (IMF) last year referred to India as the
“bright spot in the gloomy global economy”. Thanks to fiscal consolidation in
successive Budgets, the deficit has been brought down to 3.2 per cent and
current account deficit at 1 per cent. The favourable ratings enjoyed by
the government is testimony to the overall economic and fiscal improvement.
The
rupee strengthened to around 64.40 to the dollar. In the last three years
retail inflation averaged 5.2 per cent. Presently, the CPI inflation is below 3
per cent. Exports, after three years of lackluster performance, have started
picking up and India
has emerged as one of the largest recipients of FDI in the world.
A
significant achievement has been the passing of the Real Estate Bill --
Real Estate Regulation Act -- demonetisation exercise to curb black money--subsidy on home loan interest along
with its focus on affordable housing have played a key role in reviving the
real estate sector to some extent. With lower inflation, policy rates have come
down, giving a big relief to home loan borrowers as they have resulted in the
lowering of home loan rates.
Along
with lower home loan rates (which have come down to 8.3 to 8.5 per
cent currently as against 10.5 per cent around 3 years back),
residential property has also become more affordable now, making it a double
bonanza for home buyers. Lower income groups have greatly benefitted from
this reduction who now have to pay lower EMI. This has been possible due to
demonetisation though not much black money could be unearthed.
Another
impressive record is a genuine attempt to improve governance. Gearing up the
bureaucracy, expediting industrial licenses, enforcement of rules, close
monitoring of projects etc. have demonstrated that the Government has a professional
outlook though this is yet to manifest itself in the Railways sector. The
digital drive should also check corruption and poor people get wages directly through
banks. However, it needs to be pointed out that private investment is yet to
pick up and the banking sector is steadily recovering from stressed assets. The
recent ordinance amending the Banking Regulation Act empowering the RBI is, of
course, a bold initiate to address the NPA problem.
Though
the neglect of the rural sector has been a long-standing problem, it goes
without saying that in the last two Budgets adequate fund allocation has been
given to welfare projects and schemes, benefitting the village population.
While housing has been given a thrust with 10 million new rural houses to be constructed
by 2019, rural electrification has accelerated with every village set to
receive electricity by May next year. The Prime Minister Awas Yojana and the
Swachh Bharat programmes need special mention here. Added to this is the
development of roads and highways linking rural and semi-urban areas.
However,
the Government is faced with a huge backlog on unemployment. The lack of growth
of industries has been a major reason for this. Economists and even the
Congress has termed the growth ‘jobless’. It stated that while 21 lakh jobs
were created between the first two years of UPA-II, merely 4.4 lakh jobs have
come in the first two years of the NDA Government. The Government’s labour
bureau figures showed that job growth plummeted in key sectors to its lowest
levels in eight years in calendar years 2015 and 2016 at 1.55 lakh and 2.33
lakh respectively. This is a serious issue and needs to be considered, if
necessary in consultation with experts.
There
are expectations that with the focus being given on small and micro industries,
on the one hand, and developing entrepreneurs who would get assistance from
banks for setting up their units, on the other, results may be better in the
next calendar year. The Government should also think of giving incentives to
labour oriented units so that unemployment problem does not become a burden.
The
distress of the farming community is well known. During the Congress years in
80s and 90s and even in the start of the new millennium, Indian planning was
oriented towards the urban sector with insufficient resources allocated for the
rural sector. Though Modi had promised input cost plus 50 per cent profit for
their yield, this has not been so -- even ensuring 15 per cent profit has
become impossible. It is now time that the minimum support price be fixed
keeping in view input cost and profits. There is no need for subsidising the
urban middle class at the cost of the rural poor, as Prof. Michael Lipton had
observed long back.
Thus,
Modi has to look at the grey areas and take positive steps before the next Lok
Sabha elections are due in 2019. Social unrest has to be curbed at any cost and
this can be done by engaging the youth in productive activities while also
ensuring that anti-secular feelings should not be allowed to continue. ---INFA
(Copyright,
India News and Feature Alliance)
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