Modi@2: There’s Scope for Mid-Term Course Correction on Economy

The BJP govt must draw a roadmap for generating jobs and not merely gloat over GDP figures, writes Rajiv Kumar.

We have all succumbed to the unrelenting pressures from financial markets and the media to continuously shorten the period over which performance should be evaluated. Such ‘short-termism’ was hitherto confined to the stock market-driven corporate sector. It has now unfortunately been extended to the policy sphere as well.

This rather counter-productive tendency effectively rules out strategic planning and execution, which is so vital for promoting and sustaining job-generating growth. But given our hyperactive financial markets and an ‘over competitive’ democracy, the second anniversary of a five-year term is, I suppose, as good a time as any to evaluate the incumbent NDA government.

At the last count 51 schemes and projects had been launched in these two unparalleled hyperactive years in Lutyens Delhi. These 51 range from the ultra-ambitious Digital India, Skill India, Make in India and Swachh Bharat, to those which have already been forgotten like the Sansad Adarsh Gram Yojna.

But there can be no doubt that these schemes, most with catchy acronyms and with their ambitious targets and tight timelines, should have galvanised a somnolent administration inherited from UPA II. They have shaken the bureaucracy out of its lethargy and inertia. There is an audible buzz around Vijay Chowk these days and in the Bhavans down the Rajpath.

There are, however, also some demoralised noises from senior bureaucrats who feel they have been wronged or are wilting under the inexorable centralisation under the omnipresent PMO.

Specific Gains from a Slew of Schemes

Even if 50 percent of all these schemes achieve 50 percent of their stated targets, it would, I dare say, represent unprecedented achievement for not just two but perhaps even for a five-year term. For example, if the entire gamut of consumption-related subsidies could be transferred through the JAM trinity, as already being done for kerosene and LPG, it would represent enormous fiscal savings, elimination of leakages and better targeting of beneficiaries.

Similarly, if nearly 7,500 of the 18,000 odd un-electrified villages have already been electrified, the target of universal rural electrification will most likely be achieved prior to its target date in 2018. And simultaneously measures are afoot to improve the quality of power supplied. Therefore, there could be a method in this madness of announcing virtually three new schemes each month.

The method lies in the shrewd yet transparent political calculus in launching such a large number of schemes within the first two years.

Monitored and tracked relentlessly by the PMO, that must necessarily respond to Modi’s indefatigable energy and punishing 20x7 work schedule, most schemes will begin to produce some tangible and positive outcomes in the third and fourth year of his term. Given normal external conditions and with private investors finally coming on board, this should make for a robust economic upswing by the second half of 2018.

The economic recovery combined with hopefully an unblemished record of zero corruption in high places and India’s rising stock globally will generate a positive scenario that would play out just in time for Modi to launch his campaign for winning a second term in 2019. If this rather somewhat straight forward strategy pays off, Prashant Kishor might well rue bolting the Modi camp.

Winning Investors’ Confidence

But this ‘golden scenario’ is at least two years away. The present ground reality is one of rising scepticism about actual outcome of these schemes. This could well be due to poor communication from respective ministries or over-centralisation in the PMO and the BJP president’s office. But it could just as well reflect an actual lack of tangible improvement in key economic parameters.

Private investment is refusing to oblige with credit off-take from commercial banks at a seven-year low; exports have declined for 17 months straight; real estate is down in most metros and tier one cities; both agriculture and manufacturing are ridden with problems and afflicted with structural problems; drought stricken districts are desperately hanging on for the next monsoon; and, most importantly, jobs are not being generated despite what the EPFO numbers may show. It is critical that these schemes begin to generate results and help bolster investors’ sentiment ahead of the state elections in 2017. It may well be too late otherwise.

All’s Not Well

• Non-Performing Assets of the public sector banks had touched Rs 3.61 trillion by December 2015.
  
• Exports fell by 6.74 percent in April, consecutively since last seventeen months, with trade deficit in April also showing a decline.
  
• Govt data shows job growth in eight sectors namely, textiles, leather, IT, handloom, etc hit a seven-year low.
  
• Some of the measures for course correction include bringing the legislative agenda back on track by forming new coalition inside Parliament.
  

Course Correction

Therefore, a mid-term correction is urgently needed in three respects.

First, it is time to consolidate and ensure that schemes start yielding results sooner rather than later. Namami Gange will become a source of derision for the BJP in the UP campaign if Kanpur tanneries continue to pour their muck into the Ganges and the river approaches the inevitable asphyxiation. Results should replace rhetoric now. No new scheme needs to be announced until for example the sugar mills and tanneries stop polluting the Ganges.

Second, the incremental approach adopted by Modi, is admittedly designed to improve governance and extract maximal benefits from extant programme that does not require legislative action and co-exist with status quo. This has resulted in a widespread perception of a government, depending upon the same set of bureaucrats and ‘Lutyens busy-bodies’ as were prominent in the UPA regime. This seems to be truer about North Block and consequently drew Arun Shourie’s remark of the present dispensation merely being UPA with a ‘saffron lipstick’.

This must change urgently. The incremental approach should be supplemented with bold structural reforms in some critical sectors like agriculture, exports, education, health, mining and railways because here business as usual will just not do. The Modi government needs to change its image from one driven by a status quo loving bureaucracy to one that is driven by a bold vision, duly supported by hard numbers and articulated by Modi himself. A technocratic exercise led and disseminated by NITI Aayog, as is apparently on the cards, will fall flat. This vision must be preferably stated in terms of employment generation and not GDP growth as jobless growth will not only be irrelevant politically but could recoil badly if the rising aspirations of India’s youth are thwarted.

Third and perhaps most importantly, the prime minister and the BJP leadership both inside and outside Parliament, must adopt a more coalitional style of functioning. This is essential for successfully pushing structural reforms that are badly needed. In this incredibly diverse country with a multi-paced development and mind-boggling plurality, no single political formation, not even one based on Hindutva, can exercise a hegemonic and predominant position vis a vis the rest. India is long past the age of ‘Chakravarty Maharajas’ whose fiat extended from Kutch to Kamrup and from Kargil to Kanyakumari.

Pushing the Legislative Agenda

The passage of important legislations like the GST, the expected labour market reforms, some necessary privatisation of loss-making PSUs and the amendments to the LARR Act (2015) will not happen without sustained wooing of the opposition by the ruling party. Threatening the opposition with criminal charges and unleashing the ‘agencies’ may not cut much ice given our creaking judicial system, under which no ranking politician is ever punished.

With the further shrinking of the Congress in the Rajya Sabha, it is time for Modi to reach out to others and create coalitions inside Parliament. His party should reinforce these with similar coalitions in the public domain in favour of structural reforms.

Without such reforms, India’s corporate sector will remain globally uncompetitive and will actively push for greater protection. This will feed the Swadeshi lobby and its backward looking agenda with irreparable damage to the economy. Prime Minister Modi must now demonstrate his acumen for successfully designing and executing bold reforms. He will thereby convert this rather pre-mature evaluation to his advantage by using it for making much needed mid-course corrections.

(The writer is Founder Director Pahle India Foundation, Senior Fellow at Centre for Policy Research and Chancellor Gokhale Institute for Politics and Economics. He can be reached at @RajivKumar1)

Also read:

Modi@2: No Sign of Promised Big Bang Reforms

Modi@2: Schemes in Place, Delivery Desperately Needs Improvement