Quarterly review of govt performance: Narendra Modi Meter 8.5/10

Updated: Sep 1 2014, 17:46pm hrs
PM Narendra ModiThe government also fought hard at the WTO summit against trade facilitation agreement (TFA) to protect farmers and India?s food security. (AP Photo)
Reflections of last 90 days: We start a quarterly review of the performance of the new Indian government. We have devised a performance metric based on (i) Economics, (ii) Foreign policy, (iii) Governance and (iv) State relations/ Parliament productivity/Politics. Based on this metric, the government has scored a healthy 8.5 out of 10.

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The key focus area remains Infrastructure and growth, and our top three ideas are L&T, ICICI Bank and Axis Bank.

Impact

Economics8/10: Economic growth and improving the ease of doing business remain the key focus areas. Special emphasis on infrastructure projects was visible in the budget; funding norms have been eased; FDI has been liberalised and Make in India (manufacturing) is the new mantra. The reforms being pushed by the BJP government in Rajasthan on labour, land and subsidies do make for a strong start. What fell short of expectations was delay in gas price hike, no commitment on time line for GST (goods and services tax) and half measures on FDI in defence.

Foreign Policy10/10: Calling Saarc leaders for the swearing in ceremony was a masterstroke, and it was followed by a visit to Nepal, Bhutan and Myanmar to underscore the good relationship with neighbouring countries.

The government also fought hard at the WTO summit against trade facilitation agreement (TFA) to protect farmers and Indias food security and also played

a strong role in creation of the new BRICS Bank

Governance 8/10: The government has made a good start by downsizing the Cabinet - Narendra Modi cut down on the number of posts and departments and inducted young ministers into important ministries. He also laid out a 10-point agenda for the ministers to build confidence in bureaucracy, bring transparency into government and ensure stability in government policies while promoting growth. The government also launched a website namedwww.mygov.nic.into encourage citizens participation in the governance process.

Parliament productivity/politics /state relations 8/10: The NDA governments recently concluded Parliament session could be considered fairly productive with least amount of hours lost due to disruption compared to the UPA governments record. However, non-passage of the Insurance Bill, which sought to raise the FDI limit to 49%, in the Rajya Sabha, where the BJP does not enjoy a majority, disappointed markets as it raised doubts around how the government would manage passage of other bills through a hostile upper house for the next couple of years.

Outlook

Market ready for a new high: Markets have broken out of range on the upside. With the results season out of the way, focus will be back on economic data, which continues to improve. The correction in crude oil price by 11% from the recent peak has opened up the opportunity to stop diesel price hikes as losses of oil companies narrow, and also abated worries in other areas such as CAD (current account deficit), inflation, etc. The tide is turning, remain invested.

Disappointments and unnecessary controversies

FDI in Insurance: The non-passage of the Insurance Bill, which sought to raise the FDI limit to 49%, in the Rajya Sabha where the BJP does not enjoy a majority, disappointed markets as it raised doubts around how the government will manage passage of other bills through a hostile upper house for the next couple of years. While the insurance sector is not in dire need of fresh capital and probably ranks low in priority compared to the other important issues in the economy, it would have been an important symbolic reform step.

Goods and services tax (GST) and Direct taxes Code (DTC)no concrete roadmap but continues to be on top of the governments agenda: In the budget speech the finance minister clearly mentioned that the government in consultation with the respective state governments is on the way to finding a solution in the course of this year and approve the legislative scheme which enables the introduction of GST. However, lack of time lines for GST has put a question mark over whether this will happen. However, given the biggest opponents to GST were MP and GujaratBJP ruled states, this does look like it can be resolved with a 2015 time line.

Natural Gas Price Rise put on Hold for Three Months The Cabinet committee on economic affairs (CCEA) decided in a meeting that a hike in natural gas price is a sensitive issue and it needs further discussion to address many important aspects before making the final call. Therefore, the decision on hiking prices will be kept on hold for the coming three months so that all the stakeholders can be consulted on various related matters. This was one reform that was highly anticipated to be initiated immediately and the delay did not go down well with the market.

Irresponsible spending: In the Budget 2014, the FM allotted Rs2 bn for the construction of the statue of Sardar Vallabhbhai Patel which is inexplicable in the context of a government that is facing financial constraints and needs to rationalise expenditure. While construction of the statue per se is not the problem, it is the choice that the government is making over other pressing issues, which is more bizarre in our view. Many have criticised the government on this move, particularly when grave issues such as womens safety have been allotted a lower amount in the budget.

Food Security Plan delayed by three monthsWhile not so positive from a fiscal perspective, the Food Security Act, after being passed last year, needs to be implemented soon. Under the new system, with reforms such as Direct Benefits Transfer (DBT), the implementation of the Act would also help initiate reforms in the public distribution system (PDS) with an aim to reduce wastage, prevent hoarding and leakage of subsidies.

The government cited that some states have not been able to implement it yet. This important Act was earlier scheduled to be implemented by July 5, 2014. Once the Food Security Act is implemented, two out of three people in the total Indian population of around 120 crores will get rice and wheat at subsidised rates. This important plan will cost the government Rs 1.2 lakh crore or around $20 billion.

Article 370 for Jammu & Kashmir: Jitendra Singh, the minister of state in the PMO stated that the government would look to repeal Article 370 (that gives special privileges to the state) after holding talks with all the stakeholders. This invited criticism from several opposition parties given the sensitivity of the issue.

Uniform Civil Code: There was talk of the government to initiate debate on a Uniform Civil Code, which also gave the opposition an opportunity to criticise the government

Appointment of new Governors: The new government replaced governors appointed by the previous UPA government in several states, namely UP, Kerala, Gujarat, West Bengal, Rajasthan, Maharashtra and Tripura. As expected, it created various disruptions and criticism from the erstwhile UPA members.

The health minister raised controversy by questioning the way sex education is imparted in schools, nearly implying that it should be banned. This too was criticised the media and by many schools as a regressive step. He later clarified stating that he doesnt want sex education to be banned, but wants it to be within the ambit of what is scientific and culturally acceptable..

Governments Insistence on use of Hindi in social media he government sent out a circular to ministries, PSUs and banks insisting upon the use of Hindi over English, an almost impossible feat to achieve in a multi-lingual country such as India. This diktat met with huge criticism from various quarters, particularly from southern political parties where Hindi is less prevalent, forcing the government to withdraw the circular..

UPSC exams: The controversy surrounding the Civil Services Aptitude Test (CSAT), a compulsory pre-screening test of Civil Services Examination gave the opposition parties an opportunity to disrupt Parliament. In order to strike a balance, the government decided to exclude English marks of CSAT from evaluation

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