For the dark clouds to lift, the few good decisions taken by Modi are not enough. Here's to a lot more...
With FIIs pumping in $42 billion over last year and an increment of R30 lakh crore in shareholder wealth, the Modi effect is obvious. What is important is how much of the acche din is due to Modi and how much due to his acche sitare. At the beginning of 2014, industrial growth was 1.1% and it was minus 4.2% in the latest month available (October), suggesting not too much has changed on the ground; the same conclusion emerges from the fact that the $103 billion of projects cleared by UPA and NDA in the last 12-14 months haven’t really even moved the needle on project sanctions by banks.
Yet, the rupee has been stable despite exports not picking up and CPI has halved from 8.8% in January 2014—that is acche sitare, since it was largely driven by global oil and commodity prices collapsing; and FIIs were spurred on by the ECB and BoJ taking the place of the US Fed when it comes to creating global liquidity—make no mistake, oil at $100+ and a US taper would have finished off the Modi sheen months ago, even though it is after decades that Indians cast their vote instead of merely voting their caste. And the way the BJP is chalking up victories in state assembly after state assembly augurs well for legislative action, even if after 2016.
None of this is to take away from what Modi has delivered, whether in terms of foreign policy—it is not just the Japan,China and US visits, the WTO victory on food subsidies was a big one—or in terms of making moves none would have thought possible a year ago. There is labour reform via Rajasthan, opening up of the coal sector and defence production, fixing of tax terror without repealing the UPA’s retrospective law—when is the last time the taxman didn’t appeal a court judgment like the Vodafone and Shell type?—and, most important, there is movement towards Aadhaar-based cash transfers to replace subsidies, something the BJP was violently opposed to before Modi arrived on the scene. Sonia Gandhi’s crippling land acquisition law has been defanged to a large extent, the Electricity Act is being amended to bring in more discipline among state regulators and competition among suppliers.
Yet, there are gaping holes, not just in terms of what India needs, but also in terms of what was realistic to expect. So, Modi exerted little pressure to get BJP states to fall in line on GST and what you have is far from the game-changer talked of. Apart from the fact that an opportunity was lost to hike LPG prices by small amounts in the manner the UPA fixed the diesel subsidy, India’s largest private explorer deciding to divert its energies to Mexico is a sign of the mess in the oil sector with no clarity on gas prices even now. Despite initial promise, agriculture, sadly, remains a work-in-progress.
Which is why, at the end of 2014, many newspaper headlines are quite similar to those at the beginning of the year. There’s Cairn India still looking for its lease being extended after it found lots more gas and oil, and for justice on its tax case for investing in India. As in January 2014, no decision has been taken on selling the government’s residual stake in Hindustan Zinc; with a R1 lakh crore shortfall in taxes (it was the same for FY14), the government continues to dither over selling the R47,000 crore of ITC/L&T shares it owns, and has made negligible progress in offloading 10-15 million tonnes of FCI stock that could fetch it R22,000 crore; expect the same sharp expenditure cuts to balance the fisc. CERC’s compensatory tariffs for power plants in trouble remains stuck in the courts, and there has been little progress in either getting debt-heavy corporates to get their act together or in fixing bank balance sheets.
Many headlines are, it is true, very different and the starkest are the ones on coal—in the year’s beginning, the coal scam was unravelling and licences were being cancelled; at the year’s end, even commercial mining looks possible. Changing this composition of headlines will be Modi’s challenge in the new year. What is worrying is that while Parliament continues to be an uphill task, Modi’s parivar members are only making it tougher for him by taking the headlines as far away from economics as possible.