Moody’s votes for Narendra Modi ahead of time

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Updated: Apr 14, 2015 4:38 PM

NDA’s one-year rule shows that the govt has drifted from what the BJP manifesto promised at the core, and has focused more on symbolism

Narendra Modi, maeke in india, Narendra Modi make in india, Make in India defence industry, tenders on make in india, tenders on narendra modi's make in indiaThere is no doubt that Prime Minister Narendra Modi has succeeded in creating positive vibes about India globally, and Moody’s thumbs-up for the country’s outlook is a sign of that. (Reuters)

There is no doubt that Prime Minister Narendra Modi has succeeded in creating positive vibes about India globally, and Moody’s thumbs-up for the country’s outlook is a sign of that.

Given his acumen of handling atmospherics, this is the least that could have been expected after his promises in the BJP’s 2014 election manifesto released on April 7 last year, despite the fact that industry’s patience has started running out on any veritable change on the ground.

Although the Modi dispensation has decided (indicated for now) that there will be no pompous show of achievements like the UPA’s yearly report card, etc, it would be a good idea to judge the NDA government’s performance in one year against the backdrop of what the BJP promised in the manifesto.

Narendra Modi, Modi India, indian economy, Modi poll promises

Leaving plain politics aside, about 20 measures (see chart) listed in it were of economic significance and also the bedrock of the growth strategy.

It can’t be anybody’s case that a transformation should be visible in one year, but the essence of governance in the current NDA regime is that it has failed to address industry’s concerns and, in many cases, especially in taxation where it promised to end the ‘terror’, the situation has only aggravated.

The government has got it completely wrong that growth and jobs can come from taking foreign and private investments as a given, without creating a conducive business environment.

For the record, this is what the preface to the manifesto said: “UPA’s biggest blow to the Indian political system is that they have taken out Genuineness from Governance; Authenticity from Administration. UPA has shown Governance of Enactment, not Action. It has given an Administration of Entitlement without Delivery. We have become a polity of Promises, and not Performance. We represent an economy of deficits, a work culture of delays and an asset base of deficiency. Worse, Congress-led UPA has made India a global synonym of Corruption, Scandal and Stagnation. To make it even worse, today, we are passing through total Decision and Policy Paralysis. Sluggish economic growth, unprecedented price rise and unstable Currency are its most visible facets.”

Thanks to global crude oil prices crashing and the NDA government’s push to pending reforms—coal auctions and passage of insurance and mining & minerals Bills in Parliament, besides the Cabinet’s nod to the long-pending Real Estate Regulatory Bill—the overall despondency appears to be lesser as compared to the same time last year. But, overall, the Modi government has depended more on symbolism, and the bottlenecks on the ground, including the amendment to the 2013 Land Acquisition Act, still remain.


The other key area where instead of moving forward the government seems to be going the other way is tackling ‘tax terror’. The 2012 retrospective tax amendment is one of the best examples of a government (taxman) not accepting defeat in a legal battle gracefully—once the Vodafone case was lost in the Supreme Court, amending the income-tax Act retrospectively to counter it was a bad move—and the NDA government just saying that it will be applied rarely, that too after scrutiny at the top level, is skirting the real solution to the tax terror.

This is exactly what the NDA government has done—the addition of another R47,000 crore in FY15 to the R2.17 lakh crore transfer pricing additions since FY06, retro tax demand on Cairn, and MAT on foreign portfolio investors are examples of continued high-handedness.

Moving to other critical areas that needed quick action and figured in the BJP list, the plan to build 100 smart cities is still at a nascent stage and the FY16 Budget doesn’t even mention this as a top priority.

The energy sector, which found specific mention in the manifesto, from gas grids to a responsible energy policy, the fact of the matter is that the sector has been left to languish, with the government avoiding gas price hike as per the Rangarajan formula and getting into protracted litigation with the oil and gas producers, and also failing to give the required clearances for extracting oil and gas from old wells.

If crude petroleum output is hovering at around 38 million tonnes since FY11, it was 32 million tonnes in FY06; and natural gas production dropped to 35.41 billion cubic metres (BCM) in FY14 after reaching a peak of 52.22 BCM in FY11; the government of the day needs a much better handling of the sector than the way it is being handled currently.

On the positive side, in the energy sector, the government’s focus on renewables has been in the right direction.

The other major plank of the BJP’s reform agenda has been fixing the food economy.

Though the government did launch the R500 crore price stabilisation fund and the Pradhan Mantri Krishi Sinchayee Yojana in its maiden Budget in July 2014, the bigger reforms appear to have been thrown into cold storage.

The Shanta Kumar panel’s report on restructuring of the Food Corporation of India (FCI) operations, which has to be the base model for any meaningful reform in agriculture—to shift farmers in Punjab and Haryana from growing wheat and paddy to cash crops, to encourage wheat and paddy cultivation in the eastern states of the country, to get out of the excess and uneconomical procurement of these two crops, to bring in cash transfers instead of distributing grains through the public distribution system, and to release money for investment in irrigation and technology out of the savings on account of these measures—has been junked.

Other more demanding reforms like changes in the APMC Act and the creation of a national agricultural market depend on the support of the state governments, and will obviously take more time and persuasion, but any major action in this case is missing.

Even the measures which will figure prominently in the government’s achievement list, Prime Minister Jan-Dhan Yojana will not be able to make any dent till all the government entitlements and subsidies start accruing to the bank accounts linked to the scheme; the much-hyped Digital India requires a business model, which is missing at present; Make-in-India requires significant improvement in the ease of doing business; and the Swachh Bharat Abhiyan needs to ultimately get down to providing health and sanitation facilities.

These plans are impressive to talk about and for display, but the NDA government after its one-year rule has bigger challenges to handle—bank credit growth is at a 21-year low, industry is unwilling to make new investments and growth prospects are failing to get better.

So, Moody’s ratings revising India’s sovereign rating outlook to “positive” from “stable” may have come ahead of time, as the rating agency too has done this on the expectations of the policy actions to lift the country’s economic growth.

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