There is no doubting the fact that Prime Minister Narendra Modi works hard and drives his government at the same hectic pace. Lutyens’ Delhi is abuzz with stories. Golf during weekdays is ruled out; signing in and out of the bhavans and blocks is now mandatory and put up on government website; midnight oil is burnt regularly in the PMO, which now resembles an omnipotent and omnipresent command module; and, as if in sharp contrast, hardly any of the PM’s Cabinet colleagues have travelled abroad during the year. The economy is also in better shape. Inflation is down; growth rate is up, though marginally; foreign reserves are higher; current account and fiscal deficits have been reined in; and a number of investment projects have been cleared and new ones announced, especially in the public sector.
And yet, almost inexplicably, there are dissatisfied and disgruntled voices such as those of Messrs Shourie and Parekh.
Some reforms have indeed been undertaken. These, inter alia, include transparent auctions of coal mines and telecom spectrum, the successful launch of financial inclusion schemes in banking and insurance sectors, the much-needed de-freezing of defence orders and contracts and pruning the list of defence products that required licences, raising the cap for FDI in insurance, defence and construction, and the passage of the historical GST Bill in the Lok Sabha. There has been a spate of executive measures for improving the ease of doing business, including larger scope for self-certification, bringing together 10 licensing requirements on the single e-biz portal, setting up of new NMZs and an industrial corridor authority.
And yet both large business houses and small & medium domestic investors are not investing in new capacities. This is reflected in the growth rate of commercial bank credit to non-food sectors, plummeting to 3.6%. FDI has not really picked up in any significant manner and portfolio investors (FIIs) have voted with their feet against the government bringing avoidable volatility and chaos to the equity markets in this month. Real estate sector is reportedly in doldrums. Urban middle classes are not rushing to buy new homes or assorted consumer durables, and rural demand, even in Gujarat and Haryana, seems to have tanked.
Surprisingly, thus, at the end of one year, Modi finds himself facing disquietude and impatience from the middle, neo-middle and business classes who were his star supporters during the campaign. During my recent visits abroad, I also ran into negative mutterings within the diaspora who were reluctant to shower accolades, which they so want to confer upon their icon.
To his credit it must be said that, undeterred by these middle class murmurings and disgruntled investor voices, Modi is quite consciously working to a plan which will serve his dual objective. First, to ensure electoral success in the upcoming Bihar and UP elections. Second, to get the Indian economy on to a higher, sustainable and hopefully employment-generating growth track.
To his credit it must be said that, undeterred by these middle class murmurings and disgruntled investor voices, Modi is quite consciously working to a plan which will serve his dual objective. First, to ensure electoral success in the upcoming Bihar and UP elections. Second, to get the Indian economy on to a higher, sustainable and hopefully employment-generating growth track.
Modi’s middle class support base has taken a rather severe mauling since the AAP’s most surprising victory in Delhi. The investor and business community is also increasingly sceptical, especially in light of the hostile stance taken by the tax authorities and virtually zero change in ground realities so far. Modi should not wait too long to start to reverse the negative perceptions in these segments as well.
He will achieve this change in perception by being seen to be refocused on the domestic reform agenda rather than be more concerned with, as he has appeared to be in the last one year, raising India’s image and stature abroad through his high-visibility visits.
It is just as well that Modi has set his own reforms timetable to try and avoid the fate of Vajpayee and Narasimha Rao of being a one-term PM. He will have to, however, move quickly to reignite the private investment cycle. For this, he will have to do the following. One, bring a heavy hand on the truant direct tax department, which is clearly upsetting the apple cart. I sincerely hope that those who are inveterately anti-private sector are not once again unduly influencing CBDT. This I know had happened in the past to a great cost to the economy. Two, he will have to connect with investors individually and collectively, and not through chambers of commerce, as he did in Gujarat, and not suddenly become defensive about this. Three, public sector investment has to be put on the accelerator in as many sectors as possible. This will help kick-start private investment.
Finally, Modi needs to marshal a much larger resource base of expertise and skills from outside the pool of covenanted government servants. The Japanese practice of creating tripartite advisory committees for important ministries could be replicated with good effect. Such a collaborative effort, which will truly represent ‘Team India’, is required for Indian firms to successfully compete in global markets.
The author is Senior Fellow, CPR, and Founding Director, Pahle India Foundation