Happy New Year?

The general gloom and pessimism that had gripped the nation at the start of 2014 was swept away by the Modi tsunami midway through. For the first time since 1984, India got a government with a single party in clear majority in the Lok Sabha. This sweeping change signalled much more than a new government at the Centre. It revealed a desire for tangible change, reflected in the decisive mandate to the man who promised to deliver “maximum governance, minimum government”. Globally, too, India was perfectly positioned to seize the moment. The Euro Zone’s influence was waning, China was slowing and the US and India had emerged as the fastest growing markets of the year. Energy prices were on the decline, and from Abe’s Japan to Putin’s Russia, new alliances and renewed friendships promised a different role and a different place for India at the head table of global powers.

We all know what happened. Or rather, hasn’t yet. Industrial growth slowed to a decadal low, with manufacturing output actually shrinking by over 4 per cent in October. Wholesale inflation may have hit zero and retail inflation halved to 4.4 per cent, but this was largely a result of the slump in crude oil prices rather than effective supply management. Growth, at an average of 5.5 per cent so far, is better than what it was but still way below India’s potential. Towards the end of last year, the rupee weakened against the dollar to a 13-month low and despite the steep fall in the oil import bill, slowing exports widened the current account deficit to 2.1 per cent of GDP in the last quarter. Gross fixed capital formation, a gauge for fresh investments, actually fell to zero during the second quarter of fiscal 2014-15. Both foreign and domestic capital, clearly, want to see more change on the ground before backing their enthusiastic welcome of Prime Minister Narendra Modi with actual investments.

Will the year ahead be a repeat of the past, of performance once again failing to live up to promise? There are clear signs that this government is unwilling to let that happen. After partisan politics stymied his attempts to push through key reforms through legislation, Modi has signalled his intent by either pushing through or declaring he will ring in changes to the law relating to land acquisition, insurance, companies and taxation via ordinances. This may send the right signals to investors but these still need to pass the legislative test. If Modi cannot cobble up the numbers in the Rajya Sabha, he can try unconventional options, including using a joint session of both Houses, to get these through. The important thing is that the time for announcements is over. If 2015 is not to be a repeat of 2014, then the economy — and the nation — needs decisive action.

COMMENT NOW