Modi@3: A few hits, and a lot of misses

Soon after the presentation of Finance Minister Arun Jaitley’s fourth Budget in Parliament, Prime Minister Narendra Modi laid out the philosophy of his two-and-a-half-year-old government.

Modi said the Budget was an important step towards overall development of the nation. “It will create new employment opportunities, help in overall economic growth and will be complementary in raising the income of the farmers,” he said.

On the economic and social front, the Centre tried to implement many forward looking policies. BusinessLine surveys the universe of these policies and assesses them to see which have taken off, and which haven’t.

Insolvency and Bankruptcy Code . Enabling faster and time-bound resolution of bankruptcy cases for both individuals and companies, the Act was passed by Parliament last year. A resolution plan has to be worked out within 180 days; secured credit will get priority. The National Company Law Tribunal has begun hearing of corporate insolvency cases. But resolution of individual bankruptcy cases has not yet begun. The government hopes that the new law will help deepen the corporate bond market and, more importantly, attract business. India is ranked 130 in the World Bank’s Ease of Doing Business, with resolving insolvency taking about 4.3 years.

Goods and services tax. The country’s biggest tax reform measure is set to roll out in July this year, within a year of the passage of the Constitution Amendment Bill for GST.

The new levy will subsume Central indirect taxes, including service tax and excise duty, State value-added tax as well as local levies such as octroi. It effectively promises to convert the country into one national market. The government and industry hopes that it will improve compliance, increase revenue and boost economic growth in the long run. While the enabling legislation at the Centre has been passed, States are in the process of passing the SGST Bill. With a rollout date of July 1 for GST, the government is now racing ahead to finalise tax rates and rules.

Demonetisation. The most defining moment of not only the NDA government’s third year, but perhaps its entire five-year term, will be the demonetisation of ₹500 and ₹1,000 currency notes. With the stated intention of curbing tax evasion and black money as well as encouraging cashless transactions, the government at one stroke withdrew nearly 86 per cent of the currency in circulation. Its impact in the first month was less than optimal, with long queues and confusion at banks and a cash squeeze. But belying critics’ predictions, the currency crunch did not have much of an effect on the economy; the GDP growth forecast has been maintained at 7.1 per cent. The NDA also overwhelmingly won the UP elections, seen as a referendum on the popular mood on the note ban.

Fight against black money. True to its election manifesto, the NDA government has kept up its vigil against tax evasion and has announced numerous measures and disclosure windows to allow tax evaders to come clean. Apart from demonetisation, Finance Minister Arun Jaitley had in Budget 2016-17 announced an income declaration scheme: it received total disclosures of ₹65,250 crore in cash and assets. In December 2016, the Minister announced the Pradhan Mantri Garib Kalyan Yojana, which allowed black money hoarders with demonetised notes to declare their unaccounted wealth and pay 50 per cent tax on it. While the estimates of collections are not known, it has bolstered the government’s pro-poor and anti-corruption image.

Monetary Policy Committee. Unveiling a new generation of reforms in the way monetary policy is framed, the Reserve Bank of India and the government notified the monetary policy committee without much ado. The six-member panel, led by RBI Governor Urjit Patel, includes independent experts, and has been tasked with setting interest rates with a target of keeping retail inflation at 4 per cent. The MPC held its first meeting in October last year. Meanwhile, in another related reform, the government moved to set up an independent debt management office. The Public Debt Management Agency is expected to divest the RBI of debt management responsibilities in two years.

Direct Benefit for subsidy. The NDA has brought in 217 schemes of 45 Ministries under the ambit of direct cash transfers. Using bank accounts under the Pradhan Mantri Jan Dhan Yojana, over ₹74,502 crore were transferred to over 33.33 crore beneficiaries in 2016-17. Direct benefit transfer for food subsidy in kind has also started using authentication through point-of-sale machines. Subsidised cooking gas and connections have been given to over 2 crore below-poverty-line families under the popular Ujjwala scheme. The government has reported savings of over ₹49,000 crore last fiscal by plugging leakages and cutting down on ghost beneficiaries. It now plans to extend DBT to fertiliser subsidy.

Regional connectivity scheme. Putting small towns on the aviation map, the government unveiled the UDAN scheme for regional airline connectivity. Short for ‘Ude Desh ka Aam Nagrik’, UDAN allows the common man to fly with flights of up to 800 km and fares capped at ₹2,500 per hour per seat. About 43 cities are expected to be served. The government has awarded 128 regional routes to five airlines under the scheme.

Dismantling of FIPB. Reducing red-tape and doing away with the “licence-raj” regime, Jaitley had in Budget 2017-18 announced the dismantling of the Foreign Investment Promotion Board, which vets foreign direct investment proposals for some sectors. Individual ministries are now likely to be empowered to clear most FDI proposals. The government hopes it will attract more foreign investments.

Infrastructure boost. Hoping to restructure the power sector and meet its promise of 24x7 electricity supply, the flagship Ujjwal Discom Assurance Yojana has relieved State government-run power distribution companies of their massive debt and interest costs. The focus is also on renewable energy sources. Meanwhile, ensuring efficiency in expenditure, the Finance Minister has maintained high capital outlays for infrastructure sectors such as highways. Performance in the usually lackadaisical Indian Railways has also become a key parameter.

Banking sector NPAs. With non-performing assets of public sector banks rising by nearly 21 per cent in nine months to ₹6.07 lakh crore by December last year, the government has now promulgated an Ordinance to empower the RBI to identify specific stressed assets and initiate insolvency and bankruptcy proceedings against them. Amendments to the Banking Regulation Act will be introduced in the next session of Parliament.

Construction of roads. Government data says that in 2015-16, the Roads Ministry built 6,061 km of national highways, which translates to more than 16 km a day. In 2016-17, till December, the Centre had constructed 4,699 km. According to the Ministry, it constructed 23 km a day in the last fiscal.

However, accidents remain an area of concern for the Centre. Roads and Highways Minister Nitin Gadkari recently told Parliament that 1.5 lakh people die every year in 5 lakh road accidents in the country.

Job generation. Criticising the UPA government for jobless growth, the BJP manifesto for the 2014 Lok Sabha polls promised top priority to job generation and entrepreneurship. In his election speeches, Prime Minister Modi promised one crore jobs a year.

However, in 2016-17, only 2.13 lakh jobs were created in eight key sectors of the economy — manufacturing, construction, trade, transport, accommodation and restaurants, IT/BPO, education and health.

A recent OECD report said that over 30 per cent Indian youth aged 15-29 are not in employment, education or training. This is more than double the OECD average of 14.6 per cent and three times that of China (11.2 per cent).

The demonetisation effect on the cash-dependent MSME sector only worsened matters. In the quarter following demonetisation, 1.52 lakh casual jobs and 45,000 part-time jobs were lost. Jobs are scarce despite programmes, such as ‘Make in India’, ‘Skill India’, ‘Startup India’, among others.

Rural employment. Even in rural India, the demand for job guarantee scheme MGNREGA has grown after reverse migration following demonetisation. But, according to government data, about 58 lakh households were turned back last year.

Foreign Direct Investment (FDI)inflows. FDI flowinto India has been robust over the past three years. There was a 54 per cent increase in FDI inflow to $24.7 billion in 2014-15 from $16 billion the previous year. Inflows further jumped to $40 billion the following year, which was only slightly lower than the highest FDI of $46.55 billion in 2011-12. In the last financial year, FDI inflows touched $56 billion. However, a considerable part of FDI inflow is in the form of mergers and acquisitions, which does not contribute to additional economic activity.

The government is now disbanding the Foreign Investment Promotion Board (FIPB) to give a further boost to FDI.

Farm sector. One of the major achievements of the NDA government in the agricultural sector was the setting up of an electronic National Agriculture Market. It has so far linked over 200 mandis across India and aims to integrate all 585 wholesale markets or agricultural produce market committees in the near future. However, experts say that only a miniscule quantity of agricultural produce is traded through this virtual platform.

Even though the BJP manifesto promised to implement the MS Swaminathan Committee recommendation to increase Minimum Support Price to 50 per cent over the cost, no effort has been taken so far. In fact, it said it is not possible to do so as it creates price distortions in agricultural markets.

The government has also set an ambitious plan to double farmers’ income by 2022, but very little has been done on the ground.

Twenty-one out of 99 high-priority irrigation projects taken up under the Pradhan Mantri Krishi Sinchai Yojana with a coverage of 5.22 lakh hectares will be completed by June this year. The government also expanded the scope of the crop insurance scheme and introduced soil health cards to help farmers decide what crops to go for.

External affairs. On the diplomatic front, the signing the Land Boundary Agreement with Bangladesh was a landmark decision. However, the exchange of 162 adversely-held enclaves remains a sticking point. The Centre may also finalise the Rafale fighter-jet deal with France to buy 36 of these warplanes off the shelf. The original plan was to procure 126 aircraft. The signing of a uranium deal with Australia was another milestone even though the shipments have not yet begun.

The NDA government’s Pakistan policy, despite big promises in its manifesto, has resulted in complete failure, although even though Modi undertook some out-of-the-box initiatives.

India’s relations with the European Union has also hit a nadir. Despite being in power for three years the government has not yet resumed talks to formalise a proposed free trade agreement.

India’s ‘neighbourhood first’ policy remained a farce as the Teesta issue is still pending, ties with Pakistan is at an all-time low with unprecedented violence in Kashmir. The SAARC framework is on its death bed. Nepal is not very happy with India, and the Afghanistan situation is very volatile.

The ‘Look East’ policy of Modi’s predecessors has not moved an inch. Ties with Singapore and Thailand have hit a rough patch. With the US, apart from increasing defence sales under the renewed Defence framework nothing has fructified. The civil nuclear deal is in the doldrums. With China, Modi’s foreign policy has crashlanded, with no meeting ground in any aspect. With China vetoing India's chances at the NSG, the bilateral relationship has plummeted.

Domestic law and order situation. During the Assembly election campaigns, Modi had promised that the law and order situation will improve when the BJP is elected to power in the States, including Uttar Pradesh. But incidents of attacks on minority groups, women and cattle traders have been on the rise. The Opposition argues that the Centre and the BJP-ruled States gave vigilantes, gau-rakshaks and anti-Romeo squads tacit authority. The Opposition has been demanding that the Prime Minister come out openly against fringe elements to ensure law and order.

Clean India campaign. The PM has been maintaining that the Swachch Bharat Mission holds tremendous potential to uplift the economic situation in rural India and also bring a sea change in the quality of life there. But the Opposition says the funds provided are not enough.

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