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Reuters Photo Credit: Arun Jaitley

Government’s economic report card in first ten months has been a mixed-bag

27 February, 2015

When Finance Minister Arun Jaitley stands up to present his maiden full term Union Budget on Saturday more than the usual chips are on stake. Having promised the world to the voters, the government got a leeway in the mid-term Budget last July but with the honeymoon period over, now businessmen and investors are looking at bold reforms and more than just a vision to pump prime the economy and reignite investments.

Here’s a snapshot of the government’s report card on the economy and policy front.

Undoubtedly, the most comforting aspect of the economy today is the fiscal deficit, a big issue of concern in the past. Thanks to crude oil price, which has crumbled in the past few months, the government is now expected to meet its fiscal deficit target of 4.1 per cent of GDP for the current fiscal. The slow growth in manufacturing and low service tax collection has led to a fall in the revenues for the government but other aspects have come to the rescue. Either ways, the government cannot take much of the credit for achieving this. One area where it can stake a claim for applause, though again supported by the favourable crude oil price, is the deregulation of diesel price.

Another aspect tied to the fiscal health is government’s disinvestment programme. Here the performance has been mixed. The government does have the mega offer-for-sale issue where it sold a small stake in Coal India garnering Rs 22,577 crore, to show up. However, as in the past, the issue was almost half subscribed by LIC, a state-owned enterprise. So the government paid itself to support the pubic issue. It may not turn out to be enough for the government to meet its target of Rs 58,425 crore for the fiscal that it set in July 2014.

One highlight of the government since taking over the reins is the decisiveness in policy moves and passing long pending reforms such as higher FDI in insurance, land acquisition norms, coal auction etc. The government was lauded for being reformist, though it later came under brickbats for what was termed as ‘Ordinance Raj’, but then such moves do not change the ground reality much as the ordinances automatically expire in a couple of months unless approved by the parliament. No firm would invest knowing fully well that the government does not enjoy majority vote in the Rajya Sabha or the Upper House of the parliament to see through a permanent change in law. Although the government does enjoy majority in the Lok Sabha, it is yet to show it can bring other parties on board to support its big reforms. The opposition staged a walk-out this week when it introduced the amendments to the land acquisition act for ratification by the parliament. The government would now have to ensure that important policy decisions do not get hijacked by politics despite the Indian electorate giving a majority to the BJP-led government in the last general elections.

Where the government can take credit is the Pradhan Mantri Jan-Dhan Yojana (PMJDY). The scheme, launched last year by Prime Minister Narendra Modi, has been able to open a humongous 115 million bank accounts in a span of just under five months (as of January 20, 2015), most of it in rural areas. The project is focused on opening a bank account for each individual in the country so as to provide a platform for government to introduce its measures on Direct Benefit Transfers (DBT) cutting off the middleman and thereby leakages in the system for giving monetary benefits to the underprivileged. The scheme provides for opening of zero balance bank accounts for individuals.

Another aspect where the government can take credit is initiating measures to support ease of doing business in the country. It has moved on to bring transparency for environmental clearances, streamlined process to get foreign investment approval, fast-tracked the process to create new companies and talked about simplifying norms for complying with existing labour laws. Also the government has been successful in integrating central government departments and ministries through a single window IT platform for business called e-biz.

While the government has laid special emphasis on manufacturing under the ‘Make in India’ programme, industrial output as measured by Index of Industrial Production has remained sluggish for better part of the fiscal year. The government did hike FDI in defense expecting to boost local manufacturing and that may well get a thrust with private sector roping in foreign partners to make products in India. The intention to boost local manufacturing now awaits some big plans in the upcoming Budget, including possibly reforms in the archaic labour laws.

Infrastructure development has been one of the key areas of emphasis for the government. The government has initiated some big moves like giving clearances to a huge backlog of pending projects, initiating diamond quadrilateral of rail network on similar lines to the previous BJP-led government’s golden quadrilateral project for roads, study on ambitious bullet train project and bringing out norms for Infrastructure Investment Trusts, these are at best work-in-progress. Some of these require still further clarity like tax issues for capital gains on the InvITs. The government has also talked about doing away with restrictive policies in aviation like a domestic carrier having flown for five years and having 20 aircrafts to fly on international routes, it is yet to make a definite move to open the skies further. In the roads space, against the target of 6,300 km for construction under various schemes of the Ministry of Road Transport and Highways during the current year, just under half or 3,038 km have been constructed till January 31, 2015. For the shipping and port infrastructure the government has been able to meet 90 per cent of its plan objectives for 2014-15.

Another pet project kicked off by the government is the Swachch Bharat Abhiyan or the drive to bring more cleanliness around the country. The project which is personally being monitored by Modi, is said to have gained momentum with 0.7 million toilets being constructed in January 2015 itself. However, the government is expected to miss its ambitious target of 12 million toilets in 2014-15, having built 3.18 million in the first ten months of the fiscal. To be fair, this is still some achievement given the vast expanse of the country and the task at hand.

The Budget on Saturday provides yet another opportunity to the government to turbo charge Indian economic growth. This time the world is watching ever more closely.


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Government’s economic report card in first ten months has been a mixed-bag

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