Age Debate: Big-bang reforms

In record speed, the Narendra Modi government has kickstarted the economy which remained sluggish under the United Progressive Alliance for many years. Within two years Mr Modi almost doubled GDP growth, contained inflation to half of what it used to be, stabilised the rupee and enforced fiscal discipline. But job creation and investment remained the worry spots.

Thanks to the RBI governor’s tight-fisted policy on rate cuts, despite all the other positive indicators, credit offtake from commercial banks continued to be extremely weak at a decadal low of nine per cent against 27 per cent during UPA. This indicated two things: the private sector’s reluctance to invest and reluctance on the part of banks to advance credit. Both were equally detrimental to the Modi government’s deep desire to make India the manufacturing hub of the world, create 10 million jobs annually and accelerate growth. Mr Modi announced his ambitious “Make in India” plan to attract FDI in technology-intensive sectors, like defence, aviation and infrastructure as soon as he started to mend the economy. Today India is one of the most desired FDI destinations in the world. There has been a 23 per cent surge in FDI inflow last year attracting USD55.5 billion in 2015-16. To further boost this, the government had to act decisively and this is what we witnessed on June 20.

The new FDI norms involved defence, civil aviation, the pharma sector and single-brand retail. Many big arms manufacturing and aviation companies are eager to tap the vast Indian appetite for arms and ammunitions and the cheap labour availability. With better infrastructure, power, water and land availability and a likely fall in interest rates, it is likely that foreign investors will find India more attractive than China.

For Mr Modi it was natural to make the big-bang announcement and whet this appetite. India has already emerged as the fastest growing economy in the world. It is edging up in the ease of doing business in the World Bank ranking.

The new policy aims at creating jobs for the highly skilled and attracting investment in hi-tech. India is the largest importer of arms and aircraft, and this is the most natural course to save foreign exchange. Those who have no problem in India using almost entirely imported articles in defence and draining billions in foreign exchange are the ones now criticising the FDI in defence. That in six decades we have lagged behind in defence production R&D and that weapons manufactured abroad are being used, leading to spare parts issues on many occasions, have not bothered the critics. Only those who want India eternally dependent on imports and kickback scams will oppose the new policy. The same is the case with the pharma sector. After Mr Modi came to office, all essential drug prices have been reduced by half and made available. Allowing foreign manufacturing of sophisticated and advanced medical tools and drugs in India will make them affordable to the common man. This will enhance the Modi government’s mission of affordable healthcare.

Dr R. Balashankar is member, BJP Central Committee on Training, and Committee on Publications, and former national convenor, BJP Intellectual Cell

$FDI flow will make India self-sufficient

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A few months ago Arun Shourie, a stalwart of the BJP, had forewarned us. “For the Modi government economic management amounts to headline management,” he had said prophetically. The recent “FDI push” by the government was yet another example of how the Modi sarkar puts style before substance and it’s own image before the health of our economy. This knee-jerk reaction of the Modi sarkar, with which the government thinks that it might also give it a political boost is bound to boomerang. This is simply because in the last two years the economy has been on a downslide and these panic responses will not help the BJP or the government electorally or politically.

Nervous about the impact that RBI governor Raghuram Rajan’s exit, would have on investor confidence, a day after he announced his decision to return to academia, the Modi government, in what can be seen as a U-turn from its strident anti-FDI position while in Opposition in 2012-13, permitted 100 per cent FDI in civil aviation and food processing, raised investment thresholds in defence and pharmaceuticals and relaxed tough local sourcing rules for single-brand retail.

The government of course was neither going to accept that these hasty quick-fix decisions were taken to counter the “Raghuram hangover” nor was it going to acknowledge that these were the very decisions they had blocked while in Opposition, sometimes by raising concerns like national security in the case of FDI in defence and at other times loss of employment for local traders who would face competition from MNCs. Those objections were driven by mere political calculations, not conviction.

Two years on, the Indian economy under Mr Modi is in dire straits and every indicator seems to corroborate this fact. And this quick-fix measure is hardly going to benefit the aam aadmi or usher in the elusive achhe din. Will retail inflation, measured by the consumer price index (CPI), which is up from five per cent in May 2015 to 5.39 per cent this year, fall Will the index of industrial production (IIP), which has contracted from above two per cent last year to 0.1 per cent this year, improve magically with this step GDP figures can be fudged but our exports tell a different story. Exports from India fell 6.74 per cent year-on-year to USD 20,570 million in April 2016, the lowest since November 2015. It was the 17th straight month of decline as non-petroleum exports decreased 3.49 per cent. Mr Modi’s biggest promise to the young voter was to create two crore jobs each year, but the core sector together created just 135,000 jobs during 2015, 67 per cent lower than 421,000 jobs that were added in 2014 under the Manmohan Singh government.

From a peak of 38.1 per cent of GDP in 2008 the savings rate has fallen below the investment rate under the Modi government. This is the most troubling indicator for the Indian economy which has now necessitated such half-baked solutions. FDI alone won’t serve as a magic wand to revive investor confidence or set the economy right. Unless steps are taken to improve domestic capital formation, savings and investment, this move will only serve as a superficial political face-saver and nothing else.

Shehzad Poonawalla is Maharashtra Congress secretary and a former Central government official

$It alone won’t serve as a magic wand

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