Prime Minister Narendra Modi and his Bharatiya Janata Party emerged victorious in general elections in May, promising ‘achche din’ (good days) for millions of Indians. Fortuitously recent developments — including the sharp decline in global crude oil prices — ensured a smooth ride for him in the first six months.
But the last week of 2014, when the government had to resort to rule by executive decree — to push ahead with reforms in the coal and insurance sectors — was a grim reminder that the road ahead is going to be rough. The Bharatiya Janata Party (BJP)-dominated National Democratic Alliance (NDA) government, like its predecessor, the United Progressive Alliance (UPA) government, is determined to unveil the second generation of reforms.
But just as the BJP, when in opposition over the last more than 10 years, stubbornly resisted the efforts of the Congress-led UPA to introduce much-needed changes in the economy, the Congress and sundry left-of-centre and left parties are raising hurdles to the passage of legislation.
Having won an absolute majority in the Lok Sabha, the lower house of the Indian Parliament, in the May elections, the government should not have found it difficult to get its legislative agenda through. However, the BJP still does not enjoy a majority in the Rajya Sabha, the upper house — though with recent victories in several states, it is fast heading to secure a majority there over the next two years — so its efforts at getting bills passed become that much tougher.
The Modi-led government is focusing on manufacturing and aims to attract foreign direct investment into the sector, opening up sectors such as defence, railways and construction to FDI. It is pushing ahead with its ‘Make in India’ programme
Till it gets a majority in the upper house, the BJP government will find the opposition blocking all efforts to bring in changes in various laws. The worrisome aspect for the prime minister is that there are any number of motor-mouths in the larger Sangh Parivar (family), who are ever ready to voice their bizarre opinions on any contentious subject and television cameras are only too happy to magnify the nonsense they spew.
In the process, the opposition exploits the opportunity to embarrass the government in parliament, stonewalling the legislative agenda for days; strangely, Modi has been unable to control the fringe elements in the extended BJP family, which includes the Rashtriya Swayamsevak Sangh and the Vishwa Hindu Parishad.
As Gujarat chief minister, Modi — despite the serious allegations against his government of turning a blind eye to communal riots in 2002 in which hundreds of Muslims were killed — tried to remain focused on economic matters and development. He snubbed the extremists within the Hindu nationalist family, even driving some of them out of Gujarat.
His government at the centre — and the dozen-odd NDA-ruled states — will have to curb venom-spouting MPs and leaders of various Sangh outfits to ensure that its economic agenda does not get derailed.
FOR the Indian economy, 2015 will be another challenging year, though GDP growth is expected to recover on the back of improved sentiments and a relatively good monsoon in 2014. The economy grew at sub-5pc levels over the past few years, before recovering a little; in fiscal 2014-15, it is expected to expand by 5.3pc.
Dun & Bradstreet, a leading international business information consultancy, estimates that India’s GDP will expand by 6.4pc in fiscal 2015-16. The finance ministry’s mid-year economic review for 2014-15 is more optimistic; it notes that growth of seven to 8pc is ‘within reach’ over the coming years.
And Goldman Sachs is even more bullish about the Indian economy, with two economists — Tushar Poddar, managing director of the India operations, and Timothy Moe, chief strategist, Asia-Pacific — maintaining that India is set to overtake China and become the fastest-growing emerging market during 2016-18.
Structural reforms are expected to accelerate GDP growth to 6.5pc in fiscal 2015-16 and 7pc the following year, says the American consultancy. China’s growth is expected to taper down to 6.7pc in fiscal 2016.
Unlike previous governments in India, the Modi-led regime is focusing on manufacturing and aims to attract foreign direct investment into the sector. The government has already opened up sectors such as defence, railways and construction to FDI. It is aggressively pushing ahead with its ‘Make in India’ programme, which aims to set up industrial corridors and manufacturing zones.
The government also has plans to develop 100 smart cities, besides reviving special economic zones. Modi can be expected to clobber all opposition from within the Sangh family, especially ultra-nationalists who are opposed to foreign investments, in his drive to attract FDI into the manufacturing sector.
His government is also focusing attention on boosting infrastructure. While the Supreme Court struck down the previous government’s move to grant coal mining licences to the private sector, the government came out with an ordinance amending the antiquated law, allowing the private sector to enter the business.
Last week, after the upper house stalled proceedings and refused to pass the new coal bill and amend the insurance law — allowing more FDI — Modi opted for the ordinance route, bringing in changes to the law. The government is expected to call for a joint session of parliament — where it can muster up a majority — to clear crucial reforms bills.
The NDA government has also managed to convince state governments — including those ruled by the opposition parties — to back the landmark Goods and Services Tax (GST); last week, the government brought a Constitutional amendment bill, introducing what finance minister Arun Jaitley says was the single-most important tax form since 1947.
Thankfully for the BJP-led NDA government, inflation, the fiscal deficit and current account deficit are not major challenges for the time being. But the sharp fall in the value of the rupee against the dollar in December has given rise to concerns. The Indian rupee was one of the best-performing emerging-market currencies in 2014, after recovering remarkably from the steep fall in 2013.
However, it fell to a 13-month low a few days ago and analysts expect the currency to drift downwards for much of 2015. It is expect to trade at 65 to the dollar by the end of 2015. Of course, in 2013 the rupee lost value because of the inherent weakness of the Indian rupee; this time round, it is mainly because of global circumstances, including the woes of the Russian rouble.
The Modi government also wants to fast-track the divestment programme during the year.
Published in Dawn, Economic & Business, December 29th, 2014