Five years ago, Prime Minister Narendra Modi assumed office amid massive expectations from the market and industry, that he would bring in structural reforms and change the face of the economy. As we get closer to the general elections, let us step aside from the political rhetoric and construct an honest analysis of the economic performance of the Modi government.
The present regime can take heart from the fact that India is one of the fastest growing economies in the world. The average growth rate in the past four years is 7.3%, according to the back series GDP figures.
However, growth alone won’t portray an accurate picture of the economy.
Reforms:
Touted as the single biggest tax reform post-independence, Prime Minister Modi implemented the Goods and Services Tax. Notwithstanding the teething problems, GST revamped the Indian industry. It led to the formalisation of the economy and widened the tax base.
Insolvency and Bankruptcy Code, 2016 is another structural reform enacted by the government to tackle twin balance sheet conundrum. Stressed assets in the banking sector stagnated credit growth and capital investment. IBC creates an insolvency resolution process by ensuring speedy liquidation of assets in a time-bound manner.
Ease Of Doing Business :
India has improved its Ease of Business ranking considerably under NDA, jumping up from 142 in 2014 to 77 in 2018. The significant advancement created a trust factor for foreign investors looking to invest in the country.
Macro-Economic Stability :
The government set up Monetary Policy Committee (MPC) with the objective of targeting inflation. This move brought inflation under control with the average inflation rate in the past four years at 4.3%.
Benefitting from the tailwind of low crude oil prices, fiscal deficit was brought down to 3.5% of GDP in 2017-18 from a high of 4.1% in 2013-14. Although the government didn’t stick to the FRBM Act, it is on track of fiscal consolidation without much deflection.
However, there are challenges to the macroeconomic stability, going forward with the falling rupee and widening Current Account Deficit (currently at 2.9% in Q2 of FY19). Gross Fixed Capital Formation (Net Investment) fell to 27.5% in 2017. Aravind Subramaniam, the then Chief Economic Advisor in his Economic survey, 2018 stressed for the need to revive investment to achieve quality growth.
The NDA government under-delivered in two crucial areas, agriculture and employment generation. Agricultural growth rate under the present government is 2.4%, which is abysmally low for a sector that employs half the population. The economic survey of 2018 revealed that real incomes of farmers and agriculture growth remained stagnant in the past four years.
Widespread agrarian distress can be attributed to higher productivity and the inability to provide adequate Minimum Support Price(MSP) for the produce. With the data hitting in your face, Government’s ambitious claim of doubling farmers income by 2022 is a myth as of now.
Prime Minister Narendra Modi failed spectacularly in creating quality employment. Recently leaked NSSO data pegged the unemployment rate at 6.1% in December 2018, a 45 year high. Even more alarming is the report of Centre For Monitoring Indian Economy (CMIE) which claimed that 11 million jobs were lost in 2018.
This phenomenon of job losses can be ascribed to demonetisation, a move intended to curb black money and counterfeit currency. While the data available in the public domain shows no evidence of meeting the stated objectives, demonetisation had adverse impact on the MSME (micro, small and medium enterprises) sector, which is the primary source of employment in India.
While there is no big push for reforms in the critical areas of health and education, the government’s flagship schemes of financial inclusion (Jan Dhan yojana and Ujwala yojana) produced mixed results. The shortcomings of NDA had wide-ranging negative implications on the common man. These deficiencies will eventually decide whether or not Prime Minister Narendra Modi returns to Office in May 2019.