Milk and honey: The adulation when Modi won last May. A year later … The new government is not an infant anymore; it is set to cross its first birthday. One year ago, the new coalition that rode to power came with much fanfare. It promised the moon and consequently expectations were raised sky high. As it completes its first year in office, there is a mixed feeling all around. Some constituencies are happy, a few unhappy but most seem subdued in their evaluation of the last year's performance. The corporate sector that had put its weight behind the Modi government is deafeningly quiet.
The year is ending with a stock market plunging down over the last four weeks. It recovered a trifle towards the end but is way below the heights it had reached last December. The rupee lost quite a bit, went below the psychological low of 64 and is now marginally below that mark. Corporate results are disappointing with all major business houses reporting disappointing results. All banks are in trouble. Punjab National Bank reported a huge jump in bad loans that sent its shares down by as much as 9 per cent.
How do we analyse this performance by an alliance that was so sure of its economic agenda? Here was a three time chief minister who had reportedly run one of India’s most industrialised states efficiently. His team included people who are known to be sharp and business friendly. Arun Jaitley, Suresh Prabhu, Manohar Parikkar, Piyush Goyal and even the much maligned Nitin Gadkari have a hard earned pro-business reputation. Why did this team then lose the plot even in its first year?
Let us go back to the beginning. The first shock that the NDA regime gave to its corporate constituency was when it did not reduce the government’s subsidy burden, neither in the first budget in July 2014 nor in February 2015. The second disappointment, and this for the public that voted the NDA to power, was the manner in which the black money issue was tackled. Amit Shah almost confessed to the government’s lackadaisical stance when he said that there are election jumlas that should not be taken seriously.
The third thing that disappointed the reformists were the anachronistic statements that came out of the NDA leadership and this prominently included the Prime Minister. It was with sheer incredulity that his cheer leaders heard him talk about India’s scientific superiority and give instances from mythology as proof. A government that announces that India had been flying aeroplanes in the ancient past and had discovered genetic engineering thousands of years ago cannot be taken seriously.
Fourthly, the few ideas that emerged also were bizarre. The Prime Minister declared that he would urge Coca cola and Pepsi to add fruits to their soft drinks. I remember the reaction from some horror stricken seniors at these corporations. Their century old formulas that had worked on all parts of the world would now be destroyed by a political whim. Thankfully everyone forgot about this advice soon, but this was the last time the Prime Minister had seriously talked about agriculture reforms.
Fifthly, and this was a serious concern of the investors. The government simply forgot about its promises on doing away with retrospective taxation. In the first budget when everyone looked up to the FM, he shocked his audience by saying he will retain retrospective taxes but promised they would not be levied in the future. Unfortunately he did not even stick to this promise and the next budget brought in retrospective MAT, a tax on past earnings of foreign institutional investors. Almost on cue, FIIs started selling their shares and the stock market crashed.
It is not that the government did everything wrong. There were clearly very strong pro-reform measures. The opening up of the insurance sector and the defence sector, the reforms in pensions, deregulation of fuel prices, the attempts at financial inclusion through Jan Dhan, the decentralisation that was seriously discussed and the Finance Commission’s recommendation on giving states a greater share of tax revenue were all steps in the right direction. With all these initiatives, the economy should have recovered substantially.
However it was in some sense the inability of the government to carry things through with attention to detail that was missing. It also had to do with the fact that all ideas without exception were authored by the Prime Minister and all credit had to go to him. No one else therefore took any initiative. Swachh Bharat, Make in India, Clean Ganga, soil testing for farmers, Digital Bharat, Bullet trains…..the Prime Minister was making major promises in every possible sector. As none of this materialised, it was merely one announcement after another.
New jobs that were to be created didn’t materialise; a million jobs per month had been promised. Interest rates never came down, and EMIs remained high. Investments by corporate India that were waiting to be deployed never saw the light of the day. Inflation definitely came down, but now is hostage to poor rains and a rising international crude price. Government spending in the social sector is down. No wonder the year end celebrations are muted!