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Assessing Modi's performance in delivering on promises and evaluating the political system's support for him. Examining the challenges and achievements in various sectors.
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Has Modi delivered? And how much leeway will the political system afford him Sunil Jain Managing Editor The Financial Express January 2015
What the UPA left behind • Stagnant economy … sub-5%, no investment • Policy paralysis • Tax Terror • MGNREGA, Land Bill, Environmental Terror • Iron ore mining stopped by courts • Coal blocks cancelled • Rising inflation • Troubled CAD • In short, no one expected India to get back on track for next 2-3 years at least
What did we want Modi to do? SHORT TERM • Fix the tax terror • Fix the subsidies, move to Aadhar-based cash transfers • Raise prices of natural gas • Provide more telecom spectrum … the last two would bring in immediate investments, $15-18bn in oil and $10-12bn in telecom • Rein in food inflation by dumping FCI stock
What did we want Modi to do? SHORT TERM • Stop FCI’s open-ended procurement … move towards an ‘incomes policy’ in place of the MSP-driven system • Clean up mandis … Azadpur, Vashi • Approve a bank holding company • Privatise PSUs • Bring GST … BJP states were opposing it • Change centre-state relations
What did we want Modi to do? SHORT TERM • Raise FDI limits in insurance • Raise FDI limits in defence • Allow FDI in B2C e-commerce, live with FDI in retail • Fix the UPA’s bad land acquisition law
What did we want Modi to do? LONGER TERM • Fix labour laws • Scrap the coal mining and other laws that keep commercial miners out • Fix the fisc • Fix the Doing Business kind of indicators
What did we want Modi to do? LONGER TERM • Bring in the Direct Tax Code • Clean up tax exemptions • Make sure states clean up electricity sector … use the FRP leverage • Work on PPP framework/laws to fix the current problem of PPP paralysis • Allow RBI to clean up banking
How has Modi done? Mixed picture • Certainly industry seems less optimistic • First budget was lacklustre, possibly because govt didn’t have enough time • All the major numbers have turned out to be incorrect … Rs 1 lakh cr tax shortfall • Ghar wapsi drowned out development agenda • Rajya Sabha is a major political challenge
How has Modi done? Good • Jan Dhan Yojana … does many things • Coal Ordinance … will get disinvestment cash as well as bring in commercial miners • Price and CAD under control … Acche Sitare • Labour laws via Rajasthan • Defence … 49% looked bad, but worked out • WTO victory … global visits great success • No more tax terror … Shell and Vodafone
How has Modi done? Bad • Completely goofed up gas pricing, no real moves on LPG – could have followed diesel route of UPA • Telecom … despite defence releasing spectrum, no auction, will kill Digital India • Nothing on FRP-type power solutions … even cancelled UMPPs • Nothing on bank divestment company • Railways … nothing on PPP which is critical • PSUs … no privatisation as yet
How has Modi done? Indifferent • GST has been a washout so far, no issues resolved despite BJP being in power • Land Acquisition … nothing for industry • Agriculture … some action on bonus states, freed Azadpur but no land for alternative mandi, very little FCI stocks sale … very much work in progress
How does the future look? • None of the $100bn of cleared projects have taken off … with banks and India Inc over-leveraged, taking off will take 2-3 years • If BJP gets too aggressive, as it did with Mamata on Saradha, could affect passage of Bills … Land Acquisition is a good example • Govt seems to a bit defensive about reforms, so that’s a bit worrying … retro tax law is a good example of this, so is land • Is too know-it-all … telecom/gas examples
How does the future look? • Cairn shares stuck and government playing the heavy on its field extension, wants to increase the ONGC stake • No one big project private project has been announced or cleared • Can’t even sell SUUTI stake in L&T,ITC • Need to see if Modi will move on BSNL/MTNL or Air India privatisation
How does the future look? • Doubling of worker definition in Factories Act has exempted half of factories from it • Essentially, Modi is trying to fix the huge hike in ICOR over the past few years, from 4.4 in FY04-11 to 7.4 in FY12-14 … in short run, fixing the Doing Business indicators is the best solution … And this does not involve political parties • Fixing the defence licensing, self-attestation are all good examples of this
What to watch for • What kind of powers RBI will get • If not enough powers, can’t clean up bank balance sheets, so RBI needs to be able to force banks to force India Inc to deleverage • Have done SMA, SMA1, need to put group exposure norms in place • Rajan’s attempt to complete ‘missing markets’
What to watch for • Will be a lot more action in infrastructure like smart cities etc • A lot will, of course, depend on how the new PPP framework comes up • Will govt move on acre-based cash transfers to farmers • Will RSS dominate Modi
Why we’re positive • Modi is focussed on the nitty gritty • Solar Power Gujarat story • Kisan Mandi Delhi • Open market wheat sales after rice flopped • Article 254(2) • LARR consultation • Factories Act • Coal price pooling • Clearing defence deals to attract investors