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MODI@365

Don’t go by the title…. the subject is a bit serious. Just as I saw, the Sensex and Nifty having a rollercoaster ride, I realised that it is almost one year since our Modi government came to power. On the election result day, Sensex defied the financial law of gravity by jumping some 1,000 points. Fast forward May 2015, although the monthly and quarterly evaluation were always there, the yearly report card is getting ready.

With the new rejuvenated opposition and the government on the back foot, the final percentile is going to be get impacted due to jittery performance for the land acquisition and GST bills. Where everybody from hedge fund managers, mutual funds, FIIs, political analysts and not to forget media savvy financial analysts are analysing and predicting, why not we as laymen investors analyse the happenings of the last year.

Let’s not start with the regular fiscal deficit, CAD and inflation numbers which have become cornerstones of relative grading in the present global financial scenario, especially among emerging markets. Let’s undertake a credible performance appraisal which covers both qualitative and quantitative aspects.

Hum saath saath hai

Governments have come and gone, but RBI has maintained its status quo. With Raghuram Rajan at its helm, the RBI has successfully targeted inflation and maintained currency stability. As a consequence, CPI inflation has fallen to 4.87% whereas WPI declined to negative 2.36%, a level not seen since….. (nobody actually remembers).

Though this has been achieved by RBI alone, government’s non-interference and publicly respecting RBI’s autonomy has resulted in achieving this feat smoothly and without any unwanted public discourse enjoyed by the previous governments.

Chak de India

Co-operative federalism is another term for states autonomy where they would not have to look towards New Delhi either for policy guidance or financial resources. In simple monetary terms, the pocket money has been increased and states have been encouraged to grow up and spend available resources as per their priorities.

To further fulfil this agenda, the government has accepted the recommendations of 14th Finance Commission to increase the share of divisible tax pool from 32% to 42% for the states. From bickering for water and energy resources, it’s a welcome breakthrough for Indian states moving towards high fiscal discipline and healthy competition and working as Team India wooing foreign investment and improving standard of living for their respective states.

Tumhi ho bandhu sakha tumhi ho

With 80% of the country's population without insurance coverage and only 11% working population under pension, the government’s social security schemes in the form of new life insurance plan (Pradhan Mantri Jeevan Jyoti Bima Yojana) and renewable one year accidental death cum disability cover (Pradhan Mantri Suraksha Bima Yojana) is expected to achieve the unthinkable i.e, to provide social security to the lowest strata of society.

In addition, Atal Pension Yojana is set to cover the unorganized sector especially those outside the formal pension format. Strengthening the basic foundation of society will go a long way in enriching our economic superiority.

Main hoon na

Although, all these qualitative measures are stepping stones for any economic power, a lot of criticism is going on regarding the snail-paced reforms undertaken by the government. Anybody who takes up a rented house has to get rid of all unwanted stuff, redecorate it, check all the basic amenities and then start living in it. The same is the case with central governments all over the world. So why are we getting so anxious….

Well the cleaning process started with the auction of 204 coal blocks cancelled by the Supreme Court. The government following the e-auction process is expected to garner more than 15 lakh crore and over Rs 3.35 lakh crore have already been raised. Depending on the lifetime of the mines, the money raised will be split between the states and the centre over a period of 30 years. Thus the benefit will not only accrue to consumers in the form of lower power and fuel costs but also reduce states deficit in the years to come.

Simultaneously, public sector banks were shaken from deep slumber by inviting applications from private sector to head them. In addition to that, capital infusion would be performance-based. Insurance and coal mines bills have already been passed fulfilling the government’s reform agenda. Both annual and railway budgets have already laid out the path for development for a long-term horizon without making any false promises.

Budget proposals such as higher capital expenditure (up 25% YOY), independent public debt management agency, Forwards Market Commission to merge with SEBI, rationalising subsidies etc has exhibited government’s strong commitment towards reforms while reviving the investment cycle.

Where are we stuck?

Before Modi government came to power, our economy was facing stagflation, i.e., low growth and high inflation. There is not one but many reasons for this low growth scenario. Companies with high debts especially infrastructure companies like power, steel, cement etc are unable to expand or start new projects. Public sector banks saddled with NPAs and priority sector lending are unable to make any difference with high lending rates.

Though big companies are able to raise funds through foreign borrowings or domestic Commercial Paper market, the small and medium sized firms were stuck with high interest rates, high operating ratios, low consumer sentiment and that is where the growth is faltering. In addition to that, low minimum support prices and rationalised subsidies were unable to prop up rural growth.

And to top up that, we analyse our domestic economic recovery with the highs and lows of stock market which is no longer the accurate barometer in this age of global financial integration. Though the government is burdened with high public debt amounting to almost 44% of GDP, capital expenditure has been increased 25% to revive growth.

The private sector had been waiting for too long for the government to prove itself. The Modi government has to reduce this trust deficit and move swiftly to capture the momentum as predicted by IMF and validated by international rating agencies.

Where are the green shoots?

Is one year enough to judge the present government. Though the comparison would be out of context, Dr Vishal Sikka joined Infosys during the same time, people are not judging him. For a country of 1.2 billion, 29 states, 7 union territories, 6000 towns or cities and 638000 villages, it is certainly not enough. With falling commodity prices, failing rains, rural economy is the worst hit. But these are systematic risks which are uncontrollable.

The government cannot work like FIIs or hedge managers for short-term gain. There is no long-term gain or sustainability without this short-term pain. “Chalta hai” attitude is no more the hallmark of Indian economy. Attitude and perception is not easy to change, but work is being done in the right direction. Whether in the form of ‘Make in India,’ ‘Sawach Bharat,’ ‘Jan Dhan Yojana,’ ‘100 Smart Cities’ programme, there is a long-term vision this time.

Let’s us be a part of it. As rightly said by John Heywood, “Rome was not built in one day.” But we have just started laying the bricks.

BY:Suhani Adilabadkar