Prime minister, N Modi was romped to the seat of power on the promise of fulfilling the aspirations of 1.25 billion people of India. Those aspirations include rooting out corruption, inclusive development, jobs for all, house for all, electricity for all homes, toilet in every home, subsidized gas for all poor households, road connectivity for all habitats, model villages, smart cities, to name a few. True to his promise, he started in all earnestness implementing policies and programs to achieve these highly ambitious goals. His deliverable so far are a matter of tremendous relief and bolster confidence of the public at large about his ability to reach the goal post. It is worth mentioning some of these here. 220 million...
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Waning exports – go for ‘sustainable’ therapy
If, there is one single area that has given jitters to Modi – government during its 2 years stint, it is exports. Beginning December 2014, exports decreased for 17th consecutive month in April, 2016. This would have taken a serious toll on India’s balance of payments [BoP] but for the oil bonanza [due to slump in crude oil] which led to steep reduction in oil imports more than offsetting its negative impact. To a considerable extent, the slide can be attributed to global economic slow down even as China’s has crash landed from double digits [until 2 years back] to around 6.5-7%; developed countries [other than USA] struggling to sustain their already low growth of well below 3%, US growth...
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Interest rate setting – RBI governor’s monopoly ends
On June 27, 2016, the government amended the RBI Act to provide for the setting up of Monetary Policy Committee [MPC] with the mandate to fix interest rates and inflation target. The necessary notification in this regard has been issued and process of its constitution initiated which should be consummated within 2 months or so. The bi-monthly monetary policy review slated for early August, 2016 will be the last time when the interest rate would be decided under the existing dispensation. This will also more or less coincide with the end of the tenure [September 4, 2016] of present governor Raghuram Rajan who has decided not to seek another term. Under the existing dispensation, a decision on the policy rate...
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Reining in tax dodgers – Modi style
There has been a long held view that Indians are not used to paying taxes fundamentally because the tax rate is too high and that acts as a deterrent. This could have been true for a while when in 60s, the maximum marginal rate of income tax was a high of 90%. But, to argue that this is the sole reason for people not paying taxes would be travesty of the truth. The proof of pudding is in the eating. Ever since the process of economic reforms and liberalization started 25 years ago [1991], the income tax rates – both personal and corporate – have progressively come down. Today, the maximum marginal tax on personal income @30% is significantly lower...
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Wither fiscal discipline sans oil bonanza
During the first 2 years of its stint, Modi – government did a splendid job sticking to its fiscal consolidation road-map. It achieved fiscal deficit target for both 2014-15 and 2015-16. This was despite a substantial step up in the planned expenditure [a major chunk of this going into roads including rural roads, highways, irrigation, agriculture and railways] besides meeting social welfare commitments etc. This was the outcome of reforms in the area of FDI [foreign direct investment], ease of doing business and fast track approvals of stuck projects [leading to acceleration in GDP growth and buoyancy in tax receipts] on one hand and rationalization of subsidies on the other. The latter focused mainly on plugging leakages and efficient delivery...
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GST rate – “ring-fencing” could be fatal
If, there is one reform step that has been held hostage to sheer political maneuvering, it is the Goods and Services Tax [GST]. The most vociferous opponent now happens to be a party which had contemplated this idea more than a decade ago and even introduced a bill in the parliament [2009] to garner the full benefits of this ‘trans-formative’ reform [it will add 2% to GDP, according to an estimate]. Having raised a number of contentious issues, the grand old party is in no mood to relent on its most trumpeted demand for putting a cap on GST rate in the constitution amendment bill itself. Pertinently, it mooted the cap at 18% [being the revenue neutral rate [RNR] determined...
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Stop routing oil subsidy via PSUs
A request submitted by Reliance Industries Limited [RIL] to the government allowing it to deal in marketing and distribution of ‘subsidized’ LPG [liquefied petroleum gas] draws attention to a very crucial aspect of reforms that holds the key to supplying oil products at low cost on sustainable basis. This relates to breaking the monopoly of public sector undertakings [PSUs] in the downstream oil sector by letting players from private sector in. At present, infrastructure, storage, handling [and other logistics], marketing and distribution of petrol, diesel, LPG, kerosene etc is dominated by oil PSUs viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL]. 2 fundamental factors have contributed to their predominance. First, relates...
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Fertilizer woes – quick fix won’t work
On July 4, 2016, the minister for chemicals and fertilizers, Ananth Kumar announced government’s decision to reduce maximum retail price [MRP] of non-urea fertilizers viz., DAP [di-ammonium phosphate: 18% nitrogen [N] & 46% phosphate [P]]; MOP [muriate of potash] [60% potash [K]] and complex fertilizers [contain N, P and K in different proportions] with immediate effect. The retail price of DAP has been reduced by Rs 2,500 per ton to Rs 22,000/tonne, MOP by Rs 5,000 per ton to Rs 11,000/tonne and those of complex fertilizers by Rs 1,000/tonne on an average. The minister went on to say that the rate cut would entail a benefit of Rs 4,500 crore to farmers and help promote balanced use of fertilizers. On...
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Concurrent elections – good for economic reforms
In a recent interview given to a private channel, the prime minister, N Modi gave his full endorsement to the idea of holding elections to the Lok Sabha and all state assemblies simultaneously. However, he opined that the necessary initiative in this regard should come from the Election Commission [EC]. Meanwhile, EC has already submitted its views and a group of ministers [GOM] has been put on the job. The founding fathers of the Constitution too had contemplated simultaneous elections and things were on right track till mid-60, when the apple-cart was disturbed due to ‘premature’ dissolution of some state assemblies [1968/1969] and Lok Sabha [1970]. Over time, the mis-match has only got aggravated with dissolution of many more assemblies....
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Strategic divestment of PSUs – seize the moment
In its previous incarnation under Vajpayee, the BJP-led NDA [National Democratic Alliance] during 1998-2004 had vigorously pursued “strategic” disinvestment of Union government’s shares in public sector undertakings [PSUs], some of the high profile cases being Modern Food Limited [MFL], Maruti Udyog Limited [MUL], Hindustan Zinc Limited [HZL], Bharat Aluminium Company [BALCO] etc. The UPA – government which took charge in 2004 abandoned this route even as it sold shares in small lots with the sole aim of garnering resources to meet fiscal deficit target. The present NDA – regime under Modi may have resurrected the idea as would be evident from a provision of Rs 28,500 crores in the budget for 2015-16 as proceeds from strategic route out of total...
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