To stay the course of fiscal discipline, Modi will have to stop routing subsidy via low prices and start making direct transfers to beneficiaries that need them the most In the first two years of its stint, the Modi Government has stuck to the fiscal consolidation road-map, achieving fiscal deficit target for both 2014-15 and 2015-16. It did so even while pumping huge funds into building roads, highways, irrigation, agriculture and railways and without compromising on its commitments to welfare programmes. Two major driving forces merit attention: First, foreign direct investment reforms, improved ease of doing business, and fast-track approvals for stuck projects has accelerated GDP growth and resultant buoyancy in tax receipts. Second, rationalisation of subsidies, plugging leakages in...
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Category: Fiscal deficit/subsidies
Effective implementation key
MOMENTOUS REFORM On August 3, 2016, Rajya Sabha (RS) passed the 122nd constitution amendment bill (already cleared by Lok Sabha last year) paving the way for the Goods and Services Tax (GST). This is a ‘transformative’ reform that will convert the Indian Union of 29 states in to a seamless national market enabling free movement of goods and services as a single uniform tax replaces a plethora of existing taxes. Promising multiple benefits for producers, exporters, businesses, consumers and governments via increasing efficiency in supply chain, reducing transaction cost, improving ease of doing business, tax buoyancy and stemming evasion and black money, GST will lay the foundation for putting India on double digit growth trajectory in the next couple of...
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Shun subsidies, go for income support to poor
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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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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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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Soft on borrowers
STRESSED ASSETS SCHEME : A close look at the scheme reveals that this is nothing but skulduggery and playing with jargons to make it look robust. Even as the Reserve Bank of India (RBI) has become increasingly tough with public sector banks ordering them to clean up their balance sheets by March 2017, it continues to treat the defaulting borrowers (who were responsible for their proliferating non-performing assets in the first place) with kid gloves. First, it was a scheme nick-named 5/25 introduced in December 2014, under which maturity of loans given to infrastructure companies could be extended up to 25 years. Six months later, this was followed by a scheme for “Strategic Debt Restructuring” (SDR). Under SDR, banks can...
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PLUGGING FOR THE POOR IN A WELFARE STATE
The Modi Government has sought to plug the leakages in the welfare delivery mechanism. It must now sustain the momentum to achieve double-digit growth rates Three decades ago, Prime Minister Rajiv Gandhi estimated that only 15 paise out of every rupee meant for the poor actually reached them because of leakages in the delivery system. This was a tacit admission that brazen loot of public money was happening but nothing was being done to curb it. Successive political establishments happily recalled the statement but never introspected on its seriousness. In his two years in office, Prime Minister Narendra Modi not only analysed the modus operandi of how the resources meant for the poor was being misappropriated, but also galvanised the...
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