Indian Economy is one of the toughest to guard and the major responsibility lies with the Finance Ministry shared with RBI and other Institutions. It is no brained and even a high school kid will tell you that the economy is in doldrums be it the GST Bill or Major policy decisions where the Ministers have flip-floped maybe due to lack of governance experience and arrogance for not listening to expert analysts like us.
The Good in the Modi Government
Almost everyone we have met in the bureaucratic circles over the past year has highlighted that the work ethic has been strong at various ministries thanks to consistent pushing from the Prime Minister’s Office (PMO), which holds regular review meetings with senior civil servants in each ministry.
The officials in the roads, railways and coal ministries suggest that the Government’s efforts are bearing fruits. A senior railway official highlighted that despite the fall in railway freight growth (due to the overall economic slowdown, and due to freight traffic shifting to road due to the fall in diesel prices), the railways is on track to deliver its plan spending in FY16 and FY17. The capital expenditure, as a percentage of total expenditure, is at an all time high and the same will start showing results by the end of FY17 when the Dedicated Freight Corridor spend (both eastern and western) fires.
A senior roads ministry official highlighted that the capital expenditure in this particular sector typically takes three years to start showing results on the ground. This sector has also seen increased capital expenditure under the new Government. Approximately, 10,000km of roads project were awarded by the Central Government in FY16 (compared to 8,000km awarded in FY15) of which 6,000km is on track for completion.
The Big Ugly Scenario in Modi Government
Rural distress has been aggravated by two consecutive failed monsoons, three consecutive years of sub-5% hikes in Minimum Support Prices and by a pull back in subsidy spend by the Government. Whilst the causes of such a distress are various, the Government’s reaction to the same has been puzzling.
All the PSBs (which account for ~70% of credit outstanding in India) are capital constrained and cannot grow their loan books by more than 10%. As a result, they have become a binding constraint on the economic recovery. After being in power for almost 20 months now, the Government has not been able to come up with a concrete plan to recapitalise the PSBs. The provisions under the PSBs’ revival plan called ‘Indradhanush’ which they announced in September 2015 are paltry compared to an annual requirement of US$10-US$11 billion for next five years (Indrandhanush promised $10bn in total spread over four years).
Indian export growth has now been in negative territory for fourteen months.
Despite the seriousness of the situation, the commerce ministry has not been able to strike a single bilateral or multilateral trade agreement with any country or trade block.
There seems to be no overarching vision or economic architecture that the NDA is pursuing. As a result, the focus lurches from one slogan to another – today it is Start-up India, yesterday it was Digital India and day before that it was, Make in India. Perhaps this is because of lack of administrative experience both at the ministerial level and at the upper echelons of the IAS (wherein several officers who are not familiar with how New Delhi works have been brought in). As one senior IAS officer told us, The old timers have experience but little motivation; the youngsters have lots of motivation but not enough experience. Finally, our orator Prime Minister Modi Ji is obsessed with only one point Agenda – Winning Elections.