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Narendra Modi's "modest" steps unlikely to bring Indian economy back on track, comments The Economist
World’s top rating agency Standard & Poor may have lifted India's rating outlook to 'stable' from 'negative', with claims that this shows it acknowledges efforts by the Narendra Modi government to maintain fiscal discipline while reviving the economy and drumming up investment, influential British journal “The Economist” believes not enough has yet been done, and the new government’s “modest policies” will not bring back to nine per cent growth. The commentary comes when Modi is in the US, the stocks have returned following a three-day losing streak and the rupee showing signs of strengthening.
Continuing to offer strong views like before, The Economist, dated September 27 in an article titled “Reform à la Modi”, says, “When Narendra Modi’s Bharatiya Janata Party won a thumping majority for its pro-growth promises in India’s elections in May, hopes swelled that the new government would adopt economic reforms that had proved beyond the brittle coalitions of the past. Yet in defiance of the maxim that the boldest steps are best taken early, Modi has so far eschewed dramatic change.”
The Economist particularly notes, that the “cuts to subsidies (such as on fuel and fertilisers), which cost 2.3 per cent of GDP last year, have been deferred” and there is so far “no firm timetable for a national goods-and-services tax, which would boost GDP substantially by removing barriers to trade between India’s many states.”
The journal also takes objection to the fact that “caps on foreign direct investment in many areas, including supermarkets, remain in place.” Instead of taking strong decisions, it says, “the government has taken a series of small steps, ginning up India’s sluggish bureaucracy, for instance.”
Wondering if the chance to reshape India’s economy is “slipping away already”, the commentary says, despite a series of measures, the economy has been growing at 5.7 per cent “year-on-year”, but “that is not a sparkling rate for an economy that until a few years ago was growing at 9 per cent a year.” Though this is “a good deal better than in most places”, “the foreign money that washed out of India last year has returned”, and the “stockmarket has risen to record levels”, it adds, “Inflation is too high, at 7.8 per cent” and “the impetus for reform has slowed.”
No doubt, the journal says, “Modi has cracked heads” in the bureaucracy, and “many permits can now be obtained online”, and the result is that, “by the start of September the government had approved 175 stalled projects, according to Citigroup.” Yet, it says, “This good work was set back when, on September 24, the Supreme Court cancelled 214 of the 218 coal-mining licenses sold between 1993 and 2010.”
While giving credit to the Reserve Bank of India, especially to its UPA-appointed governor Raghuram Rajan, for taking steps to bring down inflation, The Economist warns, the new stability should help growth to pick up by not more than one per cent, from around 5.5 per cent this year to perhaps 6.5 per cent next year, and “unless the government does its part by adopting more radical reforms, the 9 per cent annual growth that India briefly enjoyed before the financial crisis is hard to imagine.”
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