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Narendra Modi's Third week in Office Analysis


Narendra Modi's Third week in Office Analysis


Last week has been a busy week for Narendra Modi’s government and the most important one too. Narendra Modi assumed Prime Minister’s office at a time when the growth rate is below 5% and is moving steadily towards 3% ‘Hindu Rate of Growth’, which is clearly inadequate to bring billions of poor above poverty line and out of their wretched lives. Moreover, confidence of the business community, indigenous as well as foreign investors, on Indian economy has touched rock bottom and job creation scenario is perhaps at its worst phase in recent times. Manufacturing growth, the driver of a economy, over the last few years had the poorest show. Keeping all these issues in mind, the new government has laid down its agendas along with the pledge of improving quality of life of all the Indians, improving international relation with China, and rehabilitating the Kashmiri Pandits. Now, let us analyze the different moves of this government in the last one week.

Plan Laid Out to Revive the Economy

Last Sunday (June 8, 2014) the new Prime Minister stressed upon the need for developing Skills, Scale, and Speed for competing with the neighboring giant – China. Following this speech of NaMo, President of India laid down government’s 12-point plan before the parliament on June 9, 2014 (Monday) stressing upon creating a Self Confident, Self Reliant, and Strong India. President’s speech, which is essentially the viewpoints of Union Government itself, stressed on working upon 5 strengths of the country – Tradition, Tourism, Talent, Technology, and Trade – that will revive Brand India and will pull up India from the vicious circle that it is currently in.
According to the President’s address to the parliament, the basic plan of the new government include rationalization of tax structure (through introduction of long pending Goods and Service Tax), strategy to contain uncontrolled inflation (which is currently double of the 4-4.5% safe inflation limit prescribed by RBI), reform of Public Distribution System, creation of contingency plans during supply side bottlenecks, creation of jobs through emphasis on tourism, labor intensive manufacturing and agro based industries, upgradation of infrastructure (with emphasis on expansion of railway lines through Diamond Quadrilateral project and improvement of road infrastructure), expansion of electricity generation capacity through use of renewable and non-renewable resources, boosting economy and business by increasing investor confidence, allowing more FDI, due emphasis on women safety and empowerment, poverty elimination, healthcare and sanitation, defence, poverty elimination, inclusion of minorities in the Indian growth landscape, and international diplomacy (especially with SAARC countries and BRICS).

Overall Analysis

The entire plan seems to emphasize on the economic concept of trickle down theory, growth-led development economics, creation of strong infrastructure for expediting growth rate during medium to long run, and definitely improvement of trade and cooperation between SAARC and BRICS countries leading to a strong multi-polar world structure. However, all kinds of provisions have been included to strike a balance between growth and inclusive development through due emphasis on job creation, skill development, minority policy on the notion of minorities being regarded as equal partners in India's progress, 'Pradhan Mantri Krishi Sinchayee Yojna', and others. There’s something for everyone. Though this 12 point agenda tries to create a strong infrastructure, conducive environment for growth, proper business environment, along with due emphasis on inclusiveness, it needs to be seen how much of this plan can be achieved in reality and that too in the coming 5 years. That’s the challenge for Narendra Modi government.

Rationalization of Tax Structure

The long pending Goods and Services Tax (GST) issue is all set to be implemented by the current government. This will pave way for the long pending tax rationalization issue, long voiced by the corporates and business community. GST is expected to usher in corruption-free and transparent tax administration. Currently, tax is levied at various points right from manufacturing to the retail outlets. But with this proposed framework tax will be levied at destination point only, simplifying the tax structure in entirety. It is expected to divide the burden of tax in a more equitable manner between manufacturing and services. This will not only boost growth but also raise employment (especially in the medium and long run) and promote exports. Though there may be fall in tax collection in the short run and consequently in the revenue collection, India is expected to gain $15 billion every year in the medium to long run through the implementation of GST. However, there are concerns regarding fall of revenue during the first few years (especially in the short run) of implementing this new tax structure. In such a scenario it will be difficult for the government to finance the long list of welfare programs announced by it through President’s speech, which are expected to be achieved in the coming 5 years. Many states are also apprehensive about this new tax structure as they feel this will deprive them of their fare share of total collected national revenue. So, it needs to be seen how these concerns are addressed by Arun Jaitley during upcoming Union Budget.

Analysis of Land Acquisition Policy

Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is expected to witness changes in the coming days, already being hinted during President’s speech. 2013’s Act was implemented by the last UPA2 government after changing the archaic Land Acquisition Act of 1894. However, this new act was sharply criticized by the industrial and business houses as they feel the cost of land designated by the Act makes it difficult for them to acquire land. Keeping this resentment in mind National Land Use Policy is expected to come into effect during this government’s tenure which emphasizes upon scientific identification of non-cultivable lands on one hand and their strategic development on the other.
However, apprehensions are there among economists regarding the probable changes that are in the cards in the upcoming National Land Use Policy. India has already witnessed some bloody and intense struggle of the land losers across the country due to lack of faith on government’s compensation package. Struggles in Nandigram and Singur of West Bengal led to stalling of the projects as well as government change in West Bengal. So, there is widespread apprehension among academicians and economists of the probable changes in the soon to be formulated new National Land Use Policy. Some of the questions raised are: What will be the compensation package in this new framework? Will jobs be given to the families of the land losers?
The policy makers have to revisit these questions and accordingly formulate a comprehensive National Land Use Policy so that the land-losers get proper compensation on one hand and the industrialists get proper lands in strategic locations without delay. If these issues are not taken into account then resentment among land losers may create further struggle between them and the federal state.

Analysis of Inclusive Development Agenda

This new government wants to improve quality of lives for all its citizens. To reach this aim, Modi’s government has undertaken a 10 long year vision where it will try to provide ‘pucca’ house having proper toilet and sanitation facilities and unhindered supply of electricity 24x7 to every citizen. Other developmental agendas that will be implemented in the coming five years include 'Pradhan Mantri Krishi Sinchayee Yojna' for better irrigation facilities securing water security, develop 100 Tier-II cities to accelerate urbanization, and include minorities in the growth process of the country by providing them equal opportunities and modernizing Madrasas. All these development agendas look good at paper and sometime too good to be true.
Implementation of these plans will definitely lead to increase in quality of life (in terms of Gini Coefficient too) of the billions of poor Indians, living especially in the rural areas and in the urban slums. However, it looks too good to be true as the source of financing these welfare projects are not yet known. It now rests upon Finance Minister Arun Jaitley to garner funds to finance these schemes. But that’s too look unlikely in the coming few years (especially short run) as many economists believe that the proposed rationalization of taxes will actually decrease revenue source of the government in the short run. It has been witnessed that last year there was a default of Rs.5.1 lakh crores in direct tax collection. Some analysts and economists believe that implementation of the proposed Goods and Services Tax regime will lead to increase in pilferage of tax collection, further decreasing revenue sources. In this backdrop, the source of funding the ambitious welfare schemes announced is not clear yet, especially in the first 5 years from now. In such a scenario, it needs to be seen how the current finance minister addresses these issues and also strikes balance between growth and welfare agendas, all at the same time.

Modi’s Address to the Parliament

After the President laid down the 12 important agendas of Narendra Modi’s government, our Prime Minister on Wednesday (June 11, 2014) delivered his maiden speech in the 16th Lok Sabha and stressed upon going the whole hog to fulfill the promises outlined in the President’s speech. His speech mainly emphasized upon changing the image of India from a scam tainted one to to skilled one. With the resolve of further opening up the economy to foreign capital Mr. Narendra Modi rightly addressed the need of more skilled manpower. Other important points highlighted by the Prime Minister include need of real time data and strengthening IT power, development of north eastern region of India, and empowerment of power.

Analysis

Through Public Private partnership already National Skill Development Corporation (NSDC) has been constituted that is designated to work upon skill development till 2040. Skill development has been given utmost priority in the coming ten years from now so that the vast unskilled young manpower of India can be skilled to capture fruits of growth and development. In fact, growth prospect of China is saturating and they have given more importance in generating internal demand of their economy for consolidating the fruits of high rate of growth they achieved in the last few decades. India, on the other hand, is on the verge of the great leap forward where the economy is waiting to grow exponentially through increased liberalization, globalization, and privatization. In fact, there is a huge young workforce ready to take India to further heights of success. Per 2001 census, population between the age of 15 to 44 years (most active working age) accounts for 46% of the total population. But what most of them lack is proper skill set. Therefore, there is a huge pool of resource in India that can be trained and skilled as per requirements and abilities for reaching the next level of development curve, right from an emerging economy to a developed one.

Chinese Foreign Minister’s Visit to India

A new chapter of friendship and cooperation is expected to start between India and China. At least that’s what the Chinese foreign minister Wang Yi’s visit followed by unusually long meetings with Indian interlocutors on Sunday (June 8, 2014) and Monday (June 9, 2014) indicates to. This visit assumes paramount importance because the bilateral issues discussed between Mrs. Sushma Swaraj, Indian foreign minister, and Wang Li revolved around broad bilateral strategic issues including trade and economy. President of China, Xi Jinping, is expected to visit India during end of this year. Our PM has also accepted the invitation of Chinese Premier Li Keqiang for visiting China.

Analysis

Li’s addressing our new PM as an ‘old friend’ of China is itself a big leap towards a prosperous and mutually beneficial future for both countries. Narendra Modi has regarded China as an important partner of India, especially regarding long term strategic cooperation. He has also expressed his willingness for closer ties with China on various counts. International analysts believe that this is going to be a new beginning between two countries, having shared interests in terms of trade, border, economy, and many more. This visit of his foreign minister is believed by many to have initiated a new era of bonhomie between the two countries. However, Modi didn’t mince words in condemning expansionist behavior of China in India’s north east. Though there has been no breakthrough, but it is believed that it is a beginning of a new era of mutually beneficial partnership between the two neighboring countries.

Hope for Kashmiri Pandits

The issue of rehabilitation of Kashmiri Pandits are on the cards of this new government. In fact, President Pranab Mukherjee has also stressed upon it during his speech before joint session of Parliament.

Analysis

Addressing the problems of Kashmiri Pandits by the highest offices have made these poor souls rekindle hope of returning back to their own lands, from where they had been forced to evacuate during 1990s, which is regarded as exodus of Kashmiri Pandits by many. In fact, it was one of the main issues on the basis of which BJP had fought the Lok Sabha election, especially in Jammu and Kashmir. Now, after such a decisive win analysts believe BJP will not keep any stone unturned to rehabilitate the displaced Pandits in their own lands.

 

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Last Updated on June 14, 2014, 11:00 am