A few misses, but a lot many hits too…
The media is rife with analyses of the first year of the Modi government. To be fair, 365 days is not exactly a long enough period to assess the performance of any government. More so since the economy was in virtual shambles when the NDA under Modi assumed power. Growth was low, inflation was high, projects were stalled and the bureaucracy had come to a grinding halt. As one looks back there have been a few misses, but a good number of hits too.
Black money and white men…
That may be the biggest argument against the first one year. The government had promised to bring back black money within 100 days. Obviously, they met with little success. With a convoluted maze of inter-linked rules and inter-connected arrangements, it was never going to be easy. There was a thin line the government had to walk between getting back the black money and rubbing big money the wrong way. Quite obviously, it slipped along the way. The second miss was on the FPI front. The outcome of a progressive budget was largely diluted by tax notices sent to FPIs for paying MAT on a retrospective basis. That has hardly gone down well with FPIs.
But, a lot of good is visible
It will be unfair to assess the government on the basis of the black money promise alone. Inflation is down to manageable levels. The fiscal deficit has been kept in a disciplined range. One can impute this to cheaper oil, but the cost cutting measures of the government has also yielded results.
More importantly, the capital cycle is showing signs of bottoming out before reviving. A large number of stalled projects have been restarted. The government has moved really fast on gas pricing, coal block allocation and telecom auctions. All these have proved that where the government has a will, there is surely a way. Of course, the long term benefits of better diplomacy, import substitution, infrastructure development and cordial relations with neighbors are hard to quantify in monetary terms. The government has managed to achieve all this in the last one year.
The big challenges ahead
Having said that, investors may be getting impatient to see results! Corporate profits are still growing at a pathetic pace. It is not clear what is India’s Plan-B if oil prices start rising again. The liquidity situation in the economy is still quite tight and the government needs to work in close co-operation with the RBI on that. But, above all, the government needs to ensure that the momentum of growth is not lost in the altar of populist politics. That would be a really sad antithesis! ©