Ground set for good times ahead

Ground set for good times ahead

The year 2015 will go down in history as one that laid the groundwork for the promised “acchhe din” (good times), with enough concrete indicators that the Indian economy is set for a bounce.A series of far reaching measures taken by the Narendra Modi government is slowly beginning to bear fruit. The most important of these is the decision to front load the government's capital expenditure, especially in the roads and highways, railways and rural infrastructure sectors.The roads & highways ministry, headed by Nitin Gadkari, has been the star performer. Several proactive measures to revive stalled projects, new and easier norms for financing and clearances and a strong focus on quick awards and active support have breathed new life into the sector that is now driving the uptick in the demand for cement, bitumen and real estate in Tier 2 and Tier 3 cities.Then, the quick and transparent auction of coal mines, following the cancellation of the allocations made by the previous UPA government, is already showing signs of reviving the sector. Investments have started flowing into the eastern states of Bihar and Jharkhand, where a majority of these mines are located, propelling the growth rates in these provinces to almost double the national average.“The government's bottom-up approach to growth is showing results,” a recent Credit Suisse report said.Finance Minister Arun Jaitley has said that every single step the government has taken has been in the same direction - of reviving the economy and putting it on a higher growth trajectory.Devolution of financial powers to the state by implementing the recommendations of the financial commission and restructuring the Planning Commission into a Niti Ayog were among some of the other major steps.

At the same time, the government has taken care to push financial inclusion. It has introduced three insurance and pension schemes to provide social security in a country that provides no safety net for the poor and the needy, along with the previously launched Jan Dhan Scheme, promise to improve the lives of millions of poor Indians. Taking cognisance of the fact that 93 per cent of the Indian workforce of 480 million work in the unorganised sector, which also produces almost half the country's GDP, the government launched Mudra Bank, with a corpus of $3000 million (Rs 20,000 crore) to provide finance to small and micro enterprises that till then had no formal access to capital.This is expected to create millions of jobs in semi-urban and rural areas and absorb a large part of the army of 12-15 million youngsters who join the workforce every year.There was also a lot that went wrong during the year. The Monsoon failed for the second successive year leading to droughts in several states.But record stocks of foodgrains and timely steps by the central and state governments kept food prices in check across large parts of the country. The exceptions were the prices of onions, tomatoes and pulses, which peaked, causings some hardship to the common man.With inflation remaining in check, helped greatly by falling global crude prices, Reserve Bank of India governor Raghuram Rajan decided to reverse his hawkish stance on monetary policy and cut the key policy rate, on which banks benchmark their deposit and lending rates, in four tranches by a cumulative 125 basis points (100 basis points = 1 percentage point).Banks, however, have been niggardly in passing on the benefit of lower rates to customers, cutting their lending rates by 60-75 basis points. This was because most banks, especially in the public sector, are grappling with massive nonperforming assets (industry jargon for loans which have not yielded any interest income for two or more quarters).

This weight of NPAs is also coming in the way of banks lending money to the corporate sector, creating a roadblock in the government's plan to kickstart the investment cycle.To nurse the Indian banking system back to good health, the government launched Indradhanush, a sevenpronged programme to help banks overcome the NPA problem.Politically, the year was a bit of an anti-climax for the BJP, which began 2015 with the glow of its 2014 victories in the Lok Sabha and Assembly elections still burning bright. It received a drubbing in both Delhi and Bihar, the only two assembly elections held during the year.The Congress and other opposition parties also managed to disrupt the Monsoon Session of Parliament and stall the government's legislative agenda, which included the passage of the land bill and the GST Bill, among several other laws.The Winter Session of Parliament is now on. There are indications that the government and the opposition may be able to narrow down their differences on the GST Bill. If the bill does pass through the Rajya Sabha and the states are able to complete the residual formalities, India might yet get the law that will stitch its 30 separate markets into one common market.If that happens, it could add up to 200 basis points to GDP growth and help usher in the “acchhe din” whose contours are now only faintly visible on the horizon.Some facts and figures of 2015:Economy

  • Economy growing at about 7.5 per cent, making India the fastest growing large economy in the world
  • CAD down to about 1 per cent and fiscal deficit to about 3 per cent
  • Wholesale and retail inflation remain under control
  • Several indicators point to an economic revival and higher growth potential. For example, diesel and petrol consumption, power consumption, excise and customs duty collections, commercial vehicle demand, housing loan disbursements and cement sales are all up
  • However, investment and savings rates are still well below their 2011 peaks
  • Average 25-30 per cent idle capacity in economy, indicating sub-optimal corporate and consumer demand
  • Govt sets ambitious target of doubling India's exports from $466 billion a year in 2014-15 to $900 billion by
  • 2019-20 under a simplified Foreign Trade Policy
  • Exports shrink 10 months in a row
  • Govt launches two big-ticket infrastructure projects, a $16.6 billion initiative to build 100 smart cities and the $8.3 billion Atal Mission for Rejuvenation and Urban Transformation. These can set off a virtuous cycle of investment-led growth, consumption and prosperity the effects of which could last for a decade and more
  • MAT levies issue, which spooked foreign investors, resolved
  • Public investments stepped up, especially in the roads & highways, railways and rural infrastructure sectors
  • Govt launches a seven-pronged programme, called Indradhanush or rainbow, to revive public sector banks (PSBs), resolve their NPA problem and set them on the path of higher growth
  • Plan to generate 100,000 MW solar power by 2022 gains pace• Coal mines auctioned, $30billion bonanza for central and state governments
  • India jumps 12 spots, from 142 to130, in the World Bank's Ease of Doing Business Index
  • Govt launches Ease of Doing Business Index for states in collaboration with the World Bank to encourage competition among states in easing business processes
  • $2 trillion Housing for All Scheme, which envisages building 110 million housing units across the country, mostly in the low cost or affordable segments, by 2022 launched
  • Skill India Mission to impart vocational training to 400 working age Indians by 2022 launched to leverage India's demographic dividend by making India's workforce employable
  • Govt launches three schemes to monetise the massive $900 billion gold hoard lying idle with temples, trusts and individuals
  • Govt eases FDI rules for 15 sectors, including defence, single brand retail and media
  • Finance Minister Arun Jaitley sets up 10-member committee headed by Justice (retd) RV Eeswar of the Delhi High Court to simplify the country's labyrinthine Income Tax Act
  • Unveils draft aviation policy to encourage connectivity to smaller cities and encourage the growth of the sector
Financial inclusion
  • Govt launches Mudra Bank, with a corpus of ($3.3 billion), to finance India's 60-million-plus small and micro business units that have so far remained outside the ambit of formal financial channels. Scheme projected to generate millions of jobs
  • Govt launches $20 billion Digital India initiative to connect 250,000 panchayats on an e-platform that will deliver governance and goodies to every corner of India at a low cost
  • Govt launches Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Atal Pension Yojana to provide social security, for the first time, for the poor and the needy
Politics
  • BJP suffers back to back political reversals, losing elections to the Delhi and Bihar assemblies
  • Monsoon session of Parliament washed out as Opposition parties corner govt over lalitgate and alleged corrupt practices by Foreign Minister Sushma Swaraj and Rajasthan and Madhya Pradesh chief ministers Vasundhara Raje and Shivraj Chauhan
  • Inflamatory and communal statements by fringe elements aligned to the BJP as well as some ministers give rise to a perception that the spirit of tolerance is under challenge in India
  • Several left-liberal intellectuals and film makers return national awards to protest rising intolerance and the alleged inaction of and encouragement of the same by the central government
  • Ties between the government and the Congress, the principal opposition party, nosedive
Legislative agenda
  • Land bill in cold storage. Govt allows Ordinance on industryfriendlyland bill to lapse
  • Fate of GST Bill hangs inbalance
  • Real estate bill, bankruptcy code, other important laws still to be passed
Reserve Bank of India
  • RBI issues 11 payment bank licenses to push financial inclusion
  • RBI cuts rates four times during the year, from 8 per cent to 6.75 per cent, bringing down the cost of funds, to push demand-led growth
  • Commercial banks pass on only about 50-60 per cent of the rate cut to customers, thus, denying industry and consumers the full benefits of cheaper money
Foreign policy
  • Canada agrees to supply uranium to power India's civilian nuclear reactors to produce ecofriendly power
  • Govt signs deal with France to buy 36 Rafale fighters
  • Govt reaches out to Africa as a key economic, strategic and diplomatic ally by organising the Third India-Africa Summit, which was attended by 40 heads of state/government
  • Govt strengthens ties with the US, Japan, Asean and Australia and stabilises relations with China
  • No breakthrough or progress in ties with Pakistan
Weather
  • Monsoon fails for the second successive year, drought in several states
  • Timely intervention by the government helps keep prices of most food items under control. Pulses, onions and tomato prices, however, rise abnormally in some parts of the country
Administrative agenda
  • Seventh pay panel recommends higher salaries, allowances and pensions for 10 million central government employees and pensioners
  • Govt promises to push ahead with executive actions to push economic reforms even as its legislative agenda remains hostage to obstructionist policies of the Opposition parties

Related Stories

No stories found.

Podcast

No stories found.

Defence bulletin

No stories found.

The power of the quad

No stories found.

Videos

No stories found.

Women Leaders

No stories found.
India Global Business
www.indiaglobalbusiness.com