MODI GOVERNMENT: ONE YEAR REPORT CARD

At last India’s most sought after prime minister of recent times, Narendra Damodardas Modi, has completed one year in office this month. And the way the PM’s election campaign was innovative and action-packed, the past 12 months haven’t been boring either. Though the one year of euphoria around Modi has subdued a little and corporates who were overenthusiastic about the expected Big Bang reforms have calmed down a bit, the period has been quite satisfying on various counts, discounting of course some grey areas. Overall the NDA government has scored distinction on the policy front as undoubtedly India has finally come out of its policy paralysis phase. The many path-breaking policy initiatives that have been taken by the new government seem to have put the country’s growth engine on track.

On the downside, despite making various efforts and policy decisions, the government wasn’t able to restart the expected investment cycle since efforts to clear various crucial Bills have been thwarted by the opposition due to lack of majority in the Rajya Sabha. This has impacted the economic recovery process which in turn has been quite visible at the bourses with the bulls losing steam and the bears once again ruling the roost. As such, while there have been some hits by the new NDG government, there have been quite a few misses too.

INSURANCE, COAL AND SPECTRUM REMAIN BIG GROSSERS

If we take a look at the biggest achievement of the Modi-led government, undoubtedly it would be the passage of the Insurance Bill by the parliament, which had been stuck for the last many years. This has paved the way for a huge influx of funds into the Indian stock market since foreign companies can now invest upto 49 per cent in India’s insurance companies, raising the bar from the earlier 26 per cent. This is expected to open the floodgates of money inflow into the Indian markets as the Insurance Act also controls the FDI limit of the PFRDA Act that governs pension fund inflows. This is the biggest reformist step of recent times and will surely bring a sea change in the Indian insurance sector as well as crucial spending in the infrastructure sector. According to conservative standards, around Rs 25,000-30,000 crore would immediately flow into the Indian markets. The markets of course responded positively to this news with a decent run during March 2015.

The second biggest achievement for the Modi-led government came in the form of the coal block auction which had been cancelled by the Supreme Court following corruption charges levied against the UPA government. Out of the 204 blocks which were cancelled, the government auctioned 67 blocks and thereby mopped up funds of Rs 4 lakh crore. As per Coal Secretary Anil Swarup, the benefit of Rs. 3.35 lakh crore would go to states and consumers would also be benefitted with lower tariffs worth Rs 69,000 crore. In March the government cornered more than Rs 2 lakh crore via the first tranche of the auction of 32 blocks, which itself is more than the estimated loss of Rs 1.86 lakh crore that CAG put forward in coal allotment during the past several years of UPA rule. It has been estimated that Rs 15 lakh crore would flow to coal-producing states during the next 30 years via this coal auction process alone. In the same way the government mopped up around Rs 1 lakh crore via selling airwaves to telecom companies and this capital receipt will surely play an important role in infrastructure development.

DIESEL DEREGULATION LEADS HISTORIC REFORMS

The biggest USP of the last one year would certainly be the key reforms that have been pushed ahead after having hung in balance for decades. One of these pertains to diesel prices. On the one hand it has eased the pressure on India’s financial state as it is quite crucial to control sensitive fiscal deficit and on the other hand it has also relieved petroleum companies, both upstream and downstream, like ONGC, Oil India, IOC, HPCL and BPCL as they had to shoulder the burden of oil subsidy which had been negatively impacting their finances. During FY14 only ONGC and Oil India shouldered a subsidy discount of around Rs 67,000 crore. Owing to complete deregulation of diesel and petrol prices and plugging subsidy pilferage via direct bank transfer of LPG (DBTL) a great amount of saving has been done during FY15, thus helping achieve the crucial fiscal deficit of 4.1 per cent of GDP.

During FY14 oil subsidy was at the level of Rs. 1.39 lakh crore whereas it is expected to fall down to less than half at around Rs 73,000 crore during FY15. Also, as already more than 12 crore LPG consumers are enrolled under DBTL, the Ministry of Petroleum & Natural Gas has now unveiled the ‘Give It Up’ campaign to prompt the wealthier class of people to forgo their subsidy benefit. Already more than 4 lakh consumers have been enrolled under this initiative and experts are of the opinion that this initiative would certainly prove to be a game-changer.

Another reform put forward by the NDA government was to allow 49 per cent FDI in defence while completely opening up other crucial sectors like railway infrastructure and medical devices for foreign direct investment. The government has also eased FDI norms for the construction sector like real estate and infrastructure development. This has also given a fillip to Modi’s initiative of ‘Make in India’ which a flagship program aimed at increasing the contribution of manufacturing to GDP to 25 per cent by 2022 from its current level of 16 per cent.

LAND ACQUISITION, GST AND REAL ESTATE ARE BIG DAMPENERS

If the passage of the Insurance Bill is the zenith of the NDA regime’s success, the stalemate over the Land Acquisition Bill and GST Bill have turned out to be the biggest dampeners. Lack of majority in the Rajya Sabha has forced the government to refer the controversial but crucial Land Acquisition Bill to the Joint Committee of Parliament (JCP) that has 30 MPs. The Bill has now been postponed to the monsoon session but there is no guarantee that it will be cleared since the Congress is using the support of farmers to thwart its clearance.

At the same time the crucial Goods & Services Tax (GST) Bill, though passed in the Lok Sabha, couldn’t see the light of the day as it is yet to be approved in the Rajya Sabha. During the extended budget session the government was hell-bent to pass this crucial Bill which is expected to jack up the GDP by almost 2 per cent but couldn’t do it and it has now been referred to the JCP. As of now, behind-the-curtain diplomacy is in full swing to gather support of smaller parties like TMC, SP, BSP over the GST Bill and it would be interesting to see how this goes ahead.

Reformist measures in the real estate sector have been another painful area. Though the Real Estate bill is expected to bring in more transparency and objectivity into the real estate sector and provide much needed support to real estate buyers, the opposition parties have upped their ante against the Bill, alleging that it favours the builder lobby and will work against the interests of the home buyers.

INITIATIVES FAIL TO SPUR INVESTMENT CYCLE 

Recently the NDA government announced another historic initiative, which will be a boon to new entrepreneurs. It has been decided to cut down the number of forms that new businessmen have to fill to start a venture from eight to just one. Actually PM Modi is poised to make India a better place to do business and wants to improve India’s ranking in the World Bank’s annual ‘Ease of Doing Business’ survey, where India figured pathetically at the 142nd place from among 189 countries. Via this new initiative an entrepreneur will satisfy all the requirements of name availability, allotment of director identification number (DIN), company incorporation, and commencement of business through the INC-29 form. The government also wants to curtail the time taken to register a company to just one day, which will help in achieving the target of reaching the 50th position in the World Bank survey within two years.

However, despite this move, economic recovery has not been that swift as the investment cycle is yet to take off. The non-approval of some crucial bills in the parliament has put a lid on the high level of optimism that had been prevailing among investors a few months ago. Therefore, even such major progressive elements like Make in India, new foreign trade policy, opening up sectors to FDI, bringing in ease of doing business haven’t been able to lend power to the investment cycle. Considering this the Modi government should now focus on the proper execution of initiatives and policies that have been put forward during the last one year. In fact the next four years should be dedicated to proper execution of policies so that the pace of GDP can be improved to double digits.

MARKET PERFORMANCE OVER 1 YEAR

Though it was a kind of dream run for bourses during the last one year of Modi’s regime, the bulls seem tired now owing to lack of activity on the economic front. In fact during FY15 foreign investors (FPI investment) pumped in a whopping Rs 2.77 lakh crore into India, out of which Rs 1.11 lakh crore went into equities while Rs 1.66 lakh crore went into debt. In turn these huge inflows resulted in historic upward momentum of bourses and spiked the markets to impressive levels. Riding high on policy initiatives and the reforms agenda of the Modi government, the benchmark BSE Sensex touched a notable high of 30,024 points on March 4, 2015 but lost its steam over parliament stalemate, particularly on the Land Acquisition Bill, limiting the annual gain to just 13 per cent. During FY16 till date foreign investors have pumped in Rs 4,837 crore into the stock markets but pulled out Rs 2,141 crore from the debt market, clearly showing some kind of declining interest among FIIs for the Indian markets.

Some other indices that portray economic recovery and revival of investment cycle such as BSE Capital Goods, BSE Power and BSE India Infrastructure Index also performed soberly as the ‘reformist government’ euphoria fizzled out a bit. Quite alarming is the fact that crucial indices like Oil and Gas, BSE PSUs, BSE Power and BSE Reality have shown a decline in the first year itself, having dipped below the levels of the pre-Modi era in 2014, with the realty index clocking a decline of 15 per cent during the last 12 months. On the positive side, BSE Bankex, which shows the financial strength of the country, and BSE Auto remained robust and sustained their growth. Whereas BSE Bankex gained 23 per cent over May 2014 levels, the auto index gained a handsome 29 per cent.