Judging A Year Of Modi Governance

Just a couple of years ago, India had the dubious distinction of being part of the ‘fragile five’ countries that were plagued by high inflation, large current account deficits, challenging capital flow prospects, and weak economic growth. The transition of India from a vulnerable economy to a poster child in the emerging market in such a short span of time is nothing short of phenomenal. And therefore the performance of the present government should be better judged on absolute terms rather than the sky-high expectations. Cynics will argue that a large part of this improvement in our economic situation is due to a fall in the commodity prices, and especially crude oil prices. Not to mention the tough stand taken by the RBI governor to rein in inflation, which has also led to the betterment of the situation.

Regardless, the above two factors have only played a partial role. What has played a dominant role is the government’s action on cutting its spending. Factors like curtailing the rural wage growth, increasing the minimum support prices marginally, and actively working to check food inflation by working against hoarding and supplying enough food to the market as and when required have also had an impact. All this helped the RBI governor to cut interest rate twice in the last five months and the real interest rate is positive again.

The fall in interest rate along with the government’s effort of improving the ease of doing business in India will go a long way in making PM Modi’s ‘Make in India’ initiative a success. There is some pessimism among corporates whose balance-sheets are already stretched and even banks are shying away from lending to them as they are sitting on decade-high non-performing assets and are not yet ready to invest and add capacity. Once the government starts investing in infrastructure projects and action starts on the ground, India Inc. will soon follow suit and kick-start the investment cycle. As the government starts spending on infrastructure it will benefit other sectors too as the performance of the other sectors, including agriculture and services, rests on the shoulder of country’s infrastructure.

I believe reviving a country’s infrastructure - that too of the size of India - requires farsighted planning and that should be followed by meticulous implementation. In the last one year the government has taken a lot of decisions in this direction. It has fast-tracked the construction of freight corridors and proposed a master plan for interconnecting coastal cities through road, rail, ports and cleaning of the river Ganga that will again open new avenues of navigation channels. In addition to this, a number of road and transmission projects have been awarded. The government has also cleared various stalled projects.