More achhe intentions than achhe din

Finance minister Arun Jaitley has used the spring meeting of the IMF-World Bank to tom-tom the economic performance of the BJP government. At the Peterson Institute, he said:

“In late 2013, India was teetering on the edge of a macro-economic crisis. Inflation was at double digits, the current account deficit at 4% of GDP, growth was decelerating sharply, investor confidence was evaporating, capital was fleeing the country, the rupee was plunging; fiscal deficits were high; and India was reeking with the odour of corruption scandals and weak governance.

“Now let us perform the following thought experiment. Supposing then (in late 2013) you had said that within 12-18 months, the following would happen: inflation down to 5%; current account to less than 1% of GDP; growth starting to accelerate to over 7.5%; foreign inflows of over $50 billion.

• All petroleum-related energy prices had been deregulated;
• The world’s largest problem of financial inclusion successfully implemented;
• Agreement secured on implementing the goods and services tax (GST);
• Bills passed to reform the coal and mining sectors and open up the insurance sector to FDI;
• A budget passed which reinvigorates growth by emphasizing public investment while maintaining fiscal discipline and protecting the vulnerable;
• Direct benefit transfers were being implemented based on what the Economic Survey has called the JAM number trinity;
• The word “scandal” had ceased to be part of the popular discourse (depriving journalists of their main source of sustenance and occupation!) because major resources like spectrum and coal had been transparently auctioned;
• An onerous land acquisition bill was being rectified to reduce the costs of doing business…

“Your response would have been a cynical laugh! And yet that is what this government has achieved.” This is a fair summing up of the government’s achievements. It ignores the role of luck (halving of world oil prices). It also ignores various acts of omission and poor implementation. Nevertheless, Jaitley can claim a pretty good report card.

Big problem: all this action has not produced strong outcomes. Corporate results since the BJP came to power have been weak. Reuters said of the third-quarter results: “The combined net income of 100 firms with a market valuation of more than $100 million dropped 6% in the three months ended in December from a year earlier. That compares with a 0.5% rise expected by analysts covering the companies. It was also the first decline in at least 18 quarters since Thomson Reuters started compiling the earnings data.”

The fourth-quarter results have just started coming in, and are just as disappointing. The growth of excise duty in 2014-15 was close to zero, showing that “Make in India” is more a slogan than fact. Export growth in 2014-15 was also close to zero. Every country that has ever become a miracle economy with over 7% GDP growth — and this includes India in 2003-08 — has enjoyed double-digit export growth.

No country can sustain 7-8% GDP growth on the basis of domestic demand alone: this must be supplemented by vigorously tapping global demand. That has not happened in the last year, and the IMF paints a sombre picture of future global trade prospects.

The rupee has been strengthening — the real effective exchange rate is up 10%. Some macho politicians may take pride in this. In fact rupee strengthening is a problem for exporters, and one cause for the sharp deceleration in export since mid-2014.

The old, broken PPP model for infrastructure is being replaced by a new one where the government bears a bigger share of risks involved. Good, but this will take time to yield results.

Jaitley has promised to end “tax terrorism”. But his attempt to tax foreign portfolio investors with retrospective effect has cost him a lot of credibility with foreign investors. His explanations carried no conviction in Washington. Narendra Modi has ordered bureaucrats to improve the ease of doing business, and take India from 142nd to 50th position in the World Bank’s Doing Business index. A task force headed by Amitabh Kant has produced a detailed blueprint with several deadlines to be met by March 31.

Alas, businessmen say little has changed at the ground level. The government has cleared Rs 7 lakh crore worth of projects, yet there is no boom in orders for construction or machinery, just a few green shoots.

Jaitley and Modi can argue that the Congress left the economy in such bad shape that rectifications will take some time. Many of the new initiatives will bear full fruit only with a lag. But at this stage, the BJP performance should be summed up as achhe irade (good intentions) rather than achhe din (good days).