Performance Analysis of Indian Economy in the fiscal 2014-15
Understanding
efficacy of ‘politics of reforms’ on grounding base for accelerated overall
development of India
Email: khyati.khush@gmail.com
Politics
of India has been seen to evolve since the inception of the Indus Valley
civilization. Considering here the post independence politics of India, then it
has further evolved essentially within the framework of the Indian Constitution
that established India as a federal parliamentary democratic republic nation. Fundamentally,
politics can be defined as activities related to governance of a country or
area that primarily aim to improve life status of associated people through
distribution of power over resources. With this fundamental idea of politics at
core and constitution as frame, Indian politics has been adjusting its model
since independence to achieve welfare for its people and development for the
nation as a whole.
Indian democracy is world’s largest
democracy and hence the Indian government has always been required to meet the
aspirations of the immensely varied society and diverse population. After
independence to now, India has come over acute backwardness and is now one of
the world’s fastest growing economies. With growth came more wealth and with
wealth more corruption (Ghatak et al. 2014). The former incumbent
government was accused of taming corruption, and hence the democracy laid off
them in the last general elections. It is the incumbent ruling party in which
the nation showed tremendous confidence and was voted to power with absolute
majority. The leadership promised reforms and development. The Government of
India thus formed has been relentlessly working on reforms that not only mean
to pave way for overall development of the nation, but also improving the lives
of individuals and ensuring to reduce inequalities. The efficacy of ‘politics
of reforms’ adhered by the government can be known by the performance of Indian
economy in the last fiscal 2014-15.
Let us consider the following indicators
in this context for the last fiscal to evaluate the impact of the reforms
brought by the incumbent government on the overall economic health of the
nation:-
1. Indicators:
Following
is data on indicators of economic performance of India for the fiscal year 2014-15:
1.1. Growth: The Annual growth rate of Gross
Domestic Product (GDP) was seen to improve to 7.5% in the last October-December
quarter of 2014 (as per revised figures) as against 6.4% in the
October-December quarter of 2013 (as per revised rates)[i].
In contrast to this, the Chinese economy had grown 7.3% in the same quarter.
Further, the Indian growth rate is expected to be 7.4% in the Jan-March quarter
2015.
The highest growth is reported for
services including electricity, gas, water supply & other utilities (10.1%)
followed by trade, hotels, transport, communication & services (7.2%). Thereafter,
manufacturing sector has expanded 4.2%, including mining & quarrying (2.9%)
and construction (1.7%).
When the Economic Survey of India
2015 heads for more than 8% growth rate[ii]
in the next fiscal year (2015-16), soon it is also expected that the India’s
expansion will outpace that of China, Japan & Germany combined as projected
by International Monetary Fund (IMF)[iii]
and Christine Lagarde (IMF chief)[iv]
recently.
1.2. Inflation:
Control
on price rise continued and remarkable downfall in inflation was noted, with
wholesale price index (WPI) falling at 5-yr low of 0.11 in December’2014 in contrast
to 6.40 in December’2013. Further, data available towards for the January-March
(Q4) 2015 till date shows the trend to be followed as WPI is -0.39 in
January’2015 as compared to 5.03 in January’2014[v],
and for February’2015 the index provisionally stood at -2.06%, which is greater
than the projection of -0.70% for February’2015[vi].
Food Inflation is reported to
tremendously fall from 9.66% around April’2014 to 4.78% by December’2014[vii].
Retail inflation (CPI-Consumer Price Index) has also moderated. It declined to
all time low of 5% in Q3 of 2014-15 after having remained stubbornly stuck
around at 9-10% for last 2-years. It is expected to be 5.19% in January’2015
and 5.37% in February’2015. A slight nudge further is expected in March[viii]
too due to unseasonal rains that occurred recently.
1.3. Business
Confidence: The Business confidence index has been
continuously rising from 49.9 in Q4 of 2013-14 to 56.4 in Q4 of 2014-15 as
reported by Confederation of Indian Industry (CII). The forecast expects the
index to rise to 58.18 by 2016 and 59.35 by 2050[ix]. With
this, it is also necessary to quote the manufacturing sector growth. The Manufacturing
PMI reported by Markit Economics and conducted by HSBC every month, rose from
51.40 in the beginning of Q1 of 2014-15 to 52.10 by the end of Q4 of 2014-15.
In between it even shot up to 54.5 in December’2014[x].
The trends of Index of Industrial Production (IIP) have been positive, as it was
-4.2 in October’2014 and rose to 2.60 in January’2015. The manufacturing
production rose to 3.3% and electricity production shot up to 2.7% in the same
period[xi]. Similarly,
Services PMI reported by the same institutions every month, is reported to rise
from 48.25 in April’2014 to 53.90 in February’2015[xii].
1.4. Consumer
Confidence: The Consumer confidence index reported
by Nielson also shows positive signs. The index rose from 121 in Q4 of 2013-14
to 129 in Q3 of 2014-2015[xiii],
which is a 4-year high. Then the Consumer Outlook index (COI) reported by ZyFin
Research presents COI to be 46.6 in January’2015, which is 10.6% higher than
that in January’2014[xiv].
These indices portray the sentiment of people regarding inflation, consumer
welfare, spending, employment, etc.
In this regards, it is relevant to
quote the trends of consumer spending reported by Ministry of Statistics &
Programme Implementation (MoSPI). The figures have shot up from Rs14580.88
billion by June’2014 to Rs15338.82 billion by December’2014[xv].
1.5. Investment,
Markets and Banking: With all the above positive indicators, the
Indian economy is becoming a favourable destination for investment. The Foreign
Direct Investment data in India reflects the same, as it has increased from
2133 USD million by March’2014 to 5502 USD Million by January’2015[xvi].
Further, there is expansion noticed in Indian Stock Market. The figures climbed
from ~20k index points in February’2014 to ~27k index points towards the end of
December’2014, and reaching ~29k index points in February’2015. The Rupee
remained relatively stable, and the Current Account Deficit (CAD) is
continuously shrinking from 2% of GDP in Q4 of 2013-14 to 1.6% in Q3 of
2014-15. CAD is expected to fall further in Q4 of 2014-15 to be slightly above
1% of GDP, while the Finance Minister targets to maintain it at 1% of GDP in
the next fiscal[xvii].
Also, there is remarkable expansion being witnessed in the Banking sector,
while the issues pertaining to assets’ quality & earnings are expected to
start declining (Standard & Poor’s ratings Services report[xviii]).
2. Initiatives:
Considering
the above indicators on performance of the economy for the fiscal 2014-15, it
is necessary to understand the initiatives or reforms brought by the incumbent
Government of India (GOI), which are in form of policy initiatives or
governance related initiatives. Some of them can be listed as follows:
2.1. Public Finance targets & reforms: The
government targeted to contain the fiscal deficit at 4.1% of GDP and fiscal
consolidation, and could attain a fiscal deficit of 3.1% of GDP. The focus is
to boost the revenue receipts at a faster rate and they increased it by Rs59840
crore from that in 2013-14 to 2014-15 (till December’2014)[xix].
The measures included tactically increasing the excise duty, sale of stake in
Public sector undertakings, etc. Efforts were made to make the fiscal
consolidation measures more sustainable and therefore, the government focused
to control the expenditure. Abolishing the GoMs/EGoMs was one way to reduce the
burden on the exchequer. In order to combat the burden of Gold import on Balance
of Payments, the govt has come up with Gold Monetization in Budget 2015.
2.2. Expenditure
management commission and monetary policy framework: The
GOI constituted an Expenditure Management Commission (EMC) through a resolution
in September’2014 to look after various aspects of expenditure reforms to be
undertaken by the government such as review of the institutional arrangements
including budgeting process and Fiscal Responsibility & Budget Management
(FRBM) rules, suggest ways to improve allocative efficiencies and other issues
concerning the Public Expenditure management[xx].
The monetary policy framework laid
through the Budget presented by the Finance Minister of India recently reflects
control over finances and more autonomy to states promoting bottom-up approach
in issue based policy formulation. The Reserve Bank of India has also welcomed
these reforms and brought two consecutive rate cuts to boost the money supply
in the economy along with tactically controlling inflation. With government
getting more vigilant towards managing funds efficiently, there is effective control
over inflation.
2.3. JAM
(Jan Dhan Yojana, Aadhar & Mobile) Trinity and Pahel DBTL: In
order to lubricate capital formation channel domestically, mobilizing savings
on a large scale is a must. The Pradhan Mantri Jan Dhan Yojna (PMJDY) is an
effort to meet the same purpose and ensure enhanced financial inclusion by
extending banking facilities to the last person. The scheme made opening
account easier for individuals and extended insurance benefits also, along with
Rupay Debit cards and overdraft facilities upto Rs5000 for active
accountholders. Further, reaching out with benefits of subsidies on LPG gas
cylinders through Aadhar linked bank accounts from January’2015 is another
achievement. This will not only reduce the fuel subsidy bill but also prohibit
leakages in the channel that come in form of ghost/fake beneficiaries or
duplicity, etc. In the Budget 2015-16, the government has even proposed Mobile
Money through Aadhar-linked benefits transfer.
2.4. FDI
reforms & Make in India: Boosting Foreign Direct
Investment (FDI) was necessary to revamp the slow-down in the economy and to accelerate
the gloomy growth in the industrial output and manufacturing sector. Hence, it
started with increasing the FDI cap in defence production up to 49%, 100% in
railway infrastructure and proposing to raise the cap in insurance sector also
from 26% to 49% by way of Insurance Laws (amendment) bill 2015 which has been
lately passed by both the Houses of the Parliament. When FDI in defence
manufacturing will not only curtail the import bills but also expand the
manufacturing base in India, then FDI in railways has led to drastic
technological advancements in recent few months in Indian railways and more
infrastructural developments are in pipeline. FDI in insurance is expected to
pool $10 billion investments and create thousands of employment opportunities[xxi].
Make in India launched by GOI has been envisioned to channelize the spur in the
manufacturing sector in India and create numerous employment opportunities in
order to maximize the demographic dividend. To promote the small business
units, GOI has come up with Micro units’ development and re-finance agency
(MUDRA) as a sole regulator for all micro finance institutions in order to
bring uniformity of regulations in this context[xxii].
2.5. Skilled
India & Innovations: The government that has been
actively bringing reforms to boost the economic activity to create massive
employment opportunities for the country that is in better-off in terms of
being world’s youngest nation, has also realized that merely creating jobs is
of no use if hands doesn’t know how to do them. To meet the dearth of skills in
India, GOI has been seriously focusing on Skill development and innovations. It
started at first by creating a separate Ministry for Skill Development &
Entrepreneurship, made for bringing all the scattered skill development
initiatives across several ministries under one canvass. Then the GOI has been
formulating new skill development policy for the country. The National Skills
Mission is also been launched in the Budget 2015. Also, the Bank of Ideas &
Innovations which is a platform to bring together, evaluate and promote
innovations that improve quality of life of rural poor, has been working under
Ministry of rural development, Ministry of drinking water & sanitation and
Ministry of Panchayati Raj for National Rural Livelihoods Mission (NRLM). The
mission includes specialized skill program for rural India as Deen Dayal
Upadhyay Grameen Kaushal Yojana.
Apart from this, the GOI is keen to
bring education reforms as well in order to make a sustainable system for
skilling the generations. Henceforth, the New Education policy is under
formulation, with 33-defined themes identified for consideration.
2.6. Fast
track diplomacy & Foreign Policy: The incumbent
government has put Indian foreign policy on fast track by expanding its
relations with every part of the world tactfully. The foreign policy of India
can be prominently characterized as ‘relationship on our terms’. It
started from the invite extended to leaders of neighbouring nations on the oath
taking ceremony, landmark visits to Nepal & Bhutan and BRICS summit to
successful visits of Chinese President to India and presence of US President as
Chief Guest on Republic Day. There has been a paradigm shift in India’s Look
East policy to Act East policy now. This has been really instrumental in
boosting confidence towards the economy on the global platform.
2.7. Simplified
governance: There have been numerable reforms brought
to simplify the governance in order to make services more user-friendly. For
instance, regarding environment clearance the GOI has shown more rational and
priority based approach than creating unnecessary delays in developmental
projects with this essential tool. Whether it is environmental clearance for
defence related projects in border areas (within 5kms of international border)
where environment ministry has simplified the process by giving the mandate for
clearance to respective state governments[xxiii]
or be it when the Union Ministry for Environment, Forest and Climate Change
asks states to submit list of inactive mines due to pending environmental
clearances[xxiv],
in order to revamp the mining activity for energy production.
The government has also been promoting
e-governance, like DIPP has initiated online applications for industrial
licenses and the advent of e-auctioning, e-tendering, e-toll, etc. Then the
government has authorized self-attestation of documents. It is also backing the
Goods and Services Tax and has introduced the Constitutional Amendment (122nd)
Bill in the Lok Sabha to go-on with it.
2.8. Legislative
Reforms: In order to boost infrastructural development
activities in India and eliminate the hurdles in the legislative framework the
GOI is active to bring reforms, whether it is by simplifying the land
acquisition for development projects through RFCT-LARR amendment bill, or by
Coal Mines (Amendment) bill, Mines & minerals Amendment bill, Motor
vehicles (amendment) bill, etc. Then new legislations like Road Transport and
Safety Bill have also come up ensuring public welfare. The Government is also
putting all the best efforts to make these legislations pass in this Budget
session and not delay those reforms so that the incentives to the economic activity
do not lose their vigour.
Even the changes to NREGA can be
seen adding rationality to the welfare programme of such kind. The GOI has
restructured it on grounds of asset-linking and convergence. Afterall, it is
more sustainable to spent money on providing jobs along with creating scope for
livelihood security as well.
2.9. Digital India: The
digital India programme for broadband Internet connectivity for all gram
panchayats has been rolled out. Moreover, in order to bring digital revolution
in India and ensure participative governance, the GOI has come up MyGov web
portal that pools ideas from citizens across the nation on several issues and
guidelines for the government on policy formulation. Government has been
promoting technology enabled services also. Even transparency in governance has
been brought through innovative techniques like Aadhar based Bio-metric
attendance system in govt offices.
2.10. Swachch
Bharat & impetus to Tourism: When the Prime
Minister called for swachch bharat to promote cleanliness in the country, it
envisioned promoting tourism, control the expenditure on maintenance and reduce
open defecation thereby. While also improving the nation’s image on the global
platform. And the call was answered as tourism in India is expected to rise by
133% in 2015 and revenues thereby. With this certainly there will more
employment opportunities and even the government has promoted tourism by other
supporting ways like visa-on-arrival facility being extended, innovative
program of HRIDAY (heritage city development & augmentation yojana),
etc.
2.11. NITI
& Cooperative federalism: The government has
replaced the Planning commission with NITI (National Institution for Transforming
India). The later led to ‘one-size fits all’ approach towards policy making,
while the former has come up envisioning more rational policy formulation base.
NITI is the new policy think tank of the government. The biggest landmark
achievement through NITI is that the body has more participation from the
state, thereby enhancing cooperative federalism.
Another applaudable
step of GOI has come up for cooperative federalism is devolving share of 42% of
the divisible pool of taxes to the states from 32% abiding the recommendations
of the 14th Finance Commission[xxv].
This will reduce the states’ dependency on centre for funds and also help them
formulate state-centric policies.
2.12. Renewable
Energy revolution: The government is actively promoting
renewable energy in the country by way of financing the roof top solar PV
through home loans/home improvement loans, scaling up programme solar pumps
wherein 1-lac pumps have been allocated, etc. The Indo-US bilateral trade
agreement has also been a landmark in this respect, wherein $2 billion[xxvi]
has been leveraged for financing renewable energy investments in India. All
this envisions improving the air quality of the country and control diseases therefrom
and also create sustainable resources of energy in the country.
Indian Economy has certainly overcome the state
of slow-pace-growth that it was in towards the end of last fiscal 2013-14. The
new government that came to power also was aware of the fact and had huge
expectations from the stakeholders all over. It had to live up their promises,
the promise of reforms and development. In vibrant democracies like India,
the idea of promises been kept should be reflected soon for the governments
coming to power. Therefore, considering all these, the GOI has been
rigorously and tactfully bringing multi-dimensional reforms. The Prime Minister
says ‘sabka saath sabka vikas’ and the policies/reforms being introduced
in this fiscal (2014-15) reflects the same essence of development and welfare
of the people. The best examples of these are the direct benefit transfers (as
mentioned above), pension benefits extended in form of Varishtha Pension Bima
Yojana (VPBY), ‘one rank-one pension’ scheme for armed forces and Mahatma
Gandhi Pravasi Suraksha Yojana (MGPSY), and Beti bachao-Beti padhao scheme, Sukanya
Samridhi Savings Scheme, Soil health card scheme for empowering farmers with
technology, etc. The government has shown its integrity and commitment through
these several measures as mentioned above and also those like creating synergy
between ministries for speedy decision-making, and extending convenience to
people. All this yielded the positive trends in the indicators as already
presented before in this document, and more is expected in near future. The
Indian economy showed considerable resilience to the euro-zone crisis. Further,
it is expected to be world’s fastest growing economy outpacing China soon[xxvii].
With this, it can be said that the ‘politics of reforms’ is definitely
grounding base for accelerated overall development in India, and the incumbent
government can be seen to exert importance on the same. Certainly, if the
government continues with this kind of ‘politics of reforms’, India will not
only develop but also set an example for the world on success of democratic
power. Afterall, in democracies the
efficacy of ‘politics of reforms’ will depend on the nature, extent and type of
leadership voted to power that forms the government.
[xi]
Ibid
[xx]
Figures from Indian Economic Survey 2014-15 available at http://www.kpmg.com/IN/en/services/Tax/FlashNews/IES-2014-15.pdf
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