This Article is From May 18, 2015

In Year One, Modi Has Repositioned India

In Lewis Carroll's Alice in Wonderland, the Red Queen remarked, "Now, here, you see, it takes all the running you can do, to stay in the same place. If you want to get somewhere else, you must run at least twice as fast as that". This has relevance in evaluating Modi's first anniversary. It was true in relation to meeting the ever-rising curve of expectations both during his electoral campaign, but more so for his first year in office. As we enter the week of Modi's first anniversary, the question in everybody's mind is whether expectations have been met, and what would be an acceptable methodology to evaluate the government's first year's performance.

Modi, for one, has never believed that the future can ever be a hostage of the past. Nonetheless, the quagmire of legacy issues circumscribe flexibility. The dominant legacy issue relates to the pervasive culture and mindset of entitlements instead of outcomes. This entitlement culture characterised the 10 years of UPA-I and UPA-II like the right to compulsory education, the right to food security and guaranteed employment. There was little focus on outcomes, inadequacy of preparedness or implementational infirmities. Illustratively, the right to compulsory education guarantees access, but has poor outcomes. Latest surveys like the ASER (Annual Status of Education Report 2014) suggest sharp declining outcomes where a class 5 student cannot meet basic requirements expected from even a class 2 student.

Additionally, the entitlement mindset resulted in unsustainable fiscal profligacy which weakened our macro fundamentals. This, coupled with governance paralysis, repetitive scams, crippled by a duality of power centres increasingly emasculated the Prime Minister's Office.

Then, weak macro fundamentals slowed growth rates down to sub 5%, (under the old methodology), an unsustainable Current Account Deficit, rising inflation and reticent investor sentiment.

In sharp contrast, a year down the line, significant upturns are obvious. A reassertion of the governance rubric, decisive political leadership, an empowered bureaucracy, the breaking of silos between agencies and government.

Look at the restoration of macro fundamentals: even under the erstwhile methodology, GDP has accelerated from sub 5% to 5.7%, while under the new system, growth this year is expected to be between 8-8.5%. Current Account Deficit is down to a modest 1.6%, with subdued inflationary pressures and WPI inflation figures in the negative, and greater preparedness to meet exogenous uncertainties.

Multiple measures have been taken to improve the competitiveness of the Indian economy by reducing the onerousness of labour law compliance, encouraging state governments in initiatives to modernise labour regulations, faster environment clearances, and minimizing the impact of the earlier Land Acquisition Act (although this is still work in progress).

The Medium Term fiscal outlook remains healthy with rationalisation of subsidies over petroleum products, additionality of resources through auctioning coal and spectrum, and improving the efficiency of infrastructure through large public outlays, particularly in highways, roads and power. Barriers to foreign investment have been substantially diluted with opening the sectors of insurance, pension, defence and railways for private investment, both domestic and foreign.

Social inclusion, which benefits the underprivileged and the agricultural sector has received focused attention. Insurance schemes like the Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana, and the pension scheme Atal Pension Yojana create the framework for an acceptable system targeting the underprivileged.

Jan Dhan and Digital India and Aadhaar will enable a faster pace of financial inclusion while improving the reach of Anti-Poverty programmes. The Swachh Bharat campaign will motivate improved environment, hygiene and mind-set changes.

Skill India coupled with Digital India enhances competitive manufacturing. However, its success is contingent on fulfilling regulatory changes in labour law applications, land acquisition, more reliable infrastructure and ease of doing business.

There are three other issues which deserve some comment:

First, the broad issue of centre-state relations: the acceptance of the recommendation of the 14th Finance Commission enhances devolution to States from 32 to 42 percent. This is a decisive move. It devolves not only higher resources, but meets the persistent demands of the States in seeking greater flexibility in the deployment of resources. Some states have been critical that the resources in respect of Centrally Sponsored Schemes and many other schemes funded through central outlays have diminished. This was inevitable. Higher devolution to states shrunk the envelope of the central government. After all, you cannot have the cake and eat it too. The critics also commit the error of comparing BE (Budget Estimates) of 2013-14 with the BE of this year. This is flawed. One must compare RE (Revised Estimates) with BE.

Second, has Modi concentrated excessively on foreign policy? Has the domestic constituency been neglected? In an increasingly interdependent world, and in a milieu where India had fallen off the global investor radar, special efforts were needed. Modi's extraordinary leadership in forging new compacts and partnership with not only the more developed countries, but many other countries, has been an extraordinary story of repositioning India. No other Prime Minister had realized, much less harnessed, the growing political clout and power of a resurgent Diaspora.

Third, has Modi's style of governance sought to micromanage? Is there an excessive concentration of decision-making in the Prime Minister's Office? Have the role of line ministries been sidelined? Having worked with Prime Minister Vajpayee as his secretary, I must confess that the PMO reflects the style of the Prime Minister. It is ironic that for the last 10 years, a non-existent PMO was the common refrain. There is now talk of an over-zealous PMO. Modi is deeply conscious that the people of India have invested their trust and confidence in his leadership. Equally, in his ability to implement and deliver. The functioning of the PMO reflects this consciousness.

There is a huge unfinished agenda:

- Ensuring faster implementation on the ground, freeing of stranded assets, ensuring optimum outcomes from large borrowings with sovereign guarantees particularly for roads and railways, and coherent coordination among ministries and with States.

- Adherence to the revised path of fiscal consolidation may entail difficult decisions on recalibrating subsidies, particularly if exogenous variables deteriorate or oil prices rise sharply.

- Managing inter-institutional cooperation between regulatory entities like RBI and the Finance Ministry needs candour and imagination. The RBI Governor would be the first to concede that the central bank needs major reforms, and monetary policy must sub-serve the larger objective of growth.

- Closely monitoring the implementation of several budgetary commitments, particularly legislative changes like a Bankruptcy Code, Alternate Dispute Redressal mechanism, several other financial sector legislations or making the tax regime genuinely non-adversarial. Moving towards competitive tax rates and more importantly, a framework which benchmarks practices with other Asian countries and best international practice deserves priority.

- Finally, recognizing the absence of the government's majority in the Rajya Sabha, and forging alliances and partnerships need negotiating acumen to secure key reform legislations.

Fortunately, both the Prime Minister and the Finance Minister need no advice and lessons to achieve this elusive but realisable objective.

There is overwhelming consensus that the Modi regime has run fast and faster, but may have to do so twice as fast to make a decisive and more visible difference in our life quality. Known to be an outperformer, he is India's best bet to meet the rising expectation curve of our young population. That is why Modi matters. And matters a great deal.

(NK Singh is a member of the BJP, former MP (Rajya Sabha), has held key bureaucratic assignments and has been a member of the Planning Commission.)

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