CRISIL, in its assessment of three years of Modi sarkar says that while the quality of growth is rising, the rate of growth is having to play catch up.
It is that time of the year when we take stock of the central government’s progress. The Modi government will complete three years on 26 May. A period of three years is enough for any government to put its economic policies in place. The direction of the economy is now set and we won’t be wrong to expect that the focus for the next two years will be less on announcing new policies and more on execution. It is thus an appropriate time to analyse Prime Minister Narendra Modi’s economic policies, Modinomics, if you will.
The Credit Rating Information Services of India Limited, known as CRISIL, a reputed global ratings agency, on Monday (22 May) came out with its own assessment of them.
The report classifies the reforms of the past three years under eight pillars. The World Economic Forum (WEF) also uses these pillars to prepare its Global Competitiveness rankings. These are: macroeconomic environment, infrastructure, institutions, financial market development, goods market efficiency, labour market efficiency, health and primary education, and technology readiness.
Since reforms in these areas are a continuous work in progress, CRISIL has classified them into four headers depending on the level of implementation: a) Initial implementation; b) Work in progress; c) Identified problem/measures announced; and d) Significant progress towards completion.
The report ranks the government very high on institutions due to realisation of Insolvency and Bankruptcy Code (IBC), Bankruptcy Board of India (BBI), Aadhar Act, digitalisation of government processes, the Benami Transactions Act, and Voluntary Disclosure of Black Money schemes.
The government’s performance on reforms under Financial Market Development is ranked equally high thanks to the banking sector reforms, capital infusion in public sector banks (PSBs), operationalisation of Banks Boards Bureau (BBB), Banking Regulation Act amendment which gives powers to the Reserve Bank Of India (RBI) to tackle the bad loan crisis and steps taken towards developing a vibrant bond market.
CRISIL also accords high marks to the government on goods market efficiency. With the arrival of GST from 1 July 2017 creating a uniform indirect tax system and states amending their Agricultural Produce Marketing Committee (APMC) acts along with the creation of a single electronic National Agriculture Market (e-NAM), the reforms score on this front is going to shoot even higher next year.
On Infrastructure, CRISIL recognises the efforts and successes of the government on improving access to electricity, initiating UDAY to improve health of DISCOMS, renewable energy push, new coal policy, pace of highway construction, affordable housing.
However, it also lists the various problems that have marred the overall progress on this front. Here the government needs to go all guns blazing on implementation.
The government’s efforts on creating a stable macroeconomic environment have also invited praise but here too, like Infrastructure, progress on some indicators is slow.
Fiscal consolidation, low inflation, falling current account and fiscal deficits and stable rupee shows that government’s policies are creating an environment for strong sustainable growth. However, weak investments continue to be a drag, agriculture sector still remains a challenge and jobs market, weak.
While on the above five areas, the progress has been slow but satisfactory, in health and primary education, labour market efficiency and technological readiness - it’s been below par.
The report highlights that India’s incipient job crisis was made worse by inadequate low skilled job opportunities and increasing skills mismatch. Then there is a threat of automation too.
The bottomline is this: Due to stable macros, prudent fiscal and monetary policies, gradual and steady pace of reforms, ‘the quality of growth is rising, though not so much the rate of growth.’ Growth is holding steady, CPI inflation is low and stable, fiscal deficit as percentage of GDP is on decline, current account deficit is narrowing, FDI inflows are strong and rupee is showing resilience.
Here is the Indian economy’s progress in six charts from the CRISIL report:
Despite the progress made, there remain many challenges and areas to worry about. Investment is not picking up because bad loans of banks are worsening. Global growth is still low and local demand is not encouraging either. Thus, manufacturing capacities remain underutilised. Another worrying trend that is visible now is the fiscal health of the states. At a time when the centre’s fiscal deficits are falling, those of states are on the rise.
Here, then, are the challenges before the economy in five charts (Source: CRISIL)
Despite all these challenges, the economy has shown good progress. India has marginally improved its ease of doing business ranking mainly due to the better power situation, reducing trade barriers etc. Its global competitiveness index ranking has improved significantly from 71 in 2014-15 to 39 in 2016-17. On logistics performance index, it ranked 54 in 2014. Now it ranks 35. Even on corruption perception index, it has shown slight improvement in its ranking from 85 in 2014 to 79 in 2016.
Most importantly, CRISIL recongnises that action has shifted from Centre to States with increased devolution to the latter after the 14th Finance Commission’s recommendations were accepted. Now, the states not only have more money but also the freedom to spend. Also, key areas of reforms like agriculture, land, water, electricity, health, education, infrastructure, etc depend on effective implementation by state level agencies.
In recent years, some worrying trends have emerged though. The fiscal deficits of the States are rising compared to the Centre’s. UDAY has played some role in this but a lot of it can be attributed to wasteful expenditure on politically expedient schemes.
There are developments to be cheerful about too. For instance, NITI Aayog recommends some reforms every year and ranks States based on how much progress they have made. Many States have, in the event, reformed their land, labour, real estate and agriculture laws.
The final verdict? As the report notes: The mammoth is on the move, as it were, warts and all. But for it to charge ahead, relentless implementation would be crucial because most of the repairs and reforms remain work in progress.