Narendra Modi completed three years as the Prime Minister of India on 25 May 2017. The ascendance of Bharatiya Janata Party-led National Democratic Government (NDA) to power is of significance for the Indian politics because of two reasons -
i. The NDA II Government came into power at a juncture where India needed a decisive leadership that is free of corruption, policy paralysis and coalition compulsions.
ii. High expectations from the single party-ruling. It was for the first time in the last three decades that a single party could garner majority seats in the Lok Sabha. Previously, Rajiv Gandhi won 404 seats in the 1984 elections that were conducted in the aftermath of the assassination of Indira Gandhi.
Against this backdrop, it is pertinent to examine the key initiatives, achievements and challenges before the Modi Government in the economic sector.
When the government came to power in May 2014, reviving the staggering economy was high on the agenda. The major focus was on improving ease of doing business, augmenting foreign investments into the country and simplification of rules and procedures. Most important initiatives in this sector are -
Budgetary reforms: Reforms in the fiscal policy are crucial for achieving and sustaining high growth rates. Towards this end, three major changes were initiated to the Budget Cycle starting from the FY 2017-18. The three changes are –
i. Merger of Railway Budget with General Budget
ii. Advancement of date of presentation of General Budget by one month to 1 February
iii. Discarding Plan and Non-Plan expenditure classification
These changes were brought in to improve the efficiency, economy and effectiveness of the Indian Railways by shielding it from populist demands and making funds available to schemes and programmes at the beginning of the financial year i.e. 1 April.
Ease of Doing Business: From the beginning, the government is of the view that improving ease of doing business conditions is crucial for attracting investments, (especially in the form of FDI and FII), which alone facilitates transfer of technology and best management practices from the developed countries.
Towards this end, initiatives like Goods and Service Tax (GST), scrapping of the Foreign Investment Promotion Board (FIPB) and e-filing of Income Tax Returns (ITRs) were undertaken.
Black Money: Beginning with the formation of a Special Investigation Team (SIT) on black money (under Justice MB Shah) in its first Cabinet meeting, the government has taken a number of steps to curb the menace of black money. Some of the important steps are –
• On 8 November 2016, Narendra Modi announced that 1000 and 500 rupees notes would cease to be legal tender. This measure was primarily aimed at curbing illegal and unaccounted money.
• The Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015 to penalize the concealment of foreign income by replacing the Income Tax (IT) Act, 1961.
• Benami Transactions (Prohibition) Amended Act, 2016 was brought in to provide effective regime for prohibition of benami transactions by replacing the Benami Transactions (Prohibition) Act, 1988.
• Prevention of Money-laundering Act, 2002 was amended in 2015 to plug the loopholes in the parent Act.
• Foreign Exchange Management Act (FEMA), 1999 was amended through Finance Act, 2015 to provide for seizure and confiscation of value equivalent, situated in India, in case any person is found to have acquired any foreign exchange or immovable property abroad through illegal means.
• A new Income Disclosure Scheme is formulated for domestic black money.
• Economic infrastructure: High quality economic infrastructure like roads, ports and electricity play a key role in leveraging the potential of an economy. To augment the economic infrastructure the following steps were undertaken.
• Smart Cities Mission was launched in June 2015 to improve urban infrastructure with an outlay of Rs 48000 crore by 2020.
• Atal Mission for Rejuvenation and Urban Development (AMRUT) Yojana was launched in June 2015 to develop infrastructure in 500 towns and cities with an outlay of Rs 50000 crore by 2020.
• Shyama Prasad Mukherjee National Rurban Mission was launched in February 2016 to develop smart village on the line of smart cities and reduce the burden of migration to the cities through adopting ‘cluster approach’.
• Setu Bharatam Project was launched to make national highways free of railway crossing with an outlay of Rs 10200 crore by 2019.
• In March 2015, the Sagaramala Programme was launched with a view to achieve the broad objective of promoting port-led economic development with an outlay of Rs 70,000 crore.
• Independent India’s first comprehensive policy on civil aviation - National Civil Aviation Policy – was unveiled in June 2016. The Objective of the policy is to create an eco-system to make flying affordable for the masses.
Achievements in Economy: Compared to growth rates of 4.5% and 4.7% in FY 2012-13 and FY 2013-14 respectively, the growth rates in FY 2014-15 and 2015-16 were 7.3% and 7.6% respectively.
The achievements of the government as given in the Economic Survey 2016-17 are –
• The rate of inflation was in the declining path and was pegged between 4% and 5%.
• The Current Account Deficit (CAD) of the Balance of Payments (BOP) is less than 1 per cent of Gross Domestic Product (GDP) along with the dollar-rupee exchange rates convincingly stable.
• India is receiving one of the largest inflows of foreign direct investment (FDI) due to FDI reform measures were taken in the last couple of years. As the proportion of GDP, the FDI inflows have grown from 1.7 per cent in 2015-16 to 3.2 per cent in the Second Quarter of 2016-17.
• India's share in the world manufacturing exports is rising because the country has remained competitive despite high capital inflows and inflation.
• The internal mobility of goods given by the interstate trade in India is about 54 per cent of GDP or 1.7 times the international trade.
• Considering all the strengths, the Indian economy has the potential to grow at 8 to 10 per cent of GDP in real terms over the medium to long run. This makes the real returns on investments in India most attractive among all comparable and competing countries at present.
Challenges before Indian Economy: The following issues have to be addressed by the Modi Government in the short to medium turn in order to achieve inclusive growth.
• Raising income inequalities: In a report titled ‘An Economy for the 99 per cent’, the Oxfam pointed out rising income inequalities in India in recent years. As per the report released in January 2017, India's richest one per cent now hold a huge 58 per cent of the country's total wealth, which is higher than the global figure of about 50 per cent. This situation is alarming and government should initiate proactive measures to bring down income disparities.
• Unemployment: As per the Labour Bureau figures, the rate of unemployment grew steadily from 3.8% in 2011-12 to 5% in 2015-16. Moreover, India added just 1.35 lakh jobs in eight labour-intensive sectors in 2015, compared to the 9.3 lakh jobs that were created in 2011. To remedy the situation, the government has to announce measures to encourage labour intensive and small scale industries.
• Non Performing Assets: Despite various measures announced by the Reserve Bank of India (RBI), the issue of Non Performing Assets (NPAs) is still plauguing the economy. The Union Ministry of Finance and the RBI should initiate more co-ordinated measures with the banks to minimize the problem of NPAs.
As per the World Economic Outlook 2017 of the International Monetary Fund (IMF), India remains one of the fastest growing emerging markets in the world. However, as per the economists, the increasing overall prosperity is not reaching the disadvantaged sections of the society. Hence, it is high time the Modi Government must initiate pro-active measures to achieve much faster, sustained and inclusive economic growth.