Modi’s magic needs to work for the economy: Without radical steps, it will be difficult to turn around the sentiment

Image Courtesy: www.hindustantimes.com

The wheels of the economy are not whirring at the pace that it was promised by the Modi government when it assumed office in May 2014.

The economic indicators have been anything but on the upswing for a better part of the 15 months since the new Prime Minister has moved from Gujarat to Delhi to steer the reins of India.

As India’s merchandise exports fall for the seventh consecutive month, there are more creased foreheads that ever among India’s top policy makers.

Just a couple of week earlier, the Index of Industrial Production (IIP) for May 2015 had shown a growth of a dismal 2.7 per cent. With banks still reeling under the shadow of bad loans, they are not lending aggressively. That has meant jobs, fuelled by hopes after the BJP win in 2014, that were expected to be created seems a far cry.

The monthly trade figures are painting a picture that the government would not want to talk much about. With India’s gems and jewellery industry is seeing a drop in fresh export orders by nearly 20 per cent.

Leather export orders are trickling in but the hectic activity for Christmas that has the factories running at full capacity is perceptibly missing. During the first quarter, leather exports have slipped five per cent. India’s biggest markets for its leather exports – China and Europe – are not showing growth signs.

The seven consecutive months of slowing exports is soon going to hurt more. During the April-June quarter of the current financial year, India’s exports slipped to $67 billion from $80 billion, a drop of over 16 per cent. It is the same story across for gems & jewellery as well as textiles sector too.

This secular decline in exports across sectors that is hitting policymakers exactly where it hurts. With sentiment that is anything but upbeat, Make In India cannot become a reality until some of the basic issues are addressed. The promise of jobs, made during the 2014 election campaign will fail to materialise if neither manufacturing nor services exports fail to take off.

If the monetary policy is loosened, inflation will again get the better of the central bank’s targets. If the government is unable to kickstart growth, the hopes raised after the BJP victory in 2014, there is only the government itself to blame.

Prime Minister Modi used to tweet some details about the economy as and when it would come out. That communication has now gone down to a trickle. Does that indicate the Prime Minister now has less of good news to share?

The tough decisions that were to have been taken during the first year of its tenure have not been taken. That will haunt the Modi government through the rest of its tenure.

The Perils of a slowing Indian Economy: greatly exaggerated...:

Every day the headlines and articles in leading Business papers and magazines scream at you pointing out the perils of a government in limbo - a slowing economy. Today's Economic Times headlines reads - Scared and Stifled, Babus delay decision making. Another headline says - "D Street (Dalal Street where India's oldest stock exchange BSE Is located) Mavens see Sensex sinking to 15k by December" marking a 16% fall. On the other hand you have data which says that Advance Tax collections are robust, salaries set to increase by 11-13%, PE investments on the upswing. These are contradicting news and can be very confusing to someone who wishes to analyse the investment potential of India.

True, the recent corruption scandals which are plaguing the government and the fight between the Civil Society and the government over a tough anti corruption Lokpal bill have created a sort of a Logjam. The government is busy staving off one scandal after the other and trying to protect its own turf and in the process all the decision making has taken a backseat. But this cannot continue forever. The lack of decision making at best can only be temporary. There are powerful reasons for this. Today no political party can afford to let slip on the economic growth: if they do so, they can expect to be routed at the polls. The fruits of growth have started permeating the life of the common Indian. Though the fruits are not distributed evenly, they are there for everyone to see. People who have not tasted the fruits aspire to taste them and those who have tasted them will not let go. In short, the momentum for growth has been built to such an extent that it is almost irreversible.

The businesses which finance the political system unofficially, also will not sit idle if they foresee the reversing of the economic liberalisation process.

These two factors have to be considered sooner than later by the government because if they lose the support of the people and their financers then the game will be truly up for it. This gives us real hope that in the next couple of months, the government will put its house in order by acceding to the genuine demands of the civil society by taking concrete steps to weed out corruption from the fabric of Indian society. The policy and decision making should resume and the indecisiveness plaguing the system should be a thing of the past.