We will see Modi's achhe din if Jaitley delivers a good Budget
This year will mark the mid-point for the Modi government. Right now, Foreign Direct Investment (FDI) statistics are looking good. But there is always a lag. The economy as a whole is still in the doldrums, bettered only to the extent that oil prices have dropped.
Petroleum ministry estimates for FY16 suggest that India will buy $88 billion worth of crude, down from $112.78 billion in 2014-15, a 21.7 per cent reduction in the bill. This, even as the overall quantity imported will be roughly the same at 188.23 million tonnes in FY16, as against 189.43 tonnes imported in FY15.
Import
It is interesting to know that the oil bill was only $3.518 billion in 1998-99, and the quantity of crude imported that year was a mere 39.8 million tonnes. But whatever the quantum, India has always imported 80 per cent of its crude. But now we are saving thousands of crores — Rs 138,714 crore between FY15 and FY16 alone — and this money, plus more, can raise our growth rates close to double digits, if poured into building badly needed infrastructure. This is a dire necessity now, and will be an ongoing growth spur when completed too.
Right now, everything is down. Manufacturing, a traditional job generator, has actually shrunk. The property market, accounting for 17 per cent of the economy lacks sufficient end-user demand despite hype about affordable housing, smart cities, and housing for all by 2022. There is talk of foreign PE and vulture funds getting in on some of these projects, as well as distressed assets of other over-leveraged/bankrupt companies. But nothing in India is moving fast enough.
Agriculture, another 17 per cent of the economy, and rural India, that houses over 50 per cent of the population, is doing poorly with three consecutive droughts and none of the promised value-addition. Where is the modernisation and food processing industry? Even the early initiatives on marketing support seem to have fizzled out.
The banks are under-reporting bad debts, and continue to be hugely undercapitalised. The stock market, another source of corporate funding, has returned to 2013 levels. The debt market has done well, given its steady, over 8 per cent plus returns. This is good, particularly for FIIs that borrow at near zero abroad. However, the constantly weakening rupee, now at 68 to the dollar and trending towards the seventies, is a dampener.
The non-functioning of two parliamentary sessions on the trot have put paid to the government’s structural legislative agenda on GST, land/labour/bankruptcy reform.
Retail
E-commerce and the start-up space are great white hopes, but it is early days yet, and they tend to cut into traditional retailing and even established IT when they succeed.
There are now over 1.5 billion cellphones in Indian hands, mostly inexpensive smartphones, but the broadband speeds and chronic bad coverage/call drops, make plans for a digital India seem remote. New initiatives like Make in India and Swachh Bharat will deliver some employment, particularly in defence manufacturing, but not a lot.
Besides, as RBI governor Raghuram Rajan points out, we do not even track job growth nationally as yet. And after two nondescript budgets, the one coming soon must be a blockbuster, at least in terms of liberalisation. But yes, if India spends money now, it will get very good returns on its investment. And barring a catastrophe, this low-cost energy situation will sustain in the near to medium term.
Economy
America is growing its $17 trillion economy at 2.5 per cent, at last, but all other major economies are not. China’s weakness is only getting worse, with a 6-7 per cent fall of a day in the mainland Shanghai Composite Index becoming frequent. The Yuan too is steadily devaluing, and its GDP is now hard-pressed to stay above 6 per cent.
India, small in comparison to China’s $12 trillion economy, at just $2 trillion, is growing at over 7 per cent. Because of its volume energy purchases, it is now being wooed by producers, even as the government is trying hard to increase its solar and nuclear power options.
Qatar, in a pragmatic move, halved its gas prices to India, and waived billions in back payments calculated at the old prices. But, in the absence of private sector growth, it is only the urgent building of massive public works, funded by FDI, government resources and multilateral agencies, that can hope to provide results. This means the whole gamut tackled simultaneously. Everything depends on the speed of implementation. Some of this is already happening.
A recent Financial Express report indicated that in November 2015, Rs 31,250 crore worth of infrastructure contracts were awarded. The value of the tenders is up 60 per cent within a year. But to make a real difference, infrastructure building must leap-frog ahead without looking at precedents and past comparisons.
The recently cleared hybrid funding for highways is a welcome step. So is the move to penalise non-performing senior bureaucrats with sackings and dockings of their pensions. Things have been disappointing on pace so far, and only a determined surge can deliver on the promises of vikas and acche din.
(Courtesy of Mail Today.)