Rajat Jain
The current government took power in the backdrop of an environment of policy paralysis, when the economy had stalled, and while businesses were hesitant to do capital expenditure, the consumer sentiment and demand were weak. Over the past three years, the record of the government in economic matters has been positive overall, as we shall see below.
The biggest focus of the government has been on projects in the infrastructure space, both on stalled projects and in new capacity. Despite a slow start, progress has been made, and according to data released recently, for nearly 1200 projects reviewed by the Prime Minister’s office, the fraction of projects delayed had come down to 25 percent from 43 percent a year ago, and the average cost overrun had come down to 11 percent from 20 percent a year ago. This is a result of tight monitoring at the highest level, with the Pragati portal launched by the PMO, playing a key role.
An example of the progress made is the situation in coal. Three years ago, the power companies were all blaming Coal India for low coal stocks, with their stocks of coal at a critical level. The situation now is that Coal India has nearly 60 million tons of coal the pitheads and there is no shortage. Likewise, a problem solving approach was taken towards road projects.
As we know, the Hybrid annuity mechanism was evolved, to solve the problem that the developers were facing of raising capital. While we are aware of the work done, another key aspect has been much more information regarding projects being made available on government websites, leading to more transparency. Other areas which could have long lasting impact are the launch of the PM Krishi Bima Yojana (on farm insurance), the PM Krishi Sinchai Yojana (on irrigation) and e-NAM (project to link mandis, making it possible for the farmer to sell across the country).
In the field of business, the government has taken multiple steps to making doing business simpler, especially with regard to compliance of various laws, including self-certification. One step which could be impactful once it gets going would be the bankruptcy code. Things are slow to start with, but once the system gradually adjusts itself, it should have a substantial impact on creditors’ rights.
While the record of the government in the economic field is overwhelmingly positive, there are a few areas where the government also needs to focus more. The biggest challenge the country faces is that of jobs. About 12 million people join the work force every year and we are just not creating enough jobs for them. The formal sector has been creating jobs for below a million people a year. Our labour force participation rate is quite low.
The government realized the importance of job creation and the role that the informal sector plays in this regard, which is why the Mudra Bank was launched to focus on it. However, the pace of job creation remains low, and the government needs to give it greater push. The second area where the government faces challenge is in the health of the banking system. It inherited the problem, and while it has taken steps on resolving the situation, probably a mission mode approach is called for.
Thirdly, the government has shown a tendency in some cases to intervene in markets. There could be justifiable concerns about collusive/ monopolistic behavior by businesses, but these should be handled by the competition regulator, rather than the government issuing directives.
Overall, the record of the government in economic matters has been positive, which is reflected in improving macro parameters, the buoyance in capital markets and increased proposals for FDI.
Author is Chief Investment Officer at Principal Pnb Asset Management Company
Full coverage: Three years of Modi government
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