What do next 3 years of Modi sarkar hold for India?
As election results from Assam, West Bengal, Kerala, Tamil Nadu and Puducherry pour in, it's time to look ahead. What do the next three years of the Modi government portend?
First, the good news: the economic tide is turning. The bad news: jobless growth could derail the story. Modi inherited an economy in a tailspin. Ten years of UPA misgovernance were riddled with financial scams and institutional subversion.
That though is not an excuse for the Modi government's mixed record over the past two years on economic, social and political issues. Finance minister Arun Jaitley has been a particular disappointment with his cautious, lawyerly approach. The finance ministry has made a series of missteps.
It delayed the One Rank, One Pension (OROP) scheme for several months despite Defence Minister Manohar Parrikar approving it. The result: the armed forces, which supported the BJP in large numbers during the 2014 Lok Sabha election, were needlessly alienated.
Refusal
Jaitley's continuing refusal to repeal the retrospective tax, legislated by then finance minister Pranab Mukherjee, is unconscionable. It is the single largest factor eroding foreign investor confidence in the fairness and predictability of India's tax regime. Investor confidence in India remains high simply because there is no alternative.
China is in long-term slowdown. Its total debt has climbed to an unsustainable 250 per cent of GDP. (In comparison, India's debt is just 66 per cent of GDP.) Global investors are wary of putting too many investment eggs in the basket of a country that could be heading for a painful debt bust in the near future.
India thus benefits by default. Our shambolic infrastructure draws foreign direct investment (FDI) precisely because it is shambolic. The potential to build anew - from sea ports to highways - is limitless.
As a result, in 2015, India received $63 billion in FDI, more than the United States ($59.6 billion) and China ($53.6 billion). With more sensible tax and labour reforms, that figure could double.
Indian diplomacy has historically been reactive, not proactive. Modi has consciously tried to change that. His relationship with United States President Barack Obama and other world leaders has helped raise India's global profile. Modi will have an opportunity to refresh New Delhi's evolving partnership with Washington when he visits the US next month.
One day before his address, scheduled for June 8, the last of the US primaries will be held in California, New Jersey and other states. The results won't matter much. Donald Trump has already sewn up the Republican party nomination.
Hillary Clinton, barring a last-minute upset among super-delegates being courted by rival Bernie Sanders, will be the Democratic party nominee. Modi will be keen to meet both Trump and Clinton on his visit if his packed US schedule permits. He will have to deal with one of them in the second half of his tenure.
Over the next three years of his prime ministership, Modi must refocus on key areas. First, stepping on the gas on economic reforms. Tax tinkering (as with the 1 per cent duty on jewellery to identify tax-dodgers) or sending retro tax notices of Rs 20,000 crore to Cairn is petty economics.
Results
What India needs is lower interest rates and lower taxes. That will put money in people's pockets, boost economic activity and create jobs. Reserve Bank of India (RBI) governor Raghuram Rajan has used a tight monetary policy (high interest rates) to stifle inflation.
That has instead stifled economic growth. Ironically, consumer inflation remains stubbornly above five per cent despite nearly three years of Rajan's monetary policy.
Without driving up consumption through lower interest rates and taxes, economic growth will falter. Fewer jobs will be created. It is a classic deflationary environment with steady but jobless growth.
The next three years will also be crucial for Modi in redefining India's troubled relationship with Pakistan and its abrasive mentor China. Modi must exploit China's three principal weaknesses.
 |
| Subramanian Swamy. (PTI) |
One, its economic slowdown which could sharply worsen in the next few months as hidden bad bank loans come to light.
Two, the insurgency in its large terror-prone Uyghur Muslim province of Xinjiang.
And, three, the continuing tensions over Tibet. Leverage all these strategically when dealing with Beijing. China respects strength and tactical nous, not nice gestures and empty rhetoric.
Policy
Modi's Pakistan policy in the first two years has been a mixed affair. The Line of Control (LoC) has been silenced and terror infiltration reduced. But Pakistan is a chronically perfidious nation.
Sentiment in the US has hardened against Islamabad in recent months. Saudi Arabia, Pakistan's surrogate financier, too has cooled off, citing its own fiscal distress.
Riyadh still smarts from Islamabad's refusal last year to send troops to help the deadlocked Saudi-led war in Yemen. In his first two years as prime minister, Modi has confounded his critics.
There have been no communal riots - none certainly in BJP-governed states. But he has also confounded his supporters: slow progress in cases against UPA-era scams. It is only in the past few weeks that the pace of unearthing and investigating scams has picked up.
The induction of Subramanian Swamy into the Rajya Sabha signals a shift in both intent and strategy. For two years, Modi listened to the compromised Lutyen-ised cabal within his own party and went soft on Congress scams. That's changed - and not a day too soon.
(Courtesy of Mail Today.)