Evaluating the performance of any government on economic grounds is challenging. This is so because direct linkages are at best by chance as phenomena like oil prices, monsoons, global forces etc. affect inflation and exchange rates which are beyond the purview of any government. Further, it would also be disingenuous to say that the NPAs are high during a particular regime due to the ruling government as these things build up over time and mere recognition cannot be attributed to a government.
Hence, to evaluate the performance of the NDA government in the last 4 years a twofold approach is required. The first is to judge what is within the purview of the government and the progress made therein and the second is a comparison of economic indicators in the pre- and post-periods as part of the routine.
The performance of the NDA government in terms of conceptualisation and implementation of policies has been most remarkable with very little left to be done. The major reforms that were noteworthy are bringing in the eNAM (electronic national agricultural market), opening up of FDI (defence and railways equipment included), GST, power sector reforms, addressing NPA issue through the IBC and recap measures, improving the doing business environment, channeling funds for the SMEs etc.
Also the creation of a monetary policy committee has streamlined decisions taken by the RBI on interest rates. The single minded focus on infrastructure has been admirable while bringing in procedures for allocation of natural resources which had otherwise been mired in controversy. While critics may argue that most of these were in the discussion stage earlier, credit needs to be given for ushering in these reforms.
Have these policies been successful? To a large extent they have been on track as they take time to fructify though some reforms relating to the power sector have the problem of getting the states to enforce the commitments made by the DISCOMs like increasing tariffs or cutting down on transmission losses. Similarly adhering to the fiscal deficit number has been challenging and in FY18 compromise had to be made on capex as the government lowered the amount by Rs 35,000 cr even while exceeding the fiscal deficit target by 0.3% of GDP.
There have been some campaigns like ‘Make in India’ which have aided sentiment and provided encouragement to industry though the results are yet to be witnessed. Similarly, demonetisation was an audacious move whose effect on cleaning up the economy are still ambivalent. The amount of black money taken out and additional tax earned by the exchequer is still to be calculated.
The macroeconomic numbers also present a mixed picture. GDP growth has averaged 7.3% in these 4 years which while higher than in the preceding years, is well away from the 8% plus rate that the country had been known for. Moreover, the absence of creation of commensurate growth in jobs has been a corresponding concern. Similarly, gross fixed capital formation has slipped continuously from 34.3% in FY12 to 28.5% where private investment has lagged. Industrial growth has averaged just 4% in the last 4 years which though better than the 3.3% average in the preceding two years (based on new series) is well below the 8% plus number witnessed in the earlier series.
However, the economy has done better in terms of inflation which glided downwards continuously from 9.4% in FY14 to 3.6% in FY18. This helped the RBI to lower the interest rates by 200 bps. Foreign investment has been a major winning point with FDI equity flows topping $ 40 bn in the last 3 years. FPI too had peaked at $ 46 bn in FY15 before declining as global conditions changed. The external situation looks much better with the current account deficit manageable at 2% of GDP compared with a 4.8% in FY13. Forex reserves have peaked at over $ 420 bn which is a big comfort at a stage when global crude oil prices are increasing.
Putting everything together, the performance has been good with some of the results flowing in the next couple of years. It must be pointed out that once an economy reaches a mature state - as is the case with India - bringing in incremental reforms is more challenging. The fact that several steps have been taken is commendable and the economy definitely looks in a better state today with some very effective housekeeping being accomplished. The private sector now needs to pitch in to make the story meaningful.
Madan Sabnavis is Chief Economist, CARE Ratings