In The Offing: A Reform A Week

On August 28, the PMO asked Niti Aayog CEO Amitabh Kant to be with Prime Minister Narendra Modi in the first half of day. He was asked to make himself available during the evening as well. Later in the day, at a Press briefing, Union Commerce Minister Piyush Goyal announced the much-awaited easing of sourcing norms for single-brand retailers. Also, 100 per cent FDI was allowed in coal mining and contract manufacturing. The Niti Aayog has long been a votary of FDI-led growth.

In single-brand retail, the 30 per cent local sourcing norm was relaxed, and online sales were permitted even if they failed to open brick and mortar stores. The move was immediately welcomed by entities like Apple, which has now ambitious plans for India.
“The changes in FDI policy will make India a more attractive FDI destination, leading to benefits of increased investments, employment and growth,” said Goyal.

Five days ago, Finance Minister Nirmala Sitharaman had announced a slew of measures, ranging from relief to foreign portfolio investors (FPI) to soothing the nerves of the auto industry.

The increased surcharge on FPIs was withdrawn and the minister also announced the withdrawal of increased surcharge levied on short-term and long-term capital gains. The measures, expectedly, boosted the markets and improved investor sentiment.

What is noteworthy that the moves came despite stout in-house opposition from powerful allies like the Swadeshi Jagran Manch (SJM). SJM Co-convener Ashwani Mahajan said the removal of the surcharge was “a result of an act of blackmailing by foreign investors”.



“I would suggest the government consider re-imposing the tax after some time,” he told BW Businessworld.

The SJM has been waging an ideological campaign of sorts against “the dependence on FDIs and FPIs”.

“This goes against our national wealth creators and economy. Also, they try to blackmail you. If taxes are removed, where will the money come for national development?” Mahajan asked.

The SJM, as also some other arms of the RSS parivar, are aligned against the Niti Aayog, for they feel “it’s promoting a Western model of development, vigorously pursuing liberalisation and privatisation”.

In the face of such opposition, if the government, right from the top at the PM-level, leans on the Niti Aayog and withstands considerable pressure from its ideological brotherhood, it means that the government is listening to the industry and other stakeholders as it remains in a pro-active mode, addressing the economic challenges.

Many of the measures announced by Sitharaman, for instance, were discussed in a day-long consultation with the CII stakeholders, following which its president-designate Uday Kotak said that “he was happy that the government was open to listening to its concerns”.

“Yes, the heart-warming thing is that the government is listening. Many of the measures announced by Sitharaman were positive and forward-looking,” Godrej group Chairman Adi Godrej told BW Businessworld.

The current crisis
Data released on August 30 showed that in the April-June quarter India’s GDP grew at 5 per cent — its slowest growth in the last six years — de-growing from the previous quarter of 5.8 per cent. The nominal GDP growth was at 8 per cent — the worst show in the last 15 years.

The Congress was quick to take a dig — “If this was the figure by the new methodology, the real number would be even lower,” it claimed.

India’s growth this quarter, thus, is slower than even Hungary’s, what to talk of China’s. Manufacturing grew at a measly 0.6 per cent, down from 12.1 per cent a year ago. Agriculture was down to two per cent from 5.1 per cent a year ago. Government expenditure grew at only 8.5 per cent. Power, energy and utility services, though, brought cheer to the government quarters, and expanded by 8.6 per cent, up from 6.7 per cent a year ago.

India Ratings and Research chief economist Devendra Pant, dissecting the slowdown, says: “The slowdown was led by private final consumption expenditure, which grew 3.1 per cent — a 18-quarter low. Investment demand also remained lacklusture, and fixed capital formation grew at 4 per cent. While general elections had some impact on investment growth, collapse of private consumption demand from 10.6 per cent in the fourth quarter 2018 to 3.1 per cent is real cause of concern”.

Chief Economic Advisor Krishnamurthy V. Subramanian says that while some internal concerns are valid, the slowdown is also a result of “deceleration in developed economies and trade wars.”

A similar economic phase was witnessed in 2013-14, he says, as he points out the brighter side of the picture — the 8.6 per cent growth of the electricity and power generation sector (See interview: “US-China trade war an opportunity for India”).

On the slowdown, Chairman of the Economic Advisory Council to the Prime Minister Bibek Debroy says: “It is true that there are global uncertainties and net exports cannot right now be a major growth driver for India. Despite this, in 2019-20, real GDP growth is expected to be between 6.5 per cent and 7 per cent. It will increase to 7 per cent in 2020-21 because growth in the second half of the year is likely to be more than the first” (See interview: “Continue with the trade negotiation strategy”).

The Road Ahead
While Finance Minister Nirmala Sitharaman and her team goes about a nationwide tour of consultations, expressing willingness to listen to all shades of opinions, the government is having to face some in-house criticism as well.

BJP MP Subramanian Swamy, after the new data was released, tweeted: “Get ready to say good bye to the $5-trillion (economy vision) if no new economic policy is forthcoming. Neither boldness alone nor knowledge alone can save the economy from a crash. Today, we have neither,” (for Swamy’s blueprint to realise the $5-trillion vision, see BW Businessworld’s August 17  issue).

This may sound scathing. Ashwani Mahajan, talking to BW Businessworld added: “Where is the growth happening today? It’s Uber, Amazon, Walmart, Flipkart, etc. So, why shouldn’t they pay taxes?”

Notwithstanding this criticism, India Inc. is happy that the government is responsive.

“A reform a week is just the kind of tonic that we need,” tweeted Anand Mahindra, in a way, echoing industry’s expectations.

Adi Godrej told BW Businessworld: “After the recent announcements, we are waiting for more. The Direct Tax Committee has submitted its report. We need lower taxes, as the taxes are too high in India,” adding, “The private sector will invest when there is demand. No demand will be unmet by the private sector.”

Vedanta’s Anil Agarwal said that he hoped for a simpler GST, and Godrej echoed him, adding: “The slab of 18 per cent is too high on day-to-day use items, for instance.”

Marico’s Harsh Mariwala, while welcoming that some negatives had been rectified, reiterated that it’s time the government thought long-term, and looked at measures like “judicial reforms, land / labour reforms”.

Sitharaman followed up on her first round of announcements with another on August 30, wherein she took up banking reforms, announcing the merger of public sector banks which leaves the number now at 12. The promised recapitalisation is expected to bring in efficiency and improve the credit flow.

More such announcements are in the pipeline. The Finance Minister is now expected to address the real estate concerns, which after agriculture, is the second largest employer.

Meanwhile, the RBI, too, is doing its bit. Many say the last few RBI governors were trying to impose a “US model” on India and were obsessed with inflation.

Now with Governor Shaktikanta Das at the helm, the RBI in its latest annual report has said that the revival of consumption demand and investment remain its key priorities. One more rate cut is thus expected this year to boost demand.

Amidst all this, however, there are no clear answers as to how long will the slowdown last — even as the Modi government goes about its task.