Three Years of Modi Government: Dr Charan Singh
What follows is the English version of Dr Charan Singh's article published in Ee Naadu (Telugu Daily)
Three Years of Modi Government: An Economist’s Perspective
By Charan Singh, IIMB
The Government has completed 3 years under the able leadership of Prime Minister Narendra Damodardas Modi. It is time for another evaluation of the performance of the government. But the key issue is how to evaluate the performance of the Prime Minister? Should the evaluation be concluded as most successful based on recent electoral victories or should it be analyzed granularly by examining economic and social indicators? Electoral victories since May 2014 clearly indicate that the Prime Minister has been successful in gaining confidence of the masses, young and old, across the country. It needs to be recognized at the outset that the Prime Minister has brought in a paradigm shift in India’s policy making from the earlier philosophy of mixed economy to a more modern and practical emphasis on economic development. And why not, because for nearly 80 crore Indians, below the age of 34 years, mainly skill, education and employability are matters of concern.
In the last 3 years, India has been able to fortify its position as a responsible and strong nation in the midst of a very unsafe and volatile world. In this context, the economic performance of the government has played an important role which can be evaluated based on situation that prevailed when the Prime Minister took over the reins of the country. The key economic problems that Indian economy faced in May 2014 were financial exclusion, with nearly 50 per cent of the population not having a bank account; high unemployment rate of 25 per cent for youths rampant corruption plaguing the society; and policy paralysis in decision making. The measures taken by the Prime Minster on assuming office in quick succession in the first two years were setting the base for higher growth. In the last year, many more concrete measures with long term implications have been announced.
Performance of Schemes of Earlier two Years
The Prime Ministers Jan Dhan Yojana, launched in August 2014 has been successful in opening 28.6 crore accounts by May 17, 2017, a quantum leap when compared with an outstanding number of 122 crore bank accounts as on March 31, 2014. More importantly, nearly 99.9 per cent of households have access to banking facilities after this initiative. The Micro Units Development Refinance Agency (MUDRA) Bank, launched on April 8, 2015, has already disbursed an amount of nearly Rs. two lakh crore to four crore borrowers, of which 70 percent are women. The three insurance schemes launched in May 2015, operating through bank accounts have expanded extensively with Atal Pension Yojana having 53 lakh subscribers, Jeevan Jyothi insurance scheme having 3.1 crore and Suraksha insurance scheme with 10 crore subscribers. However, there is need to extend financial inclusion to the disabled, including the elderly where locomotor activity, vision and hearing is impaired. RBI directives to banks to be accessible to all kind of disabled have not seen notable progress with very few ATMs and bank branches being disabled-friendly. The Stand-up India program launched in April 2016 has successfully sanctioned Rs.5,808 crore to 28,444 entrepreneurs of which 22,708 are women, 4,487 scheduled castes and 1,249 scheduled tribes. In the Start-up initiative launched in January 2016, the government has provided funds amounting to Rs.620 crore to 62 startups. However, three Gold Schemes – Gold Monetization Scheme, Gold Sovereign Bond Scheme and Gold Coin and Bullion Scheme - launched in November, 2015 have yet to show encouraging results. Research reveals that awareness of schemes is very low amongst the banks who are not actively promoting the scheme. The household gold as a major source of liquidity and security, still remains out of bounds as there is concern about the tax implications, majorly for the inherited gold. Similarly, temple gold has not been successfully tapped.
Focused schemes in the previous one year
In the previous year, focus of the Prime Minister has been on corruption, and fiscal, monetary and banking sector reforms.
Corruption
The highlight of the previous one year of the Government’s effort is eradication of corruption which is not only a social necessity but has strong economic rationale. To create an environment of conducive growth and ensure ease of doing business, corruption has to be addressed specially to create growth conducive environment for young demographic India. Corruption, in socio-economic terms, has both direct and indirect costs. While the direct costs are well known in terms of scandals and loss of confidence in administration, the indirect costs are debilitating causing low growth and higher income inequality. Corruption weakens government capacity to raise revenue and perform its core functions by diluting culture of complaints and increasing tax evasion. The Government has regularly observed that India is not a tax compliant country. According to the government records, of the 4.2 crore persons employed in the organized sector, only 1.7 crore filled returns. Similarly, out of 13.9 lakh companies registered in India, only 6 lakh companies filled their returns of which 36,448 showed profits above one crore.
The government may have to consider strengthening efforts to eradicate corruption from exclusively tax-oriented approach to a broad-based approach. The general approach towards a corruption-free India in all walks of life can simultaneously lead to freedom from corruption in taxation matters. In contrast, tolerant and permissible approach towards general corrupt attitude and pursuing strict approach to corruption-free tax regime may not yield long lasting results.
Critics of Demonetization of November 8, 2016 miss an important point that now with heightened awareness, India has an army of willing volunteers to fight the menace of age-old corruption. Also, shock therapy of demonetization has certainly increased awareness of Digi-money, telebanking, and internet banking. The limited data available so far also shows that along with awareness, usage of e-money has increased. Thus, a paradigm shift is apparent in otherwise, a traditional way of paper-based banking. Consequently, the shake-up in commercial banks, along with related sectors, including the regulator, is clear. It is sometimes necessary to be disruptive to trigger schumpeterian type innovation and inventions in industry.
The relentless fight against corruption was also reflected in the Union Budget of February 1, 2017 through restrictions on funding of political parties and on cash transactions. The Government has recently launched in January 2017, Operation Clean Money to enable citizens to create a tax compliant society and usher in transparency in tax administration which runs on the strength of honest tax payers.
Fiscal, Monetary and Banking Sector reforms
The Government has been successful in forging unity for implementation of goods and services tax which is considered a land-mark in taxation history of India. The review of Fiscal Responsibility and Budget Management Act 2003 has also been undertaken.
The monetary policy mechanism in terms of transparency has been strengthened. The Monetary Policy Committee (MPC) has been constituted and is operational with the views of all the six members of MPC being placed in public domain regularly. Similarly, the government has made efforts to usher transparency in the governance structure of the Reserve Bank of India (RBI) as well as the commercial banks. Illustratively, top management positions in financial sector are filled in a more transparent manner through public advertisements and rigorous selection procedure.
The government has also announced a series of measures concerning non-performing assets (NPAs). In recent weeks the government has empowered, the RBI to intervene in specific cases of resolution of NPAs to bring them to a definite conclusion. The Government had also successfully achieved the merger of banks under State Bank Group. This could trigger more mergers in the banking sector leading to emergence of large banks which would be capable to compete with best in the world.
Enhancing Growth Potential
The Government, since May 2014, has been making efforts to reinvigorate India and help growth reach its potential of above 9 per cent. Since 2015, India is the fastest growth economy of the world and is projected to record a growth rate of nearly 8 per cent in 2017-18. Further, key economic indicators like inflation, and fiscal and current account deficits are low and under control. Given the global gloomy prospects, the Government is correctly focused on the domestic economy, especially with emphasis on infrastructure, housing and farm sector. The Prime Minster has set an objective to double farmer’s income by 2022. The doubling of farm income requires a fundamental transformation of the way agriculture is undertaken in the country and the policy initiatives in terms of investment, and development of road network, warehouses, and irrigation facilities have been in progress.
India is a unique country as it is characterized by diversity in income, language, religion, culture and social status. The country has generally been successful in providing benefits and uplifting the status of many deprived people through reservation. It probably is time to consider expanding and monitoring reservation to other social parameters. The participation of women in the economic and formal workforce has been rather low relative to other countries. There are empirical studies, including those from multilateral institutions like IMF, demonstrating that female participation enhances economic growth by nearly 25 percent. Therefore, it would be useful to consider having gender based reservations in educational and vocational institutions, and in work places. Further, according to World Bank, providing employment to disabled in the society could enhance GDP by 5 to 7 percent. In India, as against the reservation target of 3 percent for disabled, less than 0.5 percent vacancies have been filled so far.
In a vibrant and dynamic democratic set-up, the Prime Minister’s efforts in a short span of three years, are indeed laudable. The evaluation of first three year’s performance, and the pace with which reforms were rushed is also commendable. It is apparent that the central Government with renewed energy after encouraging election results will undertake more policy reforms with focus on development and economic growth.
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