Managing expectations in a transiting economy is, in many ways, akin to grafting an innings in a five-day Test match. When the chips are down, it is not always a great idea to come out of the wicket to hit a six every ball. The main objective, at that particular point in time, is probably to guard the wicket and consolidate the innings, lest a wrong ‘un uproots the stumps. Reserve Bank of India (RBI) governor Raghuram Rajan’s recent remarks in New York on people holding “unrealistic” expectations from the Narendra Modi-led government need to be seen in this context.
The change of guard at the Centre following the BJP’s victory last year had raised expectations among people and investors about an imminent and rapid take-off of the economy. This was partly driven by the BJP’s high-octane “Acche din aane wale hain” pre-poll campaign promising to usher in good days. Mr Rajan himself had to deal with the burden of rising expectations about interest rate cuts when he took over in 2013. The RBI governor, however, bluntly stated his mission was not attracting Facebook ‘likes’.
The fiscal policy space that the government operates in has its own sets of pulls and pressures. The priority for the government, when it took over in 2014, was to nurse the economy back into health. Needless to say, the foremost among these were to deal with the precarious state of public finances, control runaway inflation and usher in a system of rule-based and transparent procedures. Fix these first; growth, investment and jobs will follow. The government appears to have followed this sequence in its first year. Coal blocks and telecom spectrum have been handed out through an open bidding system. India has managed to contain its fiscal deficit at 4% of its gross domestic product. A plan for a common national market through a Goods and Services Tax is in the final stages of legislation. Also, the government has demonstrated its willingness to remove red tape and ease rules of doing business. Importantly, retail inflation is at less than 5% compared to near double digits last year. The plinth is ready. The rest of the structure should follow rapidly.