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The 'Modi dividend' will be a cracker

Diwali, which is just round the corner, is believed to herald joy and cheer. The climate is propitious for a switch from a regime of doles to one of entrepreneurship and innovation, writes NK Singh.

ht view Updated: Oct 21, 2014 08:23 IST
NK Singh
NK Singh
Narendra Modi government,Modi dividend,NK Singh

Diwali, which is just round the corner, is believed to herald joy and cheer. However, this year the damage to life and property in Andhra Pradesh and Odisha must remind us of our obligation to mitigate people’s sufferings. But recent developments prompt us to ask the question if the country can reap what the World Bank calls the ‘Modi Dividend’.

The political stability compounded by the results of the elections in Maharashtra and Haryana will fortify the government’s policy initiatives. Prime Minister Narendra Modi himself has talked of three other dividends — the 3Ds of democracy, demand and demography. So how can this Diwali usher in the new ‘Modi Dividend’?

First, the quest for higher growth remains an overarching priority. It is well accepted that growth is a necessary but not a sufficient condition to improve the indices of human development. Are we entering a happier phase? To recall Napoleon’s famous words, “I have plenty of clever generals but just give me a lucky one.” The brilliance of Arun Jaitley is well accepted but he is proving to be Modi’s lucky general as well. The GDP indicator suggests that we may end the fiscal year somewhere with 5.5-5.7% growth, higher than the sub-5% equilibrium of the previous few years.

Moderation in oil prices and inflation, a significantly improved current account deficit (CAD) and the prospect of reaching the daunting fiscal deficit target of 4.1% strengthen macro fundamentals. The savings- and investment-gearing ratio, which had declined to 30%, needs acceleration to 34-35%. Continued moderation in global oil prices, significant reduction in subsidy outgo, improved tax buoyancy and a faster pace in the execution of stranded assets make this more probable in the near future. S&P has upgraded India’s credit outlook to ‘stable’ from ‘negative’ and multilateral institutions are viewing the growth story more positively. The IMF has raised its growth projections for India to 5.6% for 2014-15 and 6.4% for the subsequent year. The World Bank has come up with identical projections. The OECD regards India among the 33 leading nations to be the only country where growth is accelerating. It remains the only BRICS country that is experiencing decisive improvement with multiple positive indicators.

It would, however, be naïve to believe that the challenges have been decisively overcome. Europe remains troublesome, growth in China has slowed, Japan is staring at a possible recession and, with the exception of the US, global growth indicators do not look robust. While the advantage of softening oil prices would continue, a sustained rise in exports faces the problem of shrinking markets, lower import intensity in developed countries and the inability to significantly improve export competitiveness. Structural improvement in the quality of managing the CAD would remain a medium-term challenge.

Second, improved growth parameters could be short-lived unless underpinned by deeper structural reforms. Modi’s initiative to reduce the burden of compliance with labour laws is laudable and the example of some states replicable. However, we need to take the bull by the horns to initiate key changes in labour laws. Similarly, activating stranded assets in power would remain problematic without deeper reforms in the coal sector. After the Supreme Court cancelled the allocations of coal blocks, Modi said, “The opportunity would be used for reforming the coal sector as a whole.” Fostering competition, improving productivity, opening coal prospecting to the private sector by amending the Coal Nationalisation Act have long-term advantages.

Third, the Fiscal Responsibility and Budget Management Act (FRBM) needs to be invested with more teeth by making compliance obligatory through ex-ante and not ex-post parliamentary approval. A credible time frame for implementing the GST is inescapable. The re-drafting of the Direct Tax Code by including provisions on transfer pricing need to be benchmarked to best global practices.

Fourth, we need to move away from the assertion of entitlement to the assertion of outcome. While the requirement for the MGNREGA as a social security measure may be understandable, the need to make asset creation more productive, align wages to labour productivity and improve the competitiveness of the economy are necessary. The hurriedly enacted Right to Education Act needs amendments to guarantee not mere access but educational outcomes. The Land Acquisition Act, designed to guarantee a reasonable return to farmers, needs to be symmetric to development compulsions. The ‘Make in India’ campaign and employment generation based on skill inculcation make it an imperative to review of some of these laws.

We hurriedly embraced an era of entitlement-driven laws instead of outcome-driven strategies. This is what Modi means by improving processes and procedures where he could well have added outcomes as well — meaning better health, education, purer rivers and cleaner cities.

Fifth, the ‘Make in India’ campaign can convert us from a nation of job seekers into a nation of entrepreneurs. India remains among the most over-regulated countries in the world. A manufacturer in India has to comply with almost 70 regulations and file 100 returns a year. Recent attempts to streamline procedures for bringing down compliance requirements are positive steps. According to the World Bank’s latest ‘Doing Business Survey’, the procedures and costs for starting and closing a manufacturing business in India are among the most cumbersome. The success of the foreign economic policy initiatives of the government is clearly hinged on improving the ease of doing business and addressing the issues on taxation and regulation.

Finally, can our values accept wealth creation as a contributor to growth, employment and improved life quality? The Modi Dividend means the dividend in harnessing our comparative factor advantages, both economic and political. As Martin Luther King Jr had said, “Darkness cannot drive out darkness; only light can do that.” What better occasion than Diwali to rekindle this hope? Wishing all readers a joyous Diwali.

NK Singh is a member of the BJP and a former Rajya Sabha MP

The views expressed by the author are personal

First Published: Oct 20, 2014 22:33 IST