100 days of Modi 2.0: Glut of bad news on economy belies reform hopes

When Prime Minister Narendra Modi came back to power for a second term with a bigger mandate, there were expectations of long-pending structural reforms being  finally carried out. However, the handling of the economy in the first 100 days of the government has mostly been about firefighting on multiple fronts and allaying sour market sentiment.

Just the day after Modi and his ministers took oath on May 30, growth in gross domestic product (GDP) for January-March came in at 5.8 per cent — the lowest in five years. This was only the beginning of bad news. The April-June growth figure, released on August 31, was even worse, the lowest in six years at 5 per cent.

Meanwhile, the monthly direct tax and goods and service tax collections data so far have led to genuine concerns of the Centre falling short of its revenue targets for the year. Against a required growth rate of 18 per cent over the provisional actuals of 2018-19, the growth of gross tax collections has been only 6.6 per cent in April-July.

Finance Minister Nirmala Sitharaman’s maiden Budget and amendments to the Companies Act to criminalise breach of corporate social responsibility norms were not well received by the markets and led to the rollbacks of some announcements.

“The first 100 days have been unremarkable, in that it simply looks like a continuity of the last term, not as if the government has got a mandate for another five years. It appears to be business as usual, in which nothing is seriously being done to deal with the problems,” said Pronab Sen, former chief statistician of India. “The only things they have done, which can be considered structural, are bank recapitalisation and bank mergers,” he added.

A former Reserve Bank of India governor, who did not wish to be named, said the government had been forced into making sector-specific announcements to shore up sentiment instead of focusing on deeper reforms. Turn to Page 10 >

This also means that some measures which should have been in final preparatory stages, like land reforms, scrappage policy and others, have now been deferred as the Centre feels there need to be more deliberations on these issues, a government official said.

Sitharaman’s Budget announcement of a surcharge on wealthy entities, known as the ‘super-rich tax’, which would impact foreign portfolio investors set up as trusts or associations of persons, and changes to the Companies Act led to a downturn in market sentiment.

Days after the new Modi government was sworn-in, the benchmark indices climbed to all-time highs with the Sensex soaring past 40,000 and the Nifty piercing the 12,000-mark. Since then, it has been largely downhill. Lower-than-expected GDP growth, weak corporate earnings and a disappointing Union Budget have been some of the key triggers for the weakness in the market. FPI outflows since the swearing-in have totalled nearly Rs 30,000 crore, the Nifty has dropped 7.7 per cent, while the Sensex has dropped 6.4 per cent.

“Objectively and constructively speaking, things could have been better. While the worsening of the global macro-economic environment has been in play, the domestic factors have exacerbated the current economic sentiment with two consecutive GDP prints coming below 6 per cent,” said Shubhada Rao, chief economist with Yes bank.

In August, Sitharaman met representatives from multiple sectors and then made a number of announcements in order to boost demand, like enhancing of liquidity of banks to shore up purchases by consumers, easy GST refunds to micro, small and medium enterprises, easing conditions for a beleaguered automotive sector, a more transparent one-time settlement policy for the overdues of MSME sector, releasing of Rs 60,000 crore worth of pending payments by the centre and state-owned companies and others.

She also rolled back the controversial super-rich surcharge and assured that failing to meet CSR norms will not lead to criminal prosecution.

“The budgetary push that was expected did not materialize, to the extent that a couple of steps had to get reversed subsequently. Overall, the macro-economic environment has been underwhelming, and while it is a positive step that the Finance Minister has begun to take on board the sector specific issues, but it is a long road ahead to bring back the animal spirits and get consumption off the ground to achieve a sustainable 7 per cent growth,” said Yes Bank’s Rao.

“While supply side measures are welcome and have come in to an extent, the economy needs demand side support as well, which we hope that the festive period of the October-December quarter brings in. The banking sector reforms are welcome, however the overall financial sector health will also need to get nurtured to address the NBFC related issues,” Rao said.

The biggest measures were reserved for the banking sector. Sitharaman announced the merger of 12 state-owned banks into four and said that the Rs 70,000 crore recapitalisation programme for this year, in the form of recapitalisation bonds, will be expedited.

Not only the critics, the ruling party’s allies are also speaking up on the economic concerns. The Rashtriya Swayamsevak Sangh will have its three-day coordination meeting with its affiliates, including the Bharatiya Janata Party from Saturday in Pushkar, Rajasthan. It is likely to note the government's successes on the political and diplomatic fronts. However, its affiliates like the Swadeshi Jagaran Manch (SJM) and Laghu Udyog Bharti are expected to express their concerns about the manufacturing sector, especially small scale industries.

The SJM's Ashwani Mahajan on Friday said the "wrong advice" by the Abid Hussain committee had the government de-reserve nearly 1,000 items that were reserved for small scale industries (SSIs), which led to its decline. "It is time to rethink about re-introduction of SSI reservation," he said.

Over the coming weeks, more announcements are expected from Sitharaman, focusing on real estate, exports, further measures on MSME, infrastructure and others. Departments and PSUs have already been told to boost capital spending, and release pending payments. 

“While it is true that there are currently unmistakable signs of a slowdown the important point is that we are a part of global synchronised slowdown. Growth has possibly bottomed out and the government steps taken in interregnum will act as an enabler for growth discovery in coming quarters,” said Soumya Kanti Ghosh, chief economic advisor, State Bank of India.
With inputs from Samie Modak and Archis Mohan