4 YEARS OF MODI GOVT.

Four Years of Transforming the Fabric of Indian Economy

Economic Transformation

The fabric of Indian economy under the National Democratic Alliance (NDA) – has undergone a drastic and tremendous change. These changes are positive as it is laying the foundation for modernization and rise of digital economy in the nation. An array of economic reforms, usage of technology in public delivery sector and the crackdown on black money has resulted in an integrated formal system.

India is the fastest growing major economy in the world. India today is one of the most favoured economy in the world and this growth has not come easy. The government had to undertake a slew of measures to achieve it.

Let’s look at some of the major measures taken by the current administration to boost the economy

GDP GROWTH RATE

India’s growth rate has remained impressive despite global economic slow-down. During the first quarter of 2016-17, the economy witnessed a temporary slowdown in GDP growth. The second quarter of 2017-18, however, has seen a reversal of this trend. India has been the brightest star in global economy since the current government came to power.

The GDP witnessed a slowdown in the middle quarters of 2017 and it was majorly because businesses chose to slowdown production in the wake of GST roll out. But post-GST the GDP has jumped back and shown an upward trend.

GDP (Growth Rate) Projections by International Agencies (2016, 2017 and 2018)

*P stands for Projection

GOODS AND SERVICES TAX

One of the most significant achievements of the government was to implement the overhaul of country’s indirect taxation system through the goods and services tax. Rolled out on the midnight of 30th June 2017 and in effect from 1st July 2017, GST is administered by both Centre and States and has subsumed several state and central indirect taxes such as State VAT, Central Excise Duty, Purchase Tax and Entry Tax. Reduction in overall tax on goods is estimated to be 25-30%.

The National Anti-Profiteering Authority was set up to ensure that benefits of lower prices of goods and services are passed on to the consumers. The implementation of GST has resulted in the ease of doing business and increased tax revenue collections.

Post-implementation of GST, there has been a considerable increase in compliance level. Direct tax collection has risen by 18% to cross Rs. 10.02 lakh crore in the last fiscal. Finance Minister Arun Jaitley has hailed it as a historic revenue receipt and said that it is factual testimony of accountable governance.

GST has clearly revived the logistics sector in India. The transport and freight companies experience a hassle-free commute since they do not have to pay multiple taxes anymore while they cross various states. Reportedly, the GST implementation will boost the growth of logistics sector in India to 10.5 % CAGR. The sector is also estimated to create around 7.5 lakh new jobs in Mumbai and 30 lakh jobs across the nation in a span of next four years.

DEMONETISATION AND INCREASED TAX PAYER BASE

Irrespective of what the naysayers may say, implementation of economic reforms like GST and demonetisation has in fact driven the country towards a more formal economy. The results speak for themselves. The number of ITRs filed after demonetisation has increased exponentially when compared to the years pre-demonetisation. During the financial year 2017-18, 6.84 crore ITRs were filed, it is a growth of 26% as compared to 5.43 crore ITRs filed during 2016-17.

LIBERALIZATION OF FDI

Foreign Direct Investment is one of the main factors that drives the economic growth of any country. The government of India has approved many amendments in the FDI policy to make it more investor friendly. These reforms are intended to liberalize the FDI policy in order to provide ease of doing business in the country. Recently, the government has brought FDI policy reforms in multiple sectors like Construction Development, Broadcasting, Defence, Insurance, Pension, Other Financial Services, Civil Aviation, Asset reconstruction Companies, Trading, Pharmaceuticals etc. These measures by the government have resulted in a visible increase in FDI inflows.

As the above graph shows, a total FDI of US $ 61.96 billion has been received during the financial year 2017-18. This itself is an all-time high record.

The country has potential to attract more foreign investment. The government has introduced a series of amendments in the FDI policy in order to achieve it:

  • 100% FDI under automatic route for Single Brand Retail Trading
  • 100% FDI under automatic route in Construction Development
  • Foreign airlines can invest up to 49% under approval route in Air India
  • FIIs/FPIs allowed to invest in Power Exchanges through primary market
  • Definition of ‘medical devices’ amended in the FDI Policy
INDIA SCALES HIGH IN ECONOMIC INDEXES

Global Competitiveness Index

The World Economic Forum, in 2014, observed for India that “The country’s new government faces the challenge of improving competitiveness and reviving the economy, which is growing at half the rate of 2010”. India stood at 71st rank in the Global Competitive Index in 2014.

In 2016-17, India secured 40th rank in the Global Competitiveness Index. The Index takes into account of infrastructure, higher education and training, technological readiness reflecting recent public investments in these areas. This index reflects the health of a major portion of economy.

India is the most competitive country in South Asia. The report says, “Among the emerging markets seen as having great potential in the early 2000s, Brazil and Turkey have now lost much of the ground they gained before 2013, but China, India and Indonesia continue to improve.”

Ease of Doing Business

India made a historical progress in 2018 by securing 100th place in the World Bank’s ‘Ease of Doing Business’ ranking. This reflects the investors’ confidence in the Indian economy. The CEO of the World Bank has complimented the Indian government for its resolve to take difficult decisions and translate them into remarkable progress.

Global Innovation Index

India ranked 60th among 130 nations on the Global Innovation Index in 2017. It was six places increase from the 66th place in 2016. This clearly reflects that India’s innovation and creative capabilities have been increasing considerably boosting the economy.

World Bank’s Logistics Performance Index

India ranked 35th among 160 countries in 2016 in the World Bank’s Logistics Performance Index. India ranked 54th in 2014 in the index. The Logistics Performance Index is an indication of improvement in infrastructure, technological improvements and growth of industry.

Travel and Tourism Competitiveness Report

India ranked 40th out of 136 countries in the Travel and Tourism Competitiveness Report 2017. India ranked 65th in 2013 in this World Economic Forum report. India has clearly improved its rankings in the recent years. This shows that the confidence of the world in the country is increasing.

Moody’s Upgrade of Sovereign Credit Rating

In 2017, Global rating agency Moody’s Investors Service upgraded India’s sovereign rating to Baa2 from Baa3. India’s ratings have been upgraded for the first time in almost 14 years which suggests that in the decade-long tenure of the last administration, India did not merit a ratings upgrade.

BANKING REFORMS

India’s banking sector was reeling under a mountain load of bad loans when the current NDA government took office in 2014. Since then, reforming the sector has been one of the top priorities of the government. The last four years have seen the government undertaking various measures to restore   the health of state-owned banks burdened by bad loans.

Identifying and Resolving NPAs

Between 2008 to 2014, when the last administration was in office, PSBs disbursed disproportionate sums of loans to several industries. It seems that there was external pressure on PSBs to disburse these bad loans. to understand when the bad loans came about and who was actually responsible for it, let us look at the following graph from the Ministry of Finance:

Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=173934

Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=173934

So, between March 2008 and March 2014, total loans grew from Rs 18.16 lakh crore to Rs 52.15 lakh crore, which is a whopping threefold increase in 6 years to the tune of Rs 34 lakh crore. But thereafter, total loans rose to only Rs 58.65 lakh crore in the next three years till March 2017. At the same time, by March 2014, stressed assets had grown to 11.9%.

The current administration after coming to power identified the length and breadth of this legacy issue and set up Asset Quality Review in 2015. This recognition of the correct amount of NPAs in PSBs raised the NPA amount from Rs 2.78 lakh crore in March 2015 to Rs 7.33 lakh crore by June 2017.

What followed the recognition of the correct amount of NPAs was an up-front provisioning for losses by the PSBs. Estimating a capital need of about Rs 1.8 lakh crore till fiscal 2018-19, the government provided Rs 70,000 crore up front.

Recapitalization of PSBs

In August 2015, the government rolled out Indradhanush, a plan to revitalise and revamp the Public-Sector Banks (PSBs). The government recently announced to further recapitalise PSBs by infusing Rs. 2.11 lakh crore over the next two years to support credit growth and job creation. Capital infusion is divided accordingly:

  • Recapitalisation bonds of Rs. 1,35,000 crore
  • Budgetary provision of Rs. 18,139 crore
  • Remaining balance through capital raising by banks from the market while diluting government equity

Parliament approved on 5th January, 2018, the proposal to issue Rs 80,000 Crore worth of Recap Bonds as Third batch of Supplementary Demands for Grants for 2017-18 for capitalizing the state-run banks.

In the bid to improve efficiency, reduce costs, improve productivity and customer service, the State Bank of India, in accordance with the Central government and the Reserve Bank of India, recently acquired its associate banks, namely, State Bank of Bikaner and Jaipur, the State Bank of Mysore, the State Bank of Patiala, the State Bank of Travancore and the State Bank of Hyderabad. The merger was completed successfully and came into effect from April 1, 2017 onwards. It will lead to better management of high-value credit exposures common to SBI and Associate Banks, with more focused oversight and control over cash flows of large corporate borrowing entities as NPAs.

Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code Bill was introduced in November 2015. The bill was passed by the Parliament in May 2016 and it came into effect from December 2016 onward. IBC’s objective is to consolidate and amend laws pertaining insolvency resolution of corporates and individuals in a time bound manner. It aims for maximisation of value of assets, promote robust capitalism which doesn’t drain the economic resources of the nation.

The first of its success stories came out recently on May 18, 2018, when Bamnipal Steel, a Tata Steel subsidiary, acquired a controlling stake of 72.65% of Bhushan Steel for Rs 35,200 crore. The important benefit of this deal was that banks will recover Rs 35,200 crore immediately, which covers most of the principal amount that Bhushan Steel owed to its lenders.

The second success was achieved on June 4, 2018, when global resources major Vedanta acquired management control of Electrosteel Steels Ltd (ESL). Vedanta has deposited an upfront amount of Rs5,320 crore in an escrow account for the Electrosteel acquisition.

MSME

The government has undertaken various measures to boost and strengthen the economic growth of the Micro Small and Medium Enterprises.

Reduced Corporate Tax

In order to boost the SME sector, Finance Minister Arun Jaitley in Budget 2017-18 reduced the corporate tax for smaller companies with annual turnover up to Rs 250 crore to 25 percent as against the old rate of 30 percent.

Pradhan Mantri MUDRA Yojana

Small Indian enterprises and entrepreneurs were subjected to exploitation at the hands of the money lenders, middle men and so far, but MUDRA has put an end to it. MUDRA bank is a development finance agency which promotes and finances micro units not covered by SIDBI.

Under Pradhan Mantri MUDRA Yojana, Government has so far given out 12 crore loans worth Rs. 5.75 lakh crore. Out of which 28% of the loans worth Rs. 3.25 lakh crore were given to first time entrepreneurs. Of the total loans disbursed, 74% of the total beneficiaries were women and 55% of the loans were given to SC/ST and OBC communities.

Digital MSME Scheme

The scheme launched on June 27, 2017 aims to provide cloud computing as a cost-effective and viable alternative in comparison to in-house IT infrastructure for the MSMEs.

MSME Samadhaan Portal

The portal was launched to facilitate the monitoring of the delayed payments to MSMEs in a transparent and accountable manner. Using this, MSMEs can directly register their cases relating to delayed payments by Central Ministries/ Departments/ CPSEs/ state governments.

MSME Sambandh

This portal is meant for monitoring the implementation of the Public Procurement from MSEs by Central Public-Sector Enterprises (CPSEs). With the help of this online portal, ministries and CPSEs can assess their performance.

LABOUR REFORMS

The labour-capital ratio of India has been lower than other countries who are at a similar stage of development. The rigid labour laws of India have been hampering it. The current administration accepts it and has taken multiple measures and made amendments to the labour laws.

The Payment of Bonus (Amendment) Act, 2015

On 31 December 2015 the President of India approved few amendments to the Payment Bonus Act, 1965. The amendment enhances the eligibility limit for payment of bonus from Rs. 10,000 per month to Rs.21,000 per month.

Employee Provident Fund

Aimed at creating job creation, the government in the budget for 2018 announced to pay the contribution of 8.33% of Employee Provident Fund (EPF) for new employees for three years. The government further said that for sectors employing large number of people like textile, leather and footwear, it will bear the complete 12% for new employees for the first three years.

EPFO also allocated Unique Labour Identification Number to give permanent identity to labourers. EPFO issued 12 crore UAN out of which 3 crore have been activated using Mobile services.

Shram Suvidha Portal

A unified web portal that offers a single online window for all kinds of registrations and submit returns for the traders and businessmen

Minimum wages increased by 42%

The government increased the minimum wage by 42% for both agricultural and non-agricultural sectors. This will directly benefit additional 55-lakh workers.

Amendment in factories Act, 1948

The major amendments in the act are providing canteen in factories, providing shelter or restrooms, providing drinking water in all factories, allowing women in night shifts and increased hours of overtime among many more.

Conclusion

Economic Reforms has been the key priority area of the present government. India ranks high at almost every economic index; is world number one in attracting Greenfield FDI; its tax compliance numbers have gone up; got its sovereign credit rating upgraded from Baa3 to Baa2 for the first time in 14 years by Moody, among other positive signs in the past four years. The current administration has identified and taken steps to resolve the legacy issue of NPAs structurally and has provided a framework to address the problem in the future.

In the last four years, under the current administration, India has witnessed a tremendous economic growth and the world has taken notice. As a result, India is the most favourite market in South Asia now.

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