Thought for the day
“My work is a game, a very serious game.”
-
M. C. Escher (Dutch, 1898-1972)
Word for the day
Moiety (n)
A half, a small part.
(Source: Dictionary.com)
Teaser for the day
What is harsher punishment – hanging by the neck till death
or jail term till death?
What
PM Modi could mean for Indian economy?
Since February 2013 when first time Narendra Modi made his
national ambitions conspicuous, I have been discussing this question with some
investors, fund managers, businessmen, farmers, bureaucrats, and young
students. The discussions have become more intense and argumentative since
September when he was formally announced BJP’s PMship candidate.
Hopes are running high
I have been repeatedly highlighting that the hopes of people
from Modi are running unusually high. People in general are viewing him as
divine intervention that would get them rid of all the ills currently plaguing
Indian society, politics and economy. Businessmen in particular are expecting
that Modi will at the least ensure the following:
(a) Proactive, clean, responsive and
business/investment friendly administration.
(b) Proactive administration.
(c) Higher economic growth and lower inflation.
(d) An accountable and responsible
administration and protect bureaucracy for their bona fide actions.
(Note: Surprisingly, the expectations from Rahul Gandhi are
no different, but few believed that he could become prime minister.)
Unfortunately, no one could produce an iota of substantive
evidence that would suggest that Modi could meet their expectations in the
timeframe they are considering. Probably, we would have much greater clarity
once we see the much awaited “Vision” document of BJP.
As of now, in my view, Modi does appear assertive and has shown
tendency to take quick decisions in economic administration matters. A few
quick decisions could boost the sagging business sentiment and help kick start
the stalled investment cycle. Fortunately, many other things are already
falling in place and would work in his favor.
In my view, the following positives could emerge if Narendra
Modi gets to lead the next government with a clear mandate:
(a) Business and investor confidence may recover
on the hopes that policy making will be proactive, business friendly,
consistent and faster.
(b) Important economic and financial
legislations like GST, DTC, Insurance and Pension Bills etc. may get cleared in
FY15 itself. In my view, BJP’s opposition to GST is purely political and has
nothing to do with theie economic idelology.
(c) Important administrative reforms are
implemented to uplift the morale of bureaucracy. This is expected to expedite
the project execution.
Besides, the macroeconomic environment may also begin to improve
on its own as core inflation and therefore rates bottom out, and consumer
demand recover post good Rabi harvest.
Need to evolve a federal economic model
Indubitably, at present India is struggling with the limitations
of the Nehruvian model of economic development that we have followed since
independence. Even BJP, when it came to power in 1998, decided to leave the
alternative model “integrated humanism” proposed by its ideologue Mr. Deendayal
Upadhyaya and followed a variant of Nehruvian model terming it “Gandhian
Socialism”.
The current variant of the Nehruvian model is largely a
distortion of the classical Keynesian model that advocates a larger role for
the private enterprise with active state intervention during extremities of
business cycle and argues against higher savings in both private and public
sector. The Keynesian model has its genesis in the great depression and mostly
found useful during larger economic crisis.
Modi seemingly favors Laissez-faire
However, Modi seems to be an advocate of Laissez-faire or free
market which entails minimal state intervention even during crisis. He has
implemented or should we say supported the model in Gujarat with limited
success. But it is pertinent to note that unlike many other states, Gujarat has
a history of 200years of industrialization and 60mn people who are globally
recognized for their enterprising skills.
This is certainly not the case for most parts of the rest of the
country.
It is therefore important to evaluate whether the Gujarat model
could be replicated at the national level, or in other words whether Modi can
deliver the same results as PM what he has delivered as CM of Gujarat.
…which may not be relevant to a large part of India
In my view, considering the present state of socio-economic
development of various parts of the country, it would be 10-15years too early
to test the Laissez-faire model at the pan-India level. Modi’s Gujarat model
therefore may need significant adjustments at the national level. Perhaps an
amalgam of Gujarat’s Laissez-faire, Goa’s minimal intervention and
Chhattisgarh’s socialist models could provide a more workable model at this
point in time.
I do however strongly feel that the Gujarat model should not
become Modi’s limitation also. Modi has very successfully demonstrated his
strategy skills in past one decade. It would be totally wrong to assume that he
would not be able to adapt to the larger responsibility and formulate an
appropriate strategy for integrated development of the country.
Immediate implications
Given that the 2014 elections are being fought very
aggressively, and acrimoniously, I do not see consensus evolving on key social,
economic and financial reforms till the tempers cool down, may be two years
down the line).
In my view, therefore, the limited implications of general
elections in terms of industry performance would be better visibility of order
flow for capital goods from 2015, improvement in working capital cycle.
Improvement in capacity utilization level would depend on the correction in
inventory level, pick up in consumption demand and higher government plan
expenditure.
I do not subscribe to the enthusiastic perception that the
economists sitting in London and New York advising strategy on the basis of
Planning Commission or CSO data sheets, would be of much help to Mr. Modi. I
feel we have had enough of bureaucrat/economist contribution to the economy.
Now please let statesmen run the economy.
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