For the first time in 30 years, the BJP came to power with an absolute majority and the swearing-in ceremonies gave a hint that Team Modi was ready with a game-changing plan for the country. The people had many expectations like non-corrupt governance, progress in terms of large investments from abroad, and rise in GDP levels which will put India on the path of a nation on the move.
However, much Modi tries to convince people that things are better today than in the pre-NDA era, his government has struggled to make visible progress in most areas of India’s economy. We are far from experiencing the “achhe din” Modi had promised in his election speeches in early 2014. Let’s have a look into the 3 years of NDA governance and its performance.
Going by the key economic indicators of the Indian economy from various sources presented the real scenario can be assessed:-
Many of the problems like low industrial investments, high unemployment rates and poverty levels still persist. However, unemployment and poverty are twin factors that had affected people badly.
Now talking about the changes made in India in 2016 i.e. one of the largest economic reform/experiments conducted and noted in Indian history i.e. demonetization. The reform’s larger objective were curbing black money that is to say taking out the unaccounted stock of cash from the country and making India “cashless” and aimed at substantially increasing the tax revenue base for the nation by bringing large share of circulation of money in the economy with help of tax machinery. The chief officials of government believed and promised that this move would change Indians behavior, encouraging them to use digital payments instead of cash and that demonetization would ‘break the back of terrorism’ by cutting off sources of funding it. It will also help in increasing the tax base. Even if these are short term pains there will be long term gains too but its adverse consequences are far more than its advantages and the implementation leaves much to be desired, both in the rural as well as urban areas. Mainly, the rural areas were affected as most of the transactions in these areas are done through cash, as cash is the largely accepted medium. Looking back to 8th November,2016, the Governments expectation and the claims seem to be defeated to a great extent. As per the words of Finance minister Arun Jaitley: “Obviously people who have used cash for crime purposes are not foolhardy enough to try and risk and bring the cash back into the system because there will be questions asked.” Well if that’s true, then apparently nobody in India is dishonest because according to Reserve Bank of India’s long-delayed accounting, more than 99 percent of the cash in circulation has been returned.
Demonetization is supposed to have eliminated over 5 million jobs; it’s certainly ensured that growth slowed. For weeks, hundreds of thousands of small businesses struggled to find working capital; many of them may have gone out of business permanently. It has also affected the employees of banks who had to handle such a load of cash coming into banks. The common man who depended on cash suffered a lot.
As discussed earlier let’s talk about another major problem of unemployment which the country is facing for years. From Table 1 it can be seen that there is huge gap between employment required and provided for. The statistics are as follows that according to labour bureau statistics, job creation or job growth for 2015 and 2016 (April-December) stood at 1.55 lakh and 2.31 lakh in numbers respectively.
These numbers are far lower than the promise made by Narendra Modi during the election campaign and considerably lower than the high of over 10 lakh jobs created in 2009 under the Manmohan Singh government.
In the year 2015-survey of the labour bureau, it was found that in most of the eight biggest employment generation sectors - Textiles, leather, metals, automobiles, gems and jewellery, transport, information technology and the handloom sectors - jobs were shrinking. About 19,000 people lost jobs in the gems and jewellery sector in 2015 while around 11,000 workers went out of employment in handloom/power loom sector. Leather and automobiles sectors also saw employment declining by 8,000 each while 4,000 people lost jobs in the transport sector. Only IT and BPOs created highest number of jobs providing employment to 76,000 people in 2015. Textile and metals provided 72,000 and 37,000 jobs respectively. The Table 1 clearly shows that jobs are not created in the organized sector and therefore the unemployment problem still persists. The estimates show that around 13 Million jobs should be created per year that is 35000 jobs per day are required but are not generated.
These statistics depict the unemployment problem clearly and measures are required as soon as possible. Though the government is trying to implement programs like “Skill India”, and also framing policies for betterment of society but such programs rather ‘remain on paper’ or program like “Skill India” is not implemented properly or rather measures are not taken by the officials to see whether is implemented properly or not.
Investment in industrial sector in the country is also not as per expectations. Though India’s current GDP from last 3 years is constantly approx. 7 % as seen in Table 2, which is excellent but the investments are not increasing. The reason behind poor level of industrial investments is especially the motivation or the drive for an investor to invest. If say an investor is not seeing potential in market he may not invest though there are better policies framed for doing business. Also the re-investment net rate earned from a particular venture should be more than or equal to the cost of capital, which indicates ventures profitability, which is also uncertain.
If we compare last 3 years data it shows that FDI inflow in the financial year 2016-17 is about $60.08 billion, which is around $5 billion more than the record $55.6 billion recorded in 2015-16.In FY 2014-15 India has received $45.15 billion as FDI as against the $36.05 billion received in 2013-14 and India is now becoming ‘topmost attractive destination for foreign investment’. Though the current government has came up with many policies like Ease of doing business, less documentation, it is observed that the FDIs are only helping the trading businesses like Flipkart, Amazon and the FDIs in other sectors like manufacturing is still low. Private investments as mentioned above are not coming forth. Investment is an Act of faith in the future. If hopes of future are not very good, Investment will not be forthcoming.
The program like “Make in India” is not a success mainly focusing on increasing FDI’s in Manufacturing and also where 100% FDI is allowed through the automatic route in several sectors without the need of government approval, namely Automobile, Food Processing, Construction, etc.
Here from this Table3 it can be observed that the contribution of Service sector is 50% and the population engaged is 25% and opposite is in the case of Agriculture sector where around 50% of population is engaged and contributes to around only 18% which is not a good sign and causing imbalances. As we know India is an Agrarian country though it is contributing to only 1/4th of total GVA in the year 2016-17.This is linked to the imbalances between demand and supply of goods in the economy leading to higher prices in the market. The reason behind less amount of supply of goods is due to “lack of remunerative prices” to the farmers and the benefit is received by the middlemen and not the farmers. Thus, the farmers are in bad shape. As they don’t get remunerative prices, they don’t earn profit margins because of this they may not repay their interest on loan borrowed and also farmers cannot take help of technology and use of fertilizers.
The introduction of GST in India is a substantial shift from the current tax regime. It is expected that GST will impact service sectors more than the manufacturing or trading sector. Among the services provided by Banks and NBFCs, financial services such as fund based, fee-based and insurance services will see major shifts from the current scenario. IT systems will need to be more vigilant in terms of serving the purpose of solving the complexity related to GST compliance and procedures at a higher volume. The impact of GST on Banks and NBFCs will be such that operations, transactions, accounting and compliance will need to be reconsidered in its entirety.
Flip side:
Now about the SME’s which contribute to around 40% of GDP and which is largely affected by demonetization as well. This is an again a circular chain i.e. Demonetization has led to decrease in consumption levels and also it has affected small businesses largely. Due to demonetization, the payments comings from the customers became unsure i.e.as liquidity in the form of unaccounted currency has dried-up. Therefore, the customers didn’t pay their part and consequently SME’s tried to protect what they had and which in turn lead to fewer purchases and less produce too. The fewer purchases means further slowdown for people who provide them with raw materials and less production means shortage of supply leading to inflation.
As per my opinion when talking about SMEs, the government should emphasize more on implementing flexible business policies for small businesses. Small business entrepreneurs in India still face the problem of inadequate financial assistance and most of them are of the view that they cannot run their businesses with ease due to stringent financial laws. Banks and other financial institutions should consider extending support to budding enterprises and SMEs with average credit ratings too.
Backing the reforms carried out by the Narendra Modi government, the international credit rating giant Moody’s on Tuesday defended its decision to upgrade India's credit ratings to Baa2 positive i.e. stable from Baa3 after a gap of around 13 years. Though the ratings have improved, the present Government should address the issues elaborated above more effectively and as soon as possible.
Sanket R Dongre
PGDM Student, DR VN BRIMS
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