One year on, Modi government is being judged and assessed for its performance in various fields. Of all the things that have happened on the economic front, Prime Minister Modi's moves on the social sector insurance policy for the poor stand out as an outstanding achievement. The Pradhan Mantri Suraksha Bima Yojana, Paradhan Mantri Jeevan Jyoti Yojana and Atal Pension Yojana have given hope to the poor because they can now be insured against accident, old age and death. Jan Dhan Yojana also has created nearly 15 crore bank accounts though more than half have zero balance.

 

There have been incremental changes elsewhere and a noticeable deterioration on the agricultural front. The increase in the number of farmers' suicides calls for immediate action specially in making farming more profitable and a stable activity. In a recent interview M. S. Swaminathan, noted agriculture specialist, said that the new formula at which Minimum Support Prices for food grains is being calculated should be amended and more allowance for better returns to the farmer should be made (at least 50 per cent above costs). In other words, he has proposed that MSP for wheat and rice should be raised. Food grain output is likely to shrink by 5.3 per cent this year.

 

Agriculture distress as measured by farm output, rural wages and tractor sales indicate that all are going down. Even MGNREGS (Employment Guarantee Scheme), the scheme which guaranteed work for the jobless rural population has seen a decline.

 

The economy according to the noted economist Jagdish Bhagwati is however not looking bad and the pace of reforms is correct. The sharp fall in the Wholesale Price Index to negative 2.3 percent has been hailed as a great achievement of the government. The retail price index (CPI) has come down to a low of 4.87 percent. But a negative inflation is an ominous sign and there can be a fear of deflation due to lack of domestic and external demand that will lead to unemployment. This deflationary trend is now a global phenomenon and needs stimulus packages for reviving demand like interest rate cuts.

 

The Index of Industrial Production IIP recovered to 5 percent in February 2015 but was again low at 2.1 percent in March. For the 2014-15, the IIP was at 2.8 percent which is a small recovery from a negative growth of 2013-14 but it is hardly a sign of vigorous industrial activity! 

 

Reflecting the slowdown in manufacturing is the data on the net profits of the corporate sector which has grown by only 1 to 2 percent. The banking sector is also not showing great results and a mixed picture of profits is emerging. Non-performing assets (NPA) of Banks have continued to grow and credit growth has fallen to 10 percent. India needs to raise $200 billion by 2020 to recapitalize its financial system.

 

The overall impression about the economy is that of a one man show (recently Modi was on the cover of London Economist) and a highly centralized decision making. The liberalization of the economy that Modi promised and was much hoped for, has come albeit in small steps and only in the opening of the railways, defence and insurance sectors. The promised Bankruptcy law has not come about and the Goods and Services Tax and the Land Acquisition Bill are awaiting approval by the Rajya Sabha where NDA does not have a majority. 

 

Infrastructural spending has increased and the government has cleared projects worth Rs 6 lakh crore. But the main promise on the job front of the Modi government has not shown much progress. Just 1.17 lakh new jobs were created in eight key sectors of the economy in the third quarter between October and December 2014 according to the recent 24th Labour Bureau survey. In contrast, 1.58 lakh jobs were created in the previous quarter ending September 30, 2014 and 1.82 lakh jobs in April and June 2014.

 

Automobile sales have been rising slowly and many jobs were lost in both the automobile and the metal sectors. Since exports have fallen for five consecutive months, new job creation has been slow in manufacturing. In the last quarter only 35000 jobs were created in export sector as against 82,000 jobs in non-export units.

 

There has been a large amount of FIIs selling, including selling of rupee debt due to problems in the collection of MAT (Minimum Alternate Tax) from FIIs. The Income tax department has sent notices to only 68 FIIs for non-payment of MAT amounting to Rs 600 crore. MAT is now under scrutiny of an expert committee.

 

FDI however has increased and One window clearances have been announced to attract more FDI and Modi's own road shows in various developed countries have probably made an impact on potential investors. Modi is trying hard to improve India's ranking in World Bank's "Ease of Doing Business" by cutting down red tape and bureaucratic hassles.Many however are adopting a 'wait and watch' attitude till the whole picture becomes clearer about India's GDP growth rate although official forecast remains at 7.5 per cent.

 

The IMF and the World Bank have been impressed by the Finance Minister's ability to control the fiscal deficit at 4 percent. But this has been done at the cost of cutting social expenditure for which the government has received much flak already from various quarters. It is the lowest in terms of percentage of GDP since 2010. The social sector deserves much more attention specially health, education and skill development. Only 2 percent of the population has skills and the quality of education requires much more improvement. The vacancies are plenty but the people who can fill the job requirement are few. That is the anomaly of the job situation today.

 

Much has been said in the western media about Modi not being able to change the archaic labour laws. This, according to them, will bring about a lot of flexibility to the corporate sector but the government is probably weighing the political costs involved in taking such a bold step. There is also the need for greater labour utilization in India which will be the key to its success as the'manufacturer of the world' replacing China. 

 

Jayshree Sengupta

29 May 2015
(The writer is a Senior Fellow at the Observer Research Foundation, New Delhi)