News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay  » Business » Good opportunity for Modi govt to push economic reforms
This article was first published 9 years ago

Good opportunity for Modi govt to push economic reforms

August 20, 2014 10:28 IST

Image: Prime Minister Narendra Modi.
Photographs: Reuters

Luck appears to be on the government's side. It needs to take full advantage of it by initiating long overdue economic reforms without delay, says A K Bhattacharya.

The Narendra Modi government will complete three months in office next week. When it was sworn in on May 26, it faced at least three major challenges over which it hardly had any control. One of the challenges was political and three were economic. 

The political challenge arose from the lack of its majority in the Rajya Sabha and the possibility of a Congress resurgence in the wake of that party's worst electoral setback in a general election.

The two economic challenges sprang from the threat of a failed monsoon and unstable international crude oil prices. 

The performance of the Modi government in the last few months should be judged against the context of these challenges and whether these challenges have become more serious or ceased to be as threatening as they had appeared at the start of the government's tenure.

Good opportunity for Modi govt to push economic reforms

Image: Rahul Gandhi with Sonia Gandhi.
Photographs: Reuters

The political challenge of a rejuvenated Congress fizzled out fairly early in the life of this government.

The credit for this, of course, cannot go to the Bharatiya Janata Party, or the BJP. The Congress leadership, it seemed, had a death wish and continued to squander all its opportunities to use the resounding defeat for an effective leadership change. 

This could have been achieved by, among other things, giving more responsibilities to many bright, younger leaders the party still has on its rolls. Instead, it chose to rally around Rahul Gandhi, who in spite of the defeat remained as unimpressive as ever.

Complicating the party's prospects of a come-back of sorts was its pathetic analysis of poll results that exonerated Rahul Gandhi. Instead, it concluded that the media was one of the factors responsible for the party's defeat in the elections. 

Not surprisingly, the performance of the Congress in the short session of Parliament in July-August lacked focus and direction.

Even in the Rajya Sabha, where the government did not enjoy a majority, its only success was to force a fresh examination of the insurance reform Bill by a committee. In short, the political challenge that the Congress could have posed in the last few weeks hardly bothered the BJP leadership.

Good opportunity for Modi govt to push economic reforms

Photographs: Reuters

On the issue of economic challenges, the monsoon worries were serious in early June, when prospects of poor rainfall loomed large.

By the end of June, the rainfall shortfall was estimated at 43 per cent. But the outlook and the monsoon's performance improved in July, surprising even the weather forecasters. 

At the start of August, the shortfall in rainfall declined to 21 per cent. The water levels in the country's 85 major reservoirs had dipped substantially to account for only 24 per cent of their total capacity.

But by July-end, the water levels rose and came up to 46 per cent of the capacity, which provided some relief for the government team managing the adverse impact of a likely poor monsoon.

Monsoons by the middle of August have now been declared to be deficient (87 per cent of the long-period average), but the relief is that they may not be as bad as India's last bad monsoon year of 2009. 

Tags: India

Good opportunity for Modi govt to push economic reforms

Photographs: Reuters

The second economic challenge emanated from the international crude oil prices that had touched $115 a barrel by the middle of June.

But since then, the oil prices have softened considerably and are now ruling at around $100 a barrel.

The beneficial impact of this on the Modi government's oil economy budget will be immense.

The under-recovery on diesel is expected to be wiped out before December this year, allowing the government to decontrol its prices.

The overall under-recovery suffered by the oil companies is expected to decline to Rs 1 lakh crore this year, down from Rs 1.4 lakh crore last year.

Tags: Modi

Good opportunity for Modi govt to push economic reforms

Image: Kites carrying pictures of Prime Minister Narendra Modi.
Photographs: Anindito Mukherjee/Reuters

Even the government's subsidy bill on the oil account may actually be lower if the current trend in international oil prices is maintained.

If the Modi government also uses the Aadhaar cards for transferring the subsidies to the targeted families using cooking gas as fuel, then the government would have taken a big step forward to clean up its leaky subsidies regime.

This then will also be an opportunity for the Modi government to dismantle the administered pricing regime, a promise the previous BJP-led government had made to fulfil by 2002. 

Both politically and economically, luck appears to be on the Modi government's side. With the Congress in disarray, a condition that is likely to continue for some time, the BJP has an opportunity to push through its economic policy agenda without countering much opposition within Parliament or outside.

And both the improving monsoons and the softening international crude oil prices seem to have spared the Modi government the pain of adjustment that a severe drought or skyrocketing oil prices would have called for.

But then luck alone is not enough. This is only an opportunity. The Modi government needs to take full advantage of it by initiating long overdue economic reforms without delay. 

Source: source