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India Inc's hopelessness with Modi is justified

July 21, 2015 08:57 IST

The earlier government was blamed for non-performance, the current one will be rightfully blamed for mismanagement

A painter reacts as he creates a portrait of Prime Minister Narendra Modi before he was scheduled to speak at Madison Square Garden in New York, during his visit to the United States. Photograph: Lucas Jackson/Reuters.

A survey by Assocham has revealed that 54.8 Per cent of respondents were hopeful of improving economic conditions in the coming months. This is sharply lower than 82.6 Per cent of the companies being hopeful in the last such survey in March. Even six months ago, 79.2 Per cent of respondents predicted that the economic situation will improve.

Indian companies are clearly losing hope and patience with the government as is visible from the sharp drop in sentiment. Is it a relection of the non-performance of the government?

While there are areas where the government has made progress, media projections of the failure of the Modi government have clearly outnumbered the positive news coming out. The way the monsoon session is headed, it is unlikely that any bills will get cleared with the session will be a complete washout. The earlier government was blamed for non-performance, and the current one will be rightfully blamed for mismanagement.

Thankfully for the government, the survey is for a shorter duration. It is based on the performance of April-June 2015 and projections for July-September 2015 period. For the economy, it might not be so significant, but for the markets which are expecting numbers to improve from September quarter, the survey is a dampener.

But for the government it is an important indicator of the change in mood and how it is failing in the eyes of its biggest supporter – the India Inc.

Near-term moods swing can be on account of political developments, monsoon as well as monetary issues. Monsoon sowing has picked up but government officials are not very hopeful of growth as yet.

Another factor impacting the judgement in the survey is monetary policy issues. Though the central bank has reduced interest rates, transmission by banks to their customers has been reluctantly slow.

Credit growth to the SME sector, which is a strong indicator of broad based growth has slowed down dramatically. Since SMEs are providers of goods and services to bigger companies, unless their growth picks up, bigger companies growth will remain subdued.

Added to the events in the domestic market are those impacting global economies. Greece issue is thankfully pushed under the carpet for sometime, but China can be a bigger problem for global economy.

Kotak Securities in the report on the trade balance have pointed out that sluggish export momentum continues to reflect persistence of weak global demand. Muted core import growth continues to reflect weak domestic demand although there are some nascent signs of pick-up, primarily in capital goods imports.

There are some green shoots which suggest growth is not far behind. Ambit Research in a report on the economy said that key ministries such as power, coal, railways and roads are making progress. As a result, the order flows emanating from these ministries are likely to stay healthy.

But the report points out that the greater challenge going forward for the government is to arrest the growing sense of policy drift in Delhi, especially with regards to finance-related issues (the banking recap) and the state of the economy (especially rural India).

The crux of the matter is the pace at which the government has moved with its financial reforms which has been a cause of concern. The advantages of low input prices are being frittered away, and the will be naturally disappointed that their chance of making higher profit is diminishing.

Even now, the government is dilly-dallying on how to recapitalise banks. Only when the finance ministry starts performing and makes funds available will the efforts of other ministries fructify.

Shishir Asthana in Mumbai