Has Modi delivered?
And how much leeway will the political system
afford him
Sunil Jain
Managing Editor
The Financial Express
January 2015
What the UPA left behind
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Stagnant economy … sub-5%, no investment
Policy paralysis
Tax Terror
MGNREGA, Land Bill, Environmental Terror
Iron ore mining stopped by courts
Coal blocks cancelled
Rising inflation
Troubled CAD
In short, no one expected India to get back on
track for next 2-3 years at least
What did we want Modi to do?
SHORT TERM
• Fix the tax terror
• Fix the subsidies, move to Aadhar-based
cash transfers
• Raise prices of natural gas
• Provide more telecom spectrum … the last
two would bring in immediate investments,
$15-18bn in oil and $10-12bn in telecom
• Rein in food inflation by dumping FCI stock
What did we want Modi to do?
SHORT TERM
• Stop FCI’s open-ended procurement …
move towards an ‘incomes policy’ in place
of the MSP-driven system
• Clean up mandis … Azadpur, Vashi
• Approve a bank holding company
• Privatise PSUs
• Bring GST … BJP states were opposing it
• Change centre-state relations
What did we want Modi to do?
SHORT TERM
• Raise FDI limits in insurance
• Raise FDI limits in defence
• Allow FDI in B2C e-commerce, live with
FDI in retail
• Fix the UPA’s bad land acquisition law
What did we want Modi to do?
LONGER TERM
• Fix labour laws
• Scrap the coal mining and other laws that
keep commercial miners out
• Fix the fisc
• Fix the Doing Business kind of indicators
What did we want Modi to do?
LONGER TERM
• Bring in the Direct Tax Code
• Clean up tax exemptions
• Make sure states clean up electricity sector
… use the FRP leverage
• Work on PPP framework/laws to fix the
current problem of PPP paralysis
• Allow RBI to clean up banking
How has Modi done?
Mixed picture
• Certainly industry seems less optimistic
• First budget was lacklustre, possibly
because govt didn’t have enough time
• All the major numbers have turned out to
be incorrect … Rs 1 lakh cr tax shortfall
• Ghar wapsi drowned out development
agenda
• Rajya Sabha is a major political challenge
How has Modi done?
Good
• Jan Dhan Yojana … does many things
• Coal Ordinance … will get disinvestment cash
as well as bring in commercial miners
• Price and CAD under control … Acche Sitare
• Labour laws via Rajasthan
• Defence … 49% looked bad, but worked out
• WTO victory … global visits great success
• No more tax terror … Shell and Vodafone
How has Modi done?
Bad
• Completely goofed up gas pricing, no real
moves on LPG – could have followed diesel
route of UPA
• Telecom … despite defence releasing
spectrum, no auction, will kill Digital India
• Nothing on FRP-type power solutions … even
cancelled UMPPs
• Nothing on bank divestment company
• Railways … nothing on PPP which is critical
• PSUs … no privatisation as yet
How has Modi done?
Indifferent
• GST has been a washout so far, no issues
resolved despite BJP being in power
• Land Acquisition … nothing for industry
• Agriculture … some action on bonus states,
freed Azadpur but no land for alternative
mandi, very little FCI stocks sale … very much
work in progress
How does the future look?
• None of the $100bn of cleared projects have
taken off … with banks and India Inc overleveraged, taking off will take 2-3 years
• If BJP gets too aggressive, as it did with
Mamata on Saradha, could affect passage of
Bills … Land Acquisition is a good example
• Govt seems to a bit defensive about reforms,
so that’s a bit worrying … retro tax law is a
good example of this, so is land
• Is too know-it-all … telecom/gas examples
How does the future look?
• Cairn shares stuck and government playing
the heavy on its field extension, wants to
increase the ONGC stake
• No one big project private project has been
announced or cleared
• Can’t even sell SUUTI stake in L&T,ITC
• Need to see if Modi will move on
BSNL/MTNL or Air India privatisation
How does the future look?
• Doubling of worker definition in Factories Act
has exempted half of factories from it
• Essentially, Modi is trying to fix the huge hike
in ICOR over the past few years, from 4.4 in
FY04-11 to 7.4 in FY12-14 … in short run,
fixing the Doing Business indicators is the
best solution … And this does not involve
political parties
• Fixing the defence licensing, self-attestation
are all good examples of this
What to watch for
• What kind of powers RBI will get
• If not enough powers, can’t clean up bank
balance sheets, so RBI needs to be able
to force banks to force India Inc to
deleverage
• Have done SMA, SMA1, need to put
group exposure norms in place
• Rajan’s attempt to complete ‘missing
markets’
What to watch for
• Will be a lot more action in infrastructure
like smart cities etc
• A lot will, of course, depend on how the
new PPP framework comes up
• Will govt move on acre-based cash
transfers to farmers
• Will RSS dominate Modi
Why we’re positive
• Modi is focussed on the nitty gritty
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Solar Power Gujarat story
Kisan Mandi Delhi
Open market wheat sales after rice flopped
Article 254(2)
LARR consultation
Factories Act
Coal price pooling
Clearing defence deals to attract investors
Thank you