Tuesday, November 25, 2014

Advantage Modi-Series-IX

Advantage Modi-Series-IX                                                                 26 Nov 2014
Six months of Modi: Achhe sitare more than achhe din

Modi has ensured that government files are moving faster and clearance are rapid. But this has not translated into a boom in orders for machinery or construction.

This is a constipated economy, not a healthy one. Optimists say Modi’s enema will unclog the constipation within a year. That’s possible but not certain.

The stock market has boomed because of over $30 billion of foreign inflows. Modi is seen as a turnaround agent, and investors are giving him time to change matters. He has undoubtedly energized the bureaucracy and investors. Yet he is more showman than reformer. His Jan Dhan and Swacch Bharat schemes are new versions of old Congress Schemes. He funked any major reforms in the railway budget or general budget. In many areas he has taken small steps forward, with lots of publicity but no radical reform.

What’s clear is that Modi is lucky. The dramatic improvements in inflation and related areas owe noting to his initiatives and everything to good lick, arising from crashing global commodity prices. This year’s budget assumed that oil would average $ 110/barrel, but it has actually crashed to $78/barrel. This has enabled fuel prices to be slashed, taming transport costs. Falling oil prices have ensured that the balance of payments is under control, not withstanding a surge in gold imports and the recent slowdown in exports. Finally, the oil price crash has hugely improved the fiscal position. Budgetary subsidies for oil and fertilizers have been slashed, and the finance ministry has been able to raise the excise duty on petrol and diesel, partly making up for the big shortfall in tax revenues.

Extract of an article TOI Nov 23, 2014 by Aiyar –An Economists

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