So far, despite being lucky, Modi has been cautious
Thanks to a large measure of good luck on global oil and commodity prices, the most immediate fears relating to the government—on the fiscal and current account deficits as well as overall inflation—appear to have been dealt with; indeed, with much of the global economy in bad shape, save the US which is roaring, India looks like a hot property for investors. With the Modi government in place for six months now, the question is whether it has made the most of its luck, and mandate. On petroleum, there is little doubt bolder steps—on raising LPG prices regularly—could have been taken, but capping the LPG subsidy and starting direct benefit transfers (DBT) in pilot districts is a good start and needs to be maintained. While a committee has been set up to suggest the way forward on agriculture, keeping MSP hikes to a minimum and restricting procurement in certain states is a good idea—indeed, if along with the greater use of DBT for food subsidies, the MSP-driven farm incentive system is replaced by an incomes policy, that will be a great reform. Getting the GST Bill through the current session of Parliament looks like a long haul, but with a 27% revenue-neutral-rate, GST is pretty much a non-starter anyway. Progress on getting the land acquisition Act fixed appears poor, and is an area the Modi government would have done well to put more muscle behind. The moves on getting labour reforms done—basically the Rajasthan route—have worked out well; getting the Coal India unions to back off is a great coup and suggests it is just a matter of time before commercial mining is allowed, and can prove to be the kind of game-changer private sector involvement in petroleum has been. Getting the US to back India’s food-subsidy proposal at WTO was a coup that took place not because of Modi’s personal charm, but because the US feels Modi will deliver its business deals—the speed at which defence contracts are being cleared, and allowing 49% FDI in defence, is an example of this; that it will help make-in-India is an added bonus.
If, despite this, there is a feeling of discomfort, it is because several of Modi’s policies—on reducing subsidies through DBT and substituting MSP with an incomes policy—are in the pipeline and could just as easily get derailed. There is, fortunately, some clarity now on reining in the taxman. The Attorney General has opined that the Bombay High Court judgment in Vodafone India transfer pricing case will not be appealed. But in the petroleum sector, junking the Rangarajan formula for a much lower gas price, with no clarity on how the deep-water premium is to be calculated, has been a disappointment, as has been the delay in clearing extensions for oil fields; and it is inexplicable that the government should make the kind of heavy weather it is on telecom. It’s too early to say, but judging by the goings-on in Parliament, getting critical Bills through isn’t quite the pushover most thought it would be. A sobering reality, but a promising first six months.