INVESTORS LOOK ALSO FOR SOCIAL HARMONY
By S. Sethuraman
Prime Minister Narendra Modi has shown himself to be a silent spectator, often on crucial occasions of public disquiet, whether over the “growing intolerance” generated by rabid, violent elements of the extreme fringes of the Sangh Parivar including killing of some of the rationalists, or on challenging issues for his proclaimed “maximum governance” and ‘vikas’ juxtaposed with RSS Hindutva agenda goals.
One hardly expects him to react to the political fall-out of the severe setback for BJP and him personally in Bihar, where he launched himself on an all-out campaign for electoral victory spread over several weeks. The party’s sidelined elders have given vent to their frustration and called for a thorough probe on what went wrong for it in the Assembly poll. PM’s close ministerial colleagues have dismissed such ideas, holding failure in Bihar as one of BJP’s “collective responsibility”, not to be pinned down on PM Modi and Party President Amit Shah, the obsessive campaigners.
The Modi Government, on its part, has no doubt quickly moved to limit damage and reassured international investors that India’s growth and reform path remains steady and would be pursued with greater determination. Yet some vital reforms like GST or labour or land laws cannot easily be got through in Parliament, which meets on November 26 for the winter session, without the support of opposition, mainly the Congress in Rajya Sabha, now charged with “obstructionism”.
That the Congress is paying BJP back in the same coin for its having blocked the GST bill it sponsored while it was in opposition is not easily forgotten. But the stakes are high and it is, therefore, urged that the Prime Minister take the lead in re-establishing norms of parliamentary conduct and reach out to the opposition so that with a consensus, Government could overcome obstacles to building through key reforms. That would help toward a “transformative economy” that the PM aims at.
With all his foreign travels in Nov-Dec. the Prime Minister needs also to take note of some adverse media comment abroad, misgivings even in some countries, on the way social and cultural issues have become more divisive in Modi India. Still, the Prime Minister remains a charismatic leader who could also promptly respond to tolerance and plurality concerns.
He goes to the G-20 Summit in Ankara this weekend (Nov.15-16), from London, heading an emerging economy best positioned to grow to its potential at 8 to 9 per cent in the not distant future while China is engaged in rebalancing its economy with multi-year moderating growth. Brazil and Russia are in recession. Mr Modi will cite the reform push of his government for inclusive growth and job creation.
The G-20 Summit has to take stock of global growth shrinking to 3 per cent and trade growth down to less than 2 per cent in 2015, and has to come up with a strategy to lift economies with “ effective demand-side measures that support today’s growth and maintain stability”, as IMF points out in a note to the Summit on Global Prospects and Policy Challenges.
To offset fall-out from Bihar poll results, the NDA Government has announced some of the reforms that could be pushed through executive action, like further liberalising FDI entry in major sectors and accelerating processes to do business easier and also making growth-enhancing public investments in infrastructure, notably power and roads. Yet, despite continued low oil prices – which came as boon to Modi Government to cut subsidies and improve public finance – growth in the first half of fiscal 2016 had not picked up over the past year level.
Getting rid of the current slackness in the real sector – agriculture and industry -other than services must get more attention from Government which keeps making bullish statements on growth outlook and reform agenda but with no credible job gains yet. Although China’s rebalancing has helped India to become the fastest-growing emerging market economy, IMF projections for the current year and the next for India remain subdued. Growth is slightly revised down to 7.3 per cent in fiscal ’16 from earlier 7.5 per cent but retained at 7.5 per cent for 2016/17.
While OECD is broadly complimentary to India’s progress with public investment, faster clearance of key projects and further easing of doing business, which should promote private investment, its economic Outlook on November 9, puts down growth to 7.25 per cent in current fiscal and then to rise to 7.3 and 7.4 per cent in the following two years. This too with a thrust on structural reforms.
Global uncertainties for emerging and developing economies are unabated and new vulnerabilities for them are cited by IMF, referring to the transitions under way – the divergence of monetary policy in advanced economies, rebalancing in China and the end of world commodity super-cycle. OECD points out that a more significant slowdown in Chinese domestic demand could hit financial market confidence and growth prospects of developing and advanced economies.
For EMEs more broadly, challenges have increased, reflecting weaker commodity prices, tighter credit conditions and lower potential output growth. Capital outflows and sharp currency depreciations may expose financial vulnerabilities. Of immediate interest and concern to emerging and other economies is the likelihood of US Federal Reserve effecting first rate hike by end of December.
Though India may be able to manage external vulnerabilities, IMF says Fed lift-off could increase financial market volatility, “with potentially disruptive moves in capital flows and asset prices”. RBI Governor Dr Raghuram Rajan welcomes US Fed changing course at a time when “loose” monetary policies of advanced nations were leading to disruptive consequences for emerging and developing economies. Monetary policy in India. with rate cuts, remains accommodative.
While the Federal Reserve would be withdrawing accommodation, monetary policy easing will continue in Euro-zone and Japan. This, says IMF, is justified by economic slack and very low inflation in those advanced economies. Even for the Federal Reserve, IMF has cautioned its decision should remain data-dependent, with the first increase in Federal funds rate waiting until labour market gets further strengthened and firm signs appear of inflation rising toward the Fed’s target of 2 per cent.
G-20 is called upon to agree on policies to secure strong and durable growth which should be “decisively implemented”. The road ahead will be bumpy with the economically turbulent transitions, especially in China, and if not successfully navigated, global growth, which is assumed to recover sharply to 3.6 per cent in 2016, could be derailed with the high levels of poverty and unemployment.
(IPA Service