Sunday, June 25, 2017

Reforms are not enough for The Economist



Finding a mention in The Economist weekly magazine is usually a harrowing thing for state leaders. Very rarely do anyone get praised for what they had done. Such rare admiration generally occurs long after they had retired or had been removed from power and when The Economist goes after the fallacies of their successor. This week’s issue of the magazine appears with the cover of Narendra Modi riding the tiger of economic reforms. On closer inspection, the tiger appears to be made of paper and the word ‘illusion’ come into view. It presents two major articles on India – the state of reforms and the environment ministry’s directive, regulating supply of cattle for slaughter.

The articles list out the accusations against the government – the foremost being that he is a good administrator, but a poor reformer. The counts on which he had failed are so general in nature, that can be leveled against any government that ruled post-colonial India. The shortcomings are listed as follows.
 

1. Lending to industry is contracting, for the first time in 20 years (isn’t this due to the rise in NPA of banks?)
2. He should be working to simplify the over-exacting labour law
3. Less repressive approach to protests in Kashmir
4. Obligation of banks to make at least 40% of all loans to “priority sectors” such as farms and small businesses
5. The electricity firms remain fundamentally unprofitable, because authorities refuse to end the practice of giving farmers free power
6. Fares remain absurdly cheap for political reasons
7. Companies deemed to earn excessive profits are hounded: makers of stents, pharmaceuticals and seeds have been forced to cut prices recently
8. Waiver of farmers’ loans will bring short-term relief but make it harder for farmers to borrow in future

On the other hand, the magazine grudgingly concedes some credit for the Modi regime. First among them is the absence of corruption at least at the highest levels of government. It even admits reluctantly that Modi and his party is likely to retain power in the next election slated to be in 2019. The points which are deemed advantageous are as follows


1. A good administrator but not a good reformer
2. Corruption seems to have abated, at least at the highest levels of government
3. Deserve credit for bringing macroeconomic stability
4. Double-digit inflation and ballooning current-account deficits have been absent
5. Liberalisation of investment rules has helped to attract record amounts of foreign cash
6. The stock market has boomed
7. A new bankruptcy law, introduced in May 2016, may enable the enforcement of lending contracts
8. Made it possible to get subsidies straight to the needy, cutting out venal intermediaries, who in the past pilfered up to three-quarters of the money in the system
  
Now, if we balance the pros and cons suggested by The Economist, to which side the balance will swing?

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