Archives for April 2019

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When Narendra Modi was elected prime minister of India in 2014, one of the reasons that many welcomed him, at home and abroad, was that governance in New Delhi seemed to have ground to a halt. His predecessors in government, the Indian National Congress, had once been identified as the party of reform and competence. But, a series of political missteps and growing popular opposition meant that they instead developed a reputation for administrative paralysis.

Five years on, the choice between PM Modi’s Bharatiya Janata Party and the Congress, led by Rahul Gandhi, seems to have been reset. For many, PM Modi’s government has not lived up to expectations. While he brought a new energy to governance, a lack of familiarity with policy combined with a lack of competence in his party and cabinet to stymie his more ambitious efforts at reform.

This week, when the Congress released its manifesto for the forthcoming general elections, it felt like we were back in the 2000s. Much in the manifesto was solidly reformist; it included several longstanding prescriptions from economists and public policy experts including legal reform, devolving more power to local governments and simplifying the goods-and-services tax. The BJP struggled to come up with coherent, pointed replies to these policy suggestions — even PM Modi’s finance minister was reduced to declaring that the manifesto was designed to help separatists break up the country. The contrast between the two sides could not have been sharper and it wasn’t the ruling party that sounded like the party of government.

For the BJP, this is a lost opportunity. It should not have ceded leadership on economics and policy back to the Congress. PM Modi has tried to rebrand himself, in office, as a welfare-state populist. But, the Congress’ manifesto is a reminder that the social-democratic party is always going to do better at promising welfare expansions than anyone else. It’s pledged that 3.6 percent of GDP will be redistributed, as an income supplement, to the poorest fifth of India’s population. How the hundreds of millions of Indians meant to benefit from this would be identified is unclear — nor can anyone say for certain what the impact on prices and the labor market of such a large basic-income program would be. Even so this promise, of a minimum guaranteed income, has stolen the BJP’s thunder: It had hoped its own much smaller income-support program for farmers would be sufficient to shore up PM Modi’s “pro-poor” credentials.

The Congress of the 1990s and 2000s sought to present itself as the only party that could credibly deliver welfare precisely because it was capable of delivering growth, fueled by economic reform. There’s something of that dual approach to the party’s 2019 manifesto as well. Sure, money has been promised to the poor, agricultural loans would be waived and the party has pledged to double public healthcare spending to three percent of GDP. At the same time, the party also has quite a few plans that, if implemented, would be good news for investment and growth.

For one, the Congress promised reform of tax administration, accusing the current government of giving the taxman “extraordinary discretionary powers that have throttled industry and come to be described as ‘tax terrorism.'” There’s some justice to that accusation, especially given the behavior of Indian tax authorities over the past week. In the last few days before the end of the financial year, the amount of direct tax collected jumped by over 10 percent — quite likely because income tax officials arm-twisted companies and individuals into paying extra advance tax in order to make the government’s figures look good.

The Congress has also promised that small and medium-sized Indian companies, as well as all start-ups, would not have to file any paperwork for their first three years. Given the amount of red tape to which Indians have grown accustomed, this is quite a remarkable suggestion. If it were to be implemented, by the Congress or anyone else, it might go some way towards changing what the default attitude to regulation in India is. If smaller companies get used to a low-interference environment, it will be hard to force them to return to the current, overregulated paradigm. Economic reformers have long wondered how to make the political case for deregulation. The Congress might have partially solved that problem.

It’s unfortunate that the BJP, which has traditionally been the party of small business, could not come up with a potentially transformative plan of this sort. Perhaps it’s revealing of the degree to which PM Modi’s statist instincts have taken over. The Congress is still unlikely to get anywhere near power once elections are done in May. But, the party has at least reminded PM Modi that welfarism need to be paid for by deregulation and reform.

SRINAGAR/NEW DELHI: Former Jammu & Kashmir chief minister and PDP leader Mehbooba Mufti on Wednesday warned that “J&K’s relations with India would end” in case Articles 35A and 370 of the Constitution — which provide special status and exclusive powers to the state regarding residency — are abrogated.

Mehbooba was reacting to BJP president Amit Shah‘s assertion in an interview to ET that removal of Articles 370 and 35A was the way forward for a solution to the Kashmir problem.

“These are still our issues. We needed full majority in Parliament. We did not have this (majority) in the Rajya Sabha. This time also, these issues will be part of our manifesto,” Shah had said in the interview, adding, “By 2020, we will have majority (in the Rajya Sabha).”

Reacting sharply to the statement, Mehbooba said: “If that turns out to be the case, 2020 will also be a deadline from Jammu & Kashmir to the nation. If you remove those terms and conditions on which J&K acceded to India, our relation with the country will also end.”

The former chief minister was answering reporters’ queries on Shah’s statement after filing her nominations from the Anantnag Lok Sabha consti

The threat drew a furious response from BJP, with finance minister Arun Jaitleyterming it “absurd” and emphasising that J&K will remain a part of India irrespective of what happens to Articles 35A and 370.

“The Instrument of Accession that J&K signed in 1947 was not different from the ones other princely states signed when they merged themselves into India. Article 370 came into being in 1950 while Article 35(A) was incorporated into the Constitution in 1954 and this makes it clear that these subsequent developments were not prerequisite to J&K’s accession to India,” he said.

Jaitley said that territorial integrity is part of the nation’s basic structure and can never be impacted by changes in the Constitution. “Will India ever become part of the UK if Westminster were to revoke the Indian Independence Act?” he said.

The exchanges between BJP and PDP chief Mehbooba Mufti have increased the likelihood that J&K will loom large over the polls as a wedge issue. BJP has also locked horns with Congress over the promises the latter has made as part of its manifesto to hold unconditional talks with all stakeholders to reduce the presence of the Army and paramilitary forces in the Valley and to undertake a review of the Armed Forces Special Powers Act.

Mehbooba, who is seeking to reclaim ground she lost in the Valley, had lashed out at Shah over the latter’s assertion about BJP’s ambition to do away with Articles 370 and 35A.

Both Shah and Modi have attacked Congress on its silence over the stand of its ally, National Conference leader Omar Abdullah, that J&K should have its own PM. In another twist, senior Congressman Karan Singh, the son of late Maharaja Hari Singh, has also said Article 370 was not part of terms on which his father merged his principality into India.

Four out of the six members of the Monetary Policy Committee voted in favour of a 25 basis points cut in repo rate.E

The RBI decided to retain its policy stance as “neutral”

The Reserve Bank of India’s Monetary Policy Committee on Thursday announced a reduction in repo rate to 6 per cent from 6.25 per cent, in line with a majority of economists’ expectations. The RBI maintained its neutral policy stance, which enables it to move either way on the key rates. Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks. More than 85 per cent of the nearly 70 economists polled by news agency Reuters had expected the central bank to cut the benchmark lending rate by 25 basis points to 6.00 per cent today.

Four out of the six members of the Monetary Policy Committee voted in favour of a 25 basis points cut in repo rate, while the other two voted to keep rate unchanged.

The central bank projected GDP growth at 7.2 per cent for financial year 2019-20, according to its first policy statement of financial year 2019-20 The RBI said it expects economic growth to be in the range of 6.8-7.1 per cent in the first half of the current financial year, and in the range of 7.3-7.4 per cent in the second half with “risks evenly balanced”.

Inflation is likely to remain benign in the short term, it noted. Assuming a normal monsoon in 2019, the RBI lowered its CPI inflation projection to 2.4 per cent in the fourth quarter of 2018-19. 

For the first half of the current financial year, which began on April 1, the central bank expects inflation at 2.9-3.0 per cent, and 3.5-3.8 per cent in the second half.

Thursday’s rate revision – the second reduction this calendar year – means commercial banks will have more room to pass on the benefit of lower lending rates to loan borrowers. At the same time it would also translate into a lower interest rate earned by depositors.

The latest policy statement comes after the first bi-monthly review meeting of financial year 2019-20 by the Monetary Policy Committee which began on April 2.

India’s growth in GDP or gross domestic product slowed to 6.6 per cent in the October-December period, its slowest pace recorded since the quarter ended September 2017.

Consumer inflation – gauged by the Consumer Price Index (CPI) – picked up to 2.57 per cent in February from the 19-month low of 1.97 per cent the previous month.

The RBI has set a medium-term goal of 4 per cent for consumer inflation, which it tracks primarily to formulate its policy.