Jayshree Sengupta
Todat everything that the NDA government is doing for the economy is aimed at a deeper political agenda, which is the 2019 general election. Recently, at the Global Business Summit held in the Capital, Prime Minister Modi showcased India’s new economy and its achievements. The focus on the agricultural and rural economy and doubling of farmers’ incomes are also driven by the political aim of pleasing the farmers’ lobby for its huge number of votes. Farmers have shown their displeasure with the state of agricultural economy in many ways and suicides are continuing in the countryside. Starting with the small size of holdings, which makes agriculture unviable for 99 million farmers, there are a number of hurdles in the way of their realising higher incomes.
A 1.5 time increase in MSP will probably work in some cases but the real marketing reforms have yet to start on a wider scale. The states have a big role to play in executing marketing reforms and the government has given encouragement to such reforms by connecting agricultural markets with eNAM (National Agricultural Market) which is an electronic common market for trading agricultural commodities. Such a market makes it easier for farmers to connect with sellers. But without standardising and grading of produce and increasing warehousing facilities, eNAM is a nonstarter.
The Modi government has to make a success of the “Make in India” campaign before the general election, yet it has hardly been successful in terms of increasing the share of manufacturing in GDP to over 16 per cent when the aim was to raise it to 25 per cent by 2020. In employment generation, raising the rate of the industrial growth to double-digit level or boosting the rate of export growth, the Make in India campaign has not delivered. The government is also faced with rising imports and slow export growth with trade deficit widening.
The competition from our own neighbours like Bangladesh in garments and China, Vietnam, Cambodia and South Korea in other items has been cut throat. Hence, despite Mr Modi’s speech in Davos extolling the virtues of free trade, the NDA government has gone ahead with protectionist measures and imposed higher customs duties on 45 items as well imposed a surcharge across the board on all imports. This protectionist trend has been criticised by many neo-liberal economists, but it must be remembered that all countries that are today championing free trade, protected their markets in the past. If it is a temporary measure, it may be good for our MSMEs, but if it lasts longer, it will bring back the production of shoddy goods and India will not be able to compete in the world markets.
The protectionist move will, however, please the MSMEs whose production has also faced major disruptions caused by demonetisation and GST. With their huge labour force of about 106 million, the workers and owners of MSMEs belonging to the middle classes are worried. The increase in duties are, however, attracting the ire of President Trump and the German ambassador to India who think it is unfair to raise duties on Harley Davidson motorcycles and auto parts. The EU may even retaliate with higher duties on certain products from India.
To revamp the Make in India campaign and give a boost to MSMEs further, a new industrial policy may be coming out in the next couple of months. The government may help in the branding of MSME products, a long required need which will help them find markets abroad. It may permit fixed term employment (already allowed in apparel and leather industries) in all sectors, enabling them to circumvent the existing labour laws which restrict hiring and firing of workers. MSMEs will create jobs if they recover, which is important for fulfiling Modi’s promise of giving 10 million jobs a year to the youth, which is unlikely.
Among the big ticket items of government expenditure, recapitalisation of banks got a Budget allocation for public sector banks of Rs 88,000 crore, in addition to the Rs 2.11 lakh crore recapitalisation plan over three years, aimed at bringing them back to health. It is an attempt to build confidence in the whole banking system whose balance sheets went awry during the previous government’s time due to laxity in lending policies of public sector banks to big industrialists who later became wilful defaulters or absconded abroad.
