Fastest among peers did not fire all cylinders

Despite jubilant celebrations for being the fastest growing among emerging economies, the year 2015 will be marked as one in which the Indian economy kept sending mixed signals and did not fire on all cylinders.

When the overall growth numbers were encouraging, the underlying trends told a different story, sometimes puzzling!

The year will also be remembered as one in which the government could not move ahead with some big-ticket reforms in spite of having a huge mandate. The long-awaited Goods and Services Tax (GST) bill could not be passed nor much headway was made on black money front which the government had promised to crackdown on heavily.

The real estate bill, companies bill and the land bill, too, remained in limbo. Barring a few scattered reforms, not much headway was made to perk up investor sentiments as a consequence of which private investment remained sluggish.

The mixed signals, first about revenue collections, only the indirect tax collection fared well. The direct tax revenue collection took a hit, probably because the corporate profits were not buoyant, reflecting a slowing GDP growth.

Inflation kept inching down month after month and also slipped into negative territory but people kept buying most of the food items at skyrocketing prices. Pulses sent household budgets for a toss for a better part of the year. For the common man, the combination of high prices and lower inflation numbers remained a puzzle too big to be solved.

Banking loans to consumer sector did well, but the industrial credit slowed dramatically implying that the new industrial and manufacturing activities were slow. In the banking sector, the government tried to introduce reforms for improving their performance and also announced opening up of new banks, but non-performing assets (NPAs) remained the greatest worry. Unearthing of Bank of Baroda forex scam also hit the sector.

Sectorally, production of power, fertilisers and cars surged but steel, iron, aluminium and cement industry did not do well. Industrial production began to look up but exports kept telling a sordid tale. Export growth for the last 12 months has been almost nil. Exports constitute around one quarter of India’s GDP, according to estimates. Until last year, the export growth was about 12 per cent.

Global crude prices hit the bottom, but consumers kept feeling the pinch of high petrol and diesel prices because the gover-nment increased excise duty on these fuels, about four times, limiting benefits to consumers. The government’s revenue collection, however, increased through the move.

The reforms, touted as the biggest revenue shake up since India’s independence, the GST, which almost appeared to be a reality after Prime Minister Narendra Modi met his predecessor Manmohan Singh and Congress president Sonia Gandhi on the issue, suffered a last minute jolt after a local court summoned the Gandhi’s in an alleged corruption case.

The passage of GST, Bankruptcy and Real Estate bills are considered to be important for the long-term and sustained economic growth. The GST alone is expected to add about 1 to 2 percentage points to the economy.

But whether 2016 will see the key reform bills passed in Parliament is anybody’s guess. The GST Bill is stuck in the Rajya Sabha where the government is in a minority and needs 164 of the 264 votes for its passage. Support from the Congress, the Left parties and the AIADMK is crucial. The government also struggled with the passage of a new land bill in Parliament, it then brought a temporary ordinance in place, which was eventually allowed to lapse ahead of the Bihar elections in  October-November.

“Money bill” feasibility
The Bankruptcy Code, 2015, an important reform for taking forward the ease of doing business in India, was merely introduced in the Lok Sabha. Chances are that it will pass the muster in the Lower House but to get through the Upper House, the government has decided to take a rather unconventional route of classifying it as a “money bill” which denies voting right to the Rajya Sabha.

But the “money bill” route may not be feasible to pass all economic reforms in parliament and certainly not the GST, which is a constitutional amendment bill.

Reforms on the executive side, where parliament’s approval was not required, progressed reasonably well. The government expenditure on infrastructure sector increased. Sectors like manufacturing and finance have started looking up of late. But construction is yet to pick up. Foreign Direct Investment (FDI) in India increased up to 40 per cent with the “Make in India” push.

India was ranked the top global destination for FDI in the first half of calendar year 2015, surpassing China and the US. The government was also able to do away with diesel subsidy and saved up to Rs 3 lakh crore due to cheap crude oil prices in the global market. Power sector reforms, too, picked up pace.

The coal sector continued to witness reforms in areas of quality checks, augmentation of output and pricing.

Progress was also made on the ease of doing business front with the country moving up to 130th position from 142 in the World Bank ranking this year.

Turning towards rural economy, the weak monsoon played spoilsport hitting consumer demand. Urban consumption, too, did not fare well. A significant trend could be seen in the consumer durable sector where much of the production took place during festive season. In other months, factory production for white goods remained almost flat.