Political stability, Decisive Leadership and a Clear Mandate – Their Relationship with Growth – ArunJaitley

Political stability, Decisive Leadership and a Clear Mandate – Their Relationship with Growth

 By- Arun Jaitley

Image result for arun jaitleyIndia’s post-Independence economic study can be divided into two parts with 1991 as a cut-off line. The regulated economy restricted India’s potential for forty years. From 1951-52 till 1990-91, India’s GDP grew by 4.2% per annum. The percapita income grew by 2% each year. The Consumer Price Index for almost a two-decade period from 1969-70 till 1990-91 rose by 8.2%. The fiscal deficit of the Central Government from 1980-81 till 1990-91 for a ten-year period was an average of 6.5%. Our external debt was 28.7% of the GDP at the end of the pre-liberalisation period.

The liberalisation of the economy not only improved the GDP growth rates but also brought millions of people out of poverty and improved the quality of life of a large number of Indians.

Post-liberalisation, it is important to analyse the GDP growth and the inflation data relatable to various governments under various Prime Ministers. The data reads as under:


GDP Growth


Prime Minister

1991-92 to 1995-96



P. V. Narasimha Rao
1996-97 to 1997-98



H. D. Deve Gowda / I. K. Gujral
1998-99 to 2003-04



Atal Bihari Vajpayee
2004-05 to 2008-09



Manmohan Singh
2009-10 to 2013-14



Manmohan Singh
2014-15 to 2018-19



Narendra Modi

While analyzing the above chart, two important facts have to be kept in mind. Firstly, that the average GDP growth of 7.3% during the five years of Prime Minister Narendra Modi is on a much larger base than that of his predecessors. The growth rates are higher. A higher growth rate on a larger base has a multiplier effect. Secondly, during the five years of UPA-2, inflation varied between 12.2% and 8.4%. In 2013-14, the UPA Government left behind an annual inflation figure of 9.4%. It took time for this figure to be moderated. In the five years of Prime Minister Narendra Modi, the inflation figure has been 5.9%, 4.9%, 4.5%, 3.6% and 3.9%. Once it moderated in the first year of the present NDA Government, it has consistently been kept in check. The Modi Government fixed a Statutory Inflation Target of 4% +/- 2% as range of inflation.

When Prime Minister Modi came to power, India was the tenth largest economy in GDP terms in the world. Presently, the fifth, sixth and seventh economies namely United Kingdom, France and India are within a very narrow range. A marginal fluctuation of currency values alters the size of the economies. India, of course, is projected to grow next year at 7.5%. This will conclusively ensure that India, at the end of the next Financial Year, could possibly be the fifth largest economy in the world.

Needless to say, India’s fiscal discipline during the past five years has been amongst the best as compared to any preceding period. The McKinsey Institute reports that the size of India’s middle-class is growing very fast from 14% in 2005 to 29% in 2015. It is estimated to go all the way to 44% in 2025.

With the kind of transfer of resources to rural India which have been made in the past five years, a huge aspirational class is emerging even in the rural areas.

This is an indication of what the social profile, purchasing power and the quality of life of Indians are going to have, in the decades to come. To ensure that this happens as projected, it is a pre-requisite that India needs a decisive leadership, consistency in policy direction and a strong and stable government. An unworkable alliance with maverick leadership whose longevity is a suspect can never achieve this.

India today is the fastest-growing major economy in the world. Still we are not satisfied with a 7 to 7.5% growth rate. We are increasingly becoming impatient and want to break the 8% barrier. Ease of Doing Business Rankings for 5 years have improved from 142nd position to 77th position. We have now to get into the first 50, if not still lower.

Who should be India’s Prime Minister, if India were to achieve this? Should he/she be constrained by his/her rival aspirants who have reluctantly supported him/her out of mere dislike for a common opponent or does India need a Prime Minister with a clear mandate as in 2014. Only such a Prime Minister can deliver growth and satisfy the Nation’s aspirations.

:- The Writer is the Union Finance Minister GoI 

India’s GDP to grow by 7.1% in FY17 and 7.7% in next two years: Fitch

India’s GDP to grow by 7.1% in FY17 and 7.7% in next two years: Fitch

Fitch Ratings expects India’s GDP, after taking into account the imact of demonetisation, to grow by 7.1 per cent for FY16-17, before picking up to 7.7 per cent in both FY17-18 and FY18-19.

The global rating agency observed that gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income, supported by an almost 24 per cent hike in civil servants’ wages at the state level.

Referring to official data which showed that year-on-year GDP growth slowed only marginally in 4Q16, to 7 per cent from 7.4 per cent in the previous quarter, Fitch said this number looks somewhat surprising, as real activity data released since demonetisation pointed to weak consumption and services activity – because these transactions are cash-intensive.

By contrast, official data suggest that private consumption was strong in 4Q16 (though services output growth moderated quite substantially), it added.

The rating agency said this raises the possibility that these initial estimates of the growth impact of demonetisation could well be underestimated, with the possibility of revisions to official GDP data later on.

“Macroeconomic policy support to growth may gradually fade. There may still be some positive impact from the previous accommodative monetary policy stance, but the Reserve Bank of India signalled in its February meeting that its interest-rate easing cycle had come to end.
“We are now expecting the policy interest rate to stay at its current level of 6.25 per cent. At the same time, the government announced in the last budget the raising of the deficit target for FY18 to 3.2 per cent of GDP, from 3 per cent, which would support growth,” said Fitch.
– March 7, 2017

India’s GDP to grow next fiscal at 7.5 percent: Moody’s

India’s GDP to grow next fiscal at 7.5 percent: Moody’s

US agency Moody’s Investors Service on Thursday forecast for India a “stable GDP growth at around 7.5 percent in 2016 and 2017”, saying the country is relatively less exposed to external headwinds, like the Chinese slowdown, and will benefit from lower commodity prices.
India is relatively less exposed to external factors, including China slowdown and global capital flows. Instead, the economic outlook will be primarily determined by domestic factors, Moody’s said in its report “Global Macro Outlook 2016-17 – Global growth faces rising risks at time of policy constraint”.
“Together with Turkey and China among the G20 emerging markets, India benefits from lower commodity prices: In 2014, net commodity imports amounted to 5.9 percent of India’s GDP, compared with net exports worth 1.3 percent, 3.3 percent and 4.3 percent for South Africa, Brazil and Indonesia respectively,” it said on Thursday.
“In the five years to the end of the decade, we expect GDP per capita (at market exchange rates) to increase by 34 percent in real terms in India, compared with only 3.6 percent in the G20 emerging markets, excluding China and India,” the report added.
Instead, the American agency cautioned that India’s economic environment is constrained by “banks’ balance sheet repair and elevated corporate debt” and the corporate pricing power being constrained by the impact of two consecutive droughts on food price inflation and households budgets.
India’s economy is powered by sustained growth in consumer spending, fostered by moderate inflation, still favourable demographics and strengthening investment, in particular foreign direct investment, Moody’s said.
“The 23.55 percent increase in public sector salaries proposed by the 7th Pay Commission is worth 0.7 percent of GDP. It is not yet known how this proposal will be implemented but higher public sector wages will most likely contribute to strong consumption growth,” the report said.
“The pay increase will also probably raise inflationary pressures. However, we assume the government will cut spending in other parts of the budget to maintain the deficit broadly in line with the 3.5 percent of GDP objective, thereby mitigating some of the inflationary effects,” it added.
Moody’s said overall growth will fail to pick up steam over the next two years as the slowdown in China, lower commodity prices and tighter financing in some countries weigh on the economy.
The Indian economy grew 7.3 percent in the third quarter ended December 31, 2015 — down from the 7.7 percent expansion in the previous quarter, but marginally up over the 7.1 percent over the like period of last fiscal, official data showed last week.
Growth was pulled down by lower production in ‘agriculture, forestry and fishing’, ‘electricity, gas and water supply and other utility services’ and ‘financial, real estate and professional services’.
There was a 6 percent growth in electricity, gas, water supply and other utility services, as against 7.5 percent growth in the second quarter.
The government’s mid-year economic review, released in December, lowered the economic growth forecast for the current fiscal to the 7-7.5 percent range, from the previously projected 8.1-8.5 percent, mainly because of lower agricultural output due to deficit rainfall.

-18 February 2016 | IANS | Mumbai

Once a month, PM Modi steps in to revive stalled projects

Once a month, PM Modi steps in to revive stalled projects

Once a month, PM Modi holds a meeting with top bureaucrats to check why projects have not got off the ground.

Prime Minister Narendra Modi is personally taking on India’s notorious red tape to clear tens of billions of dollars worth of stalled public projects, hoping that his hands-on intervention can bend a vast, dysfunctional bureaucracy.

Once a month, Mr. Modi holds a meeting with top bureaucrats to check why projects have not got off the ground. Since March this year, his intervention has helped revive nearly $60 billion (3.9 lakh crore) in projects, according to government data through September seen by Reuters.

Mr. Modi has won plaudits for the initiative that has chipped away at a $150 billion backlog of planned roads, ports, railways, power stations and other projects. But equally, critics say, the fact he needs to personally intervene shows the level of government inertia in Asia’s third-biggest economy.

“It is a systemic problem that the prime minister needs to work on,” said Arun Maira, a management consultant and member of the previous Congress government.

The initiative, launched by Mr. Modi in March and publicised on his personal web site and Twitter feed, is called pro-active governance and timely implementation, or Pragati, which means “progress”.

Central and State bureaucrats are linked by video to Mr. Modi’s office for the meeting, usually held on the fourth Wednesday of each month. They are typically from the finance, law, land, environment, transport and energy ministries whose clearances are needed for many projects.

The agenda is set the previous week and usually has about a dozen stalled projects, public grievances and other governance issues.

A senior official who has attended said that when a project comes up for discussion, Mr. Modi turns to the representative of the Ministry where it is being held up.

He simply asks, “Please tell me why it hasn’t happened,” the official said.

Several months into Pragati, the official said, a majority of the projects are cleared before they come up for discussion.

The Chief Minister of Uttar Pradesh, Akhilesh Yadav, a political rival of Mr. Modi, wrote to the PMO requesting the inclusion of a $1 billion metro rail project in the state capital at one Pragati meeting.

It got the clearances, including a pledge of funding, at the September meeting.

“This is a welcome move which would go a long way in doing away with avoidable delays,” said Alok Ranjan, the state’s top bureaucrat.

Systemic problem

Still, critics say that while Mr. Modi can quickly cut through red tape, his style centralises decision-making and will not be sustainable in a country as large as India.

The stock of stalled projects in the country has come down, but remains high.

In the July-September quarter, projects worth 7.6 per cent of India’s GDP were stalled, down from a peak of 8.5 per cent in the January-March 2014 quarter, according to CMIE, a think-tank. The data includes private investment plans.

“Running a country is far more challenging than managing a state,” said Mr. Maira, the consultant, referring to Mr. Modi’s reputation as an effective administrator when he was chief minister of Gujarat from 2001 to 2014.

During those years, he used a similar initiative to get projects off the ground.

– REUTERS, NEW DELHI, October 30, 2015