Narendra Modi received an unprecedented mandate for a second consecutive term as prime minister. In many respects, we saw a presidential form of polling in the recently-concluded Lok Sabha election with Modi being the prime and perhaps only issue. The pro-incumbency vote — a rarity in Indian politics — is a strong endorsement of Modi's leadership. It is also indicative of the trust the electorate has placed in him.

Trust brings its own burden. Modi is perched on an inflection point in history. He is lucky to receive a tremendous opportunity of the kind leaders in democracies may only dream of. What he does from here could shape and transform India’s near-term future. From an account of the first 50 days in office, Modi 2.0 is evidently sprinting instead of walking towards his target. But is he moving in the right direction?

This question has arisen so soon because a sense is gaining ground that the NDA has got its priorities wrong. Take the case of triple talaq bill. The Rajya Sabha took up the Muslim Women (Protection of Rights of Marriage) Bill, 2019, commonly known as the Triple Talaq Bill, on Tuesday. After many failed attempts to clear the final hurdle, the Modi government finally cleared the bill in the Upper House. BJP's floor managers ensured a 99-84 victory for the NDA as cracks appeared in the Opposition front.

The Centre played its cards right and managed to finally criminalise instant divorce — a practice prevalent among some Muslims in India. It placed the legislation as a push for gender justice, women’s dignity and equality. It's hard to disagree with these points, and equally amusing to note that BJP's move has forced “liberals” in India to defend a man’s right to instantly divorce his wife. This must count among the government’s significant wins and indicates that Upper House numbers are finally bending in its favour.

The importance of this bill’s passage must be noted but the issue at hand is different. It is evident that the BJP toiled hard to push through a legislation that remained a polarising issue. To that extent and the fact that a patriarchal, regressive practice finally may come to an end, the government should be satisfied. But the moot question remains: Is legislation on triple talaq the most pressing issue before the nation at this point?

Shouldn’t the prime minister, who has amassed tremendous political capital, be spending it on issues that require immediate attention, political resolve and an ability to take risks? India is staring at an economic slowdown and the government appears oblivious to it. The Budget, that was expected to give a filip to the economy, has failed to address the various factors behind slowdown. It has instead destroyed investor confidence and ushered in traits of 1970s socialist economics.

The puzzling thing is, the Modi government plans to make India a $5 trillion economy by 2024. If that target has to be achieved, the government’s priority should be in boosting GDP growth, creating well-paid jobs, developing and nurturing investor confidence, ending tax terrorism, fixing labour laws, bringing stability and predictability to policymaking and creating an enabling atmosphere for export-led growth and for Indian firms to grow more competitive in global marketplace.

And yet its actions so far suggest the opposite. Instead of taking steps to drive the economy, the government’s performance has been dismal, and it is showing a haughtiness that is unbecoming of a regime that promises ‘sabka saath, sabka vikas, sabka vishwas’.

For instance, Finance Minister Nirmala Sitharaman’s ill-fated move in the Budget to tax the hell out of the super rich with Robin Hood economics has spooked foreign investors. Foreign portfolio investors (FPIs) have withdrawn a net Rs 3,758 crore from the Indian capital markets in July, reversing a five-month buying trend. Analysts put it down to the income tax surcharge levied on super-rich taxpayers.

In a report, Livemint quotes CARE Ratings, as saying that “the recent budget announcement on taxation has adversely impacted investor sentiments and is reflected in the FPI outflows from the equity markets.” This aggressive selling by foreign institutional investors has driven down Sensex and Nifty. The indices shed six to seven percentage points since the highs touched in June.

Sitharaman’s reaction has been intriguing. While a large chunk of FPIs, registered as trusts instead of companies, have to bear the brunt of an additional three to seven percentage points surcharge on incomes above the Rs two crore ceiling, the finance minister has tried to allay fears that the government is against high networth individuals who create wealth and has promised to “hear them out”. She said that it was not the government’s intent to touch the FPIs.

This speaks of tedious policymaking at best. If the finance minister has to allay fears about a policy and tacitly admits that the policy has had an unintended effect, then the foundation behind the policy is weak. Moreover, by promising to look into it, she keeps open the possibility that policies may be tweaked as required. This further shakes investor confidence.

How bad is the scenario? Following the disappointing budget — and also taking a cue from weak Asian markets — over 500 stocks hit a 52-week low on Tuesday.

1400 stocks are at a 52-week low! Call it the budget effect or the fact that the reality of poor FY20 growth is sinking in with poor corporate numbers etc @nsitharaman pic.twitter.com/dHoOxcz1HJ — Sunil Jain (@thesuniljain) July 29, 2019

On the first day that the Modi government 2.0 took office, it was greeted by a macroeconomic shock as with GDP growth slumping to an almost five-year low of 5.8% and unemployment rate rising to a 45-year high of 6.1 percent in FY18.

From auto to FMCG, every sector is pointing towards depressed public consumption. According to latest data by Society of Indian Automobile Manufacturers (SIAM), Domestic passenger vehicle (PV) sales slid by 17.54 per cent to 2,25,732 units in June from 2,73,748 units in the same period last year. Domestic car sales followed the trend, despite new launches. It was down 24.97 per cent to 1,39,628 units as against 1,83,885 units in June 2018 while motorcycle sales slumped 9.57 per cent to 10,84,598 units as against 11,99,332 units a year earlier, notes a report by Hindu Business Line.

In an economy struggling to create well-paid jobs, or any sort of employment, auto parts industry has warned that it could be forced to slash a million jobs if the slowdown in vehicle sales continues. The drop in production may lead to “a crisis like situation in the auto component sector,” chief of the Automotive Component Manufacturers Association of India (ACMA) was quoted, as saying in a report.

Experts such as Arvind Panagariya, ex-vice chairman of NITI Aayog, and professor of economics at Columbia University have advocated strong export-led growth for creation of employment in India. The economist has sounded a warning against India’s import substitution policy, saying that slapping of tariffs and the “whole idea of turning back to import substitution turns the clock back (for India). It is on the back of trade liberalisation and very rapid export expansion during the 2000s onwards that the (Indian) economy really began to grow at this very rapid rate”.

And yet on the ground, the opposite is happening. The Modi government has taken distinctly protectionist turn and exports have fallen to a 41-month low of $25 billion in June this year. As this article points out, new projects by private and public sector have plunged to a 15-year low in the June quarter. It stood at Rs 43,400 crore, 87 percent lower than the same period last year.

On top of all this is the government’s tax terrorism that is penalizing the honest taxpaying citizenry and punishing them for their wealth creation. Writing for Financial Express, TV Mohandas Pai points out that “tax terrorism arises from unrealistic target-setting, leading to high-pitch assessments, lack of reviews by superiors of such assessments, unbridled power to tax officers, slow-moving courts, time consumed in settling appeals and retrospective amendments of tax laws. While the NDA II took steps to reduce tax terrorism, the on-ground impact has been poor.”

To unlock the animal spirits, India needs to boost investor confidence and create enabling atmosphere for large enterprises that may invest in labour intensive sectors. Here, India’s labour market inflexibility has historically prevented it from seizing the opportunities that countries such as China, South Korea, Hong Kong, Vietnam and even Bangladesh profited from.

Panagariya rightly says that the Modi government’s move to replace existing labour laws with four codes on “wages, social security, industrial relations and worker safety offers a historic opportunity to make our labour markets employment friendly. But this will require reforming rather than just consolidating the laws into four codes”.

The overwhelming feeling is that the government is wasting a once-in-a-lifetime opportunity to usher in these deep-seated chances that needs spending of political capital. Modi may have to fight short-term unpopularity, but it is a risk worth taking for the rich rewards that await. The legislation on triple talaq, howsoever well-meaning, can still wait but fixing the spokes of the Indian economy that is grinding towards a halt, and reviving India’s animal spirits to rev up a market locked that seems to be in a bear grip are far more pressing issues that need immediate and full attention.

Updated Date: July 31, 2019 10:57:05 IST

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