M.K.Venu

(M.K. Venu is Executive Editor of Amar Ujala publications group)

RBI Governor Raghuram Rajan has just sounded a warning from Washington by saying that the Indian economy could weaken further in the coming months before it somewhat stabilises next year. This reading by the Central Bank chief is contrary to the Modi government's assertion that the economy had bottomed out and India's GDP growth was already on the upswing. Modi had taken credit for the economic upswing last month when GDP growth for the first quarter of this fiscal (April - June) came in at 5.7 per cent, which was way higher than 4.7 per cent a few quarters ago.

The GDP growth of 5.7 per cent did cause some celebration among market players but the RBI Governor appears to have tempered excessive exuberance by suggesting growth could be uneven in the next few quarters. The Governor had gone further to suggest that "talk is cheap" and what is needed is some action on the ground.

The RBI Governor's sentiment was echoed by Deepak Parekh, industry leader and Chairman of HDFC group in a recent interview with Business Standard where he sounded a cautious note on the economy. Parekh said it was time the government started taking decisions. For instance, no one knows what will happen to all the coal mines whose allocation has been cancelled by the Supreme Court. Coal India says it cannot manage those mines due to lack of human resources. Coal India doesn't even have a Chairman. The government has postponed its decision on gas pricing twice. "These are not Big Bang reforms", Parekh asserts.

Significantly, this is the first time a prominent industrialist has spoken candidly about the Modi government's inertia in some key sectors. Normally, businessmen do not speak their minds for fear of invoking the wrath of the government of the day. With Modi as PM, it is perhaps even more difficult for industrialists to express their views candidly. In any case, we have a strong tradition of businessmen publicly genuflecting before the powers that be. Given this background, what Parekh has said needs to be taken seriously.

In fact, the RBI Governor too is obliquely implying that Modi needs to act fast and does not have the luxury of time. Some economists are already anticipating the second quarter GDP growth (July-September) to come at around 5 per cent, much lower than the 5.7 per cent recorded in the first quarter. The reason for this pessimism is that we have recorded negative industrial production growth in July and August. Agriculture growth could also be somewhat patchy due to uneven monsoon distribution.

If growth slows down in the second quarter, it will prove the RBI Governor right. With growth decelerating, even for a few quarters, Modi might lose some of the advantage of the sentiment uptick that his government had created after coming to power nearly five months ago.

Modi has immense political capital which he seems loathe to use for critical reforms. For instance, international crude prices have come down dramatically to $90 per barrel. The diesel subsidy has dissolved on its own. In fact, there is scope to reduce diesel prices now. The government could easily decontrol diesel price at this stage. This is a no-brainer but still there seems to be some dithering.

Decision-making is still slow perhaps because Modi is struggling to make the big transition where the Prime Minister's Office directly deals with top bureaucrats across ministries to make them accountable. Recently, the Cabinet Secretary held a video-conferenced meeting with all the Chief Secretaries of the States for implementation of the "Swachh Bharat" campaign. This model of communication may be replicated to push other critical policy matters where State support is needed.

The Industry Secretary, Amitabh Kant, who is driving Modi's "Make in India" project, has said coordination with Chief Ministers is critical to implement big investment plans. After inaugurating Madhya Pradesh's global investment forum last week, Modi went on record to say it was upto states to become proactive in inviting investments.

Indeed, the next big reform is to create a robust framework of cooperation with the State Chief Ministers. Is Modi upto it?

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