Candidate Narendra Modi vs PM Narendra Modi: Who's the winner?

The country's economy has acquired a new sheen since Modi became Prime Minister and installed Arun Jaitley in the finance ministry.

Prime Minister Narendra Modi (Photo: Rohit Chawla) Prime Minister Narendra Modi (Photo: Rohit Chawla)

Close your eyes and think of Narendra Modi over the last one year. What comes to mind? No, not chest thumping and the roar of the election campaign and victory - that was all Candidate Modi. After that? Too many images? Here, let's help you sort them out.

The country's economy has acquired a new sheen since Modi became Prime Minister and installed Arun Jaitley in the finance ministry. The numbers suggest that something magical has happened. In fact, at the Peterson Institute for International Economics in the US on April 16, Jaitley stopped just short of saying that. However, if you look elsewhere, you are likely to end up very confused. But let us first bask in the numbers.

Presenting a list of the Modi government's accomplishments at Peterson, Jaitley said the audience would have given a cynical laugh if, as a thought experiment, it had been told in late 2013 that all this would be accomplished so soon. The accomplishments he listed are indeed impressive.

  • CPI inflation down to five per cent
  • Current account deficit at 1.7 per cent of the GDP
  • Growth starting to accelerate to over seven per cent
  • Diesel prices deregulated
  • Formula fixed for pricing natural gas
  • The world's largest programme of financial inclusion successfully implemented
  • Agreement secured on the GST
  • Bills passed to reform coal and mining and open up insurance
  • A budget passed which reinvigorates growth by emphasising public investment while maintaining fiscal discipline
  • Direct benefit transfers being implemented based on what the Economic Survey has called the JAM (Jan Dhan Yojana, Aadhaar, and mobile number) trinity
  • The word "scandal" has ceased to be part of popular discourse because major resources like spectrum and coal have been transparently auctioned
  • Land acquisition Bill being modified to reduce the cost of doing business
All true. But the incantation was more luck than magic. The sharp, unforeseen fall in global crude oil prices accounts for much of the gains on the fronts of inflation, current account deficit, foreign exchange reserves, and subsidies.

Some of the progress in financial inclusion and targeting of subsidies is a carryover from the UPA regime. The land acquisition Bill is still a work in progress, a painstaking one whose troubles are manifested in a farmer's suicide at an AAP rally.

"Inflation coming down from 11 to five per cent is a major achievement - how much of that can be attributed to policies or luck is debatable," says Samiran Chakraborty, Head of South Asia Macro Research, Standard Chartered Bank.

Modi supporters believe that export restrictions on certain farm commodities and a crackdown on hoarding helped rein in food prices.


For all the luck, this does not quite feel like a 7.5 per cent economy. The fourth quarter results did not match the expectations of many analysts. The excise duty collection, the proof of the Make in India pudding, has grown just 1.5 per cent of the GDP. Revenue collection, at 9.9 per cent of the GDP, has fallen short of budget estimates of 10.6 per cent. Indeed, the core sector - coal, electricity, crude oil, natural gas, steel, cement, fertilisers, and refinery products - shrank 0.1 per cent in March. And this was despite the six and five per cent growth seen in the coal and fertiliser sectors, respectively. Exports, too, have refused to perk up to match the upbeat sentiments Modi brought with him, contracting marginally in 2014/15.

'If we think how grim the situation looked less than two years ago, the transformation could not be more dramatic,' says ARVIND PANAGARIYA, Vice Chairman, Niti Aayog. (Photo: Rohit Chawla)

The labour bureau has given out dismal jobs data. Employment generation in eight crucial sectors during October to December was the slowest in three quarters - a mere 117,000 jobs were created against the more than three million jobs seekers that would have entered the market in those three months.

All this merely gives legitimacy to the naysayers, who argue that the jump in economic growth is merely a result of the Central Statistical Organisation's move to change the base year and jettison factor cost for market prices.

The Budget, as Jaitley said, does indeed lean towards public spending on infrastructure, but it also allowed a slip in the fiscal deficit target from 3.6 to 3.9 per cent. Worse, as former finance minister P. Chidambaram pointed out, this elbow room is not being used to push plan expenditure, which is the productive stuff that builds assets.

Of course, not everyone is a naysayer. "If we think how grim the situation looked less than two years ago, the transformation could not be more dramatic," says Arvind Panagariya, the Indian-American economist who has been appointed the Vice Chairman of National Institution for Transforming India.


Candidate Modi was always a big hit with Big Business. They used to come in hordes to the Vibrant Gujarat Summit and lavish unqualified praise on Modi and his style of working. Modi's little text message to Ratan Tata, inviting him to set up the Nano factory in Sanand amid the turmoil in Singur, has been talked about so many times it is a modern corporate legend. Against that backdrop, what Tata said recently sounds discordant.

"All of us should understand that it's a new government, and we need not get disillusioned and dissatisfied so fast," Tata said during the convocation at the Mumbai International School of Business Bocconi. "There's a great deal of hope in the inspirational leadership of Modi? The implementation hasn't really taken form this year. But we still have to give him the opportunity to implement what he has promised."

Obviously, Tata had spotted the rising disillusionment among his peers, not least in the statements of HDFC Chairman Deepak Parekh, Marico Group's Harsh Mariwala, and the new CII President Sumit Mazumder.

Tata's is always an influential voice, but some people have a business to run. "I have not seen one thing on ease of doing business," says Rafeeq Ahmed, Chairman of the shoe exporter Farida Group, which employs 17,000 people. "On the contrary we are now being asked to prove that the goods have landed in the export country. I never had any expectation, I have been doing business in India for 55 years. But they gave us hope."

Khalid Khan, who exports diesel engines and auto parts to 22 countries, complains about the recent demand from the customs to submit bank realisation certificates from 2004-2014. "We were not given any time to comply with the notice. They want us to put a landing certificate online, but the site does not have the provision for it. We are talking about Make in India. When will it start?"

Others, too, have their grievances. "Domestic industry is still shy of investing in India because the excess capacity owing to weak domestic demand isn't being offset by accessing overseas markets as the products or services are inadequately competitive in a global arena," says Rajiv Bajaj, Managing Director at two wheeler giant Bajaj Auto.


Ahmed, Khan, and others who keep whingeing really need to listen to Ratan Tata. It is not quite right to say nothing has changed. On the contrary, a lot has, or is about to.

After 56 years, the Companies Act - passed during the United Progressive Alliance government tenure in 2013 - has been overhauled. The new one requires companies to set the highest corporate governance standards.

"With the [new] Companies Act, we will see an accounting world very comparable to what we will see in the EU or America - with the consequence that the trust of investors will increase considerably. The other side of the coin is to deal with updated governance regulations," says Peter Wollmert of EY Europe.

No less significant is the draft of five new labour codes that subsume 40 laws. According to reports, the draft law allows companies employing up to 300 workers to lay them off without official sanction. The sanction is now needed if you employ more than 100 workers.

Admittedly, the lead in labour law reform was taken by Rajasthan, but the new law brings the Centre right back in the game. To soften the blow to workers, they, if retrenched, will be paid 45 days' wages, instead of 15 at present. Other changes seek to curb strikes and politicisation of unions.

'Excess capacity owing to weak domestic demand isn't being offset by accessing overseas markets,' says Rajiv Bajaj, MD, Bajaj Auto.
"If we have to promote employment, we have to encourage small and medium enterprises. We have to make it easier for them and at the same time protect the health, hygiene and safety of workers," says Labour Secretary Shankar Aggarwal.

Much ground has been covered in clearance of projects. Of the 200 referred to the Project Monitoring Group in the power sector, the problems of 103 have been resolved. Of the 77 referred in the coal sector, the path of 30 has been cleared. Of the 26 in railways, 10 are free to rattle ahead.

Roads secretary Vijay Chhibher talks about the 8,000 km of national highways awarded this year - nearly double that last year. "In the next two to three years we will complete 90 per cent of the projects. They will get done, there are no ifs and buts."

More impetus to the sector will come from Bharat Mala, which could rival the Golden Quadrilateral, which had given a fillip to infrastructure and economic growth in the early part of the century under the previous NDA government of Atal Bihari Vajpayee. Bharat Mala will run from Gujarat to Mizoram - 5,000 km - and cost about Rs 12,000 crore to Rs 14,000 crore.

"With a tremendous amount of backroom work already happening in roads, power, coastal and inland waterways, railways and urban transportation - it is expected that the private sector will see a hockey stick uptick in their order books by Diwali," says Vinayak Chatterjee of Feedback Infra.

That will not be a day too soon. Data show that the domestic industry has remained wary of investing in India. In construction activities, the rate of capital formation declined from 6.5 per cent in 2011/12 to 5.5 per cent in 2013/14.

There has also been considerable progress on the subsidy front, though Modi refuses stoutly to cut them. By the end of March, 123 million LPG consumers had joined the Direct Benefits Transfer scheme. They buy cylinders at market price and the subsidy gets deposited in their bank account. Unfortunately, data errors and coordination between banks and LPG distributors have meant that 2.5 million of 320 million transactions for paying subsidy to consumers have failed, but that's a small percentage.

In all 13 bills, some of them held up for years, have been passed by Parliament since Modi became Prime Minister. In comparison, six bills were passed in 2013 and 18 in 2012.


Finance Minister Jaitley did a timely manoeuvre on April 30 to help avoid a situation in which the term tax terrorism - his party had coined it during the election campaign to run down the UPA - would get stuck to the Modi government. As the Finance Bill came up for discussion in the Lok Sabha, Jaitley widened the scope of exemption from MAT on capital gains tax of foreign portfolio investors. It will be applicable not only on the sale of securities but also on other income streams such as interest income, technical fees and royalty. Secondly, this benefit will be available also to foreign debt funds, venture capital funds, and private equity funds.

MAT , or minimum alternate tax, was to be levied on capital gains made by foreign portfolio investors from April 1, 2015. This created a furore over the lack of clarity on taxation of capital gains made before the due date.

The tax department has already started opening up old cases, and raising tax demand on FPIs for their capital gains in the past. According to experts, the tax department can raise demand for seven previous years.

The government had initially said that the total tax demand would be around Rs 40,000 crore. However, after much hue and cry over the issue, the government said that FPIs based in countries with which the government has a Double Taxation Avoidance Agreement would be exempt. After this clarification, the income tax department sent notices to 68 FPIs for payment of dues totalling Rs 603 crore.

ICI Global, a body of international investment funds and fund managers with total combined assets of $20 trillion, wrote a strong-worded letter - Business Today has a copy - to the finance minister on April 13. "Our members are extremely concerned and deeply disappointed.... Quite frankly, we are astonished that MAT, which has been applied to only domestic companies since its enactment in 1996, now is being asserted against foreign investors," says the letter.

According to Rahul Garg, Leader, Direct Taxes, PwC, the controversy on MAT is because the government doesn't want to intervene in cases already being heard in different courts. It has taken many steps to resolve issues of transfer pricing and indirect share transfers. Tax demands of up to Rs 4 lakh crore are under dispute in different courts.

"The roll-back provisions under advance pricing agreements (APAs) was a big positive," says Mukesh Butani, Managing Partner, BMR Advisors. The key, he says, is the strong message that the government has sent about retrospective taxation and its commitment to a stable tax regime. The government's decision not to appeal a High Court ruling in favour of Vodafone, absolving the company in a Rs 3,200 crore transfer pricing case, allayed the fears of foreign companies.

The government is also moving towards the much awaited Goods and Services Tax (GST), an indirect tax proposal that seeks to replace the plethora of central and state government levies. To clear the final hurdle, the government has promised the states to compensate for five years any losses due to implementation of GST. At the time this article was finalised, the government was planning to table the GST Bill in the Lok Sabha.

However, without taking anything away from the changes and the intent, tax administration is in much need of reform, one that will change the attitude of officers. Tax officers have their targets and often demands are raised on companies to meet these targets. "While there is a change in the attitude of policy makers, the attitude of policy implementers has not changed yet," says S.P. Singh, Senior Director, Deloitte Haskin & Sells.


"Like India, he transcends the ancient and the modern - a devotee of yoga who connects with Indian citizens on Twitter and imagines a 'digital India'."

That's the United States President Barack Obama writing about Prime Minister Modi in Time magazine. Some called it a love note. Not too long ago, the US had refused a visa to Modi.

On second thoughts, that was a long time ago, before Modi became Prime Minister. Since then, he has travelled to 16 countries, each welcoming him with much fanfare (his Madison Square gig was compared with those of rock stars). World leaders have competed with the Indian diaspora of their countries in fawning over Modi. Many agreements and MoUs have been signed. For instance, China and Japan have promised investments of $20 billion and $30 billion respectively. They will take time to show up as investments on the ground in India, but the perception of success is undeniable.

"I think there are great achievements on foreign policy. International ties should build economic and strategic partnerships. Strengthening our ties with France, Germany, Japan, Korea, the US, and Australia is building a strategic and economic foundation," says Ajit Ranade, President and Chief Economist of Aditya Birla Group.

The world is once again looking at India favourably and the fact that the first year of the government has gone without any scams augurs well.

According to a World Bank Development update, the Indian economy is in a much brighter spot and is poised to grow at 7.5 per cent in the current year. The Country Director of World Bank, Onno Ruhl, however, adds that there is a need for reducing the pipeline of stuck projects, especially in the Public Private Partnership space for lifting the investment rates.

Ruhl need not fret. One of the two Modis should be able to take care of that.


(Follow the authors on Twitter: @shwetapunj; @anileshmahajan; @Dipak_Journo)