Whether one considers financial inclusion, fiscal reforms, power reforms or banking reforms, Jaitley and Modi have turned around the fortunes of every sphere of the Indian economy
Since the BJP got a majority all by itself in the lower house of Parliament in the 2014 general elections and formed the government under the leadership of Narendra Modi, there have been numerous challenges to its functioning. The Modi government's job was made harder by maladministration by the previous government.
There was need to mend the confidence of the investors who were fleeing emerging markets, repair the banking mess caused by reckless lending from 2008 to 2014, frame a policy to tame high inflation and volatility in the rupee, address the need for creation of jobs, resurrect infrastructure and so on. After 54 months of this government, it must be said that it has done fairly well.
In order to push financial services in social sectors and reduce leakages in the distribution of subsidies, any economy needs to make banking accessible to all the sections of the society. Aadhaar was made the primary driver of this rapid expansion of bank accounts under the Pradhan Mantri Jan Dhan Yojana. By mid-2018, over 31.8 crore bank accounts had been opened and over Rs 79,200 crore had been deposited under the scheme.
The Modi government also pushed the RuPay domestic payment network developed on the lines of global entities like Visa and MasterCard to the Jan Dhan account holders. This enabled the RuPay card to get a massive market of over 300 million users in a very short span of time. It was sought to be made more accessible by keeping the payment settlement fees low.
The government also introduced the UPI (Unified Payments Interface) from National Payments Corporation of India (NPCI) which is an instant real time payment system, helping interbank transactions on the mobile platform and is regulated by the Reserve Bank of India (RBI).
This, along with inclusiveness in the financial services space, and the use of mobile and Aadhaar for various services are considered to be part of the 'JAM Trinity' which links all Indians into a common into economic, financial and digital space.
After demonetisation, the zero-balance Jan Dhan accounts have reduced from 76.81% to about 21.41%. A billion Aadhaar registration, billion cellular connections and 73.62 crore bank accounts, out of which 31 crore are Jan Dhan accounts, are all in line with the government's vision. The Jan Dhan, Aadhaar and mobile (JAM) trinity has helped crores of Indians to access scholarships, pensions, direct benefit transfers and insurance straight to their accounts. Aadhaar was also given a statutory status by Parliament to push it at scale under various government schemes. As of July 2018, the government's direct benefit transfer has saved over Rs 90,000 crore according to Union minister of law and justice, Ravi Shankar Prasad.
Financial markets like the government to formulate policies for macroeconomic stability. Just a year before Jaitley took over as the finance minister, India was burdened with high fiscal deficit, high current account deficit and high inflation, and when the US Federal Reserve called for tapering, India's currency as well as its market were exposed to volatility, leading to a downfall of the rupee.
It is to the credit of Jaitley that inflation has come down. Current account deficit is estimated to be 2.2% due to a recent fall in crude oil prices and the Modi government has committed towards a low fiscal deficit target.
Not very long ago, in 2013, India was among the Fragile Five countries on the macroeconomic vulnerability index along with Brazil, Turkey, Indonesia and South Africa. Inflation was at 10.2%, current account deficit at 4.7% and budget deficit at 7.5%. Now, after a series of reforms like simplification of taxes, goods and services tax (GST) and fiscal discipline, inflation based on consumer price index is at 3.31% (as of October 2018), fiscal deficit at 3.3% (budgeted and expected to become much lower due to the fall in crude oil prices). Foreign direct investments (FDI) — a leading indicator of a promising economy — have increased to $61.96 billion in 2017-18 compared to $23.3 billion in 2013-14. This is significant in the current geopolitical scenario of trade war and increasing protectionism.
Banking sector reform
As Prime Minister Modi said, under the Congress-led UPA regime, total advances from the banking sector rose from Rs 18 lakh crore in 2008 to Rs 52 lakh crore in 2014, but most of these loans were given without due diligence and mostly on the basis of political favouritism. It was a challenge for Modi to clear this mess or the minefield that had been laid out. The non-performing assets (NPAs) which were estimated to be Rs 2.61 lakh crore in 2014 were later revealed to be around Rs 8.4 lakh crore after RBI's asset quality review.
Then in 2016, the government passed the Insolvency and Bankruptcy Code after which most of the NPA-ridden firms have been sold through competitive auctions or have been restructured. This gave a breather to the PSU banking sector, which was struggling under a huge pile of NPAs. Recently Bhushan Steel was sold for Rs 35,200 crore to the Tatas and Essar Steel was bought by the Arcelor Mittal group for Rs 52,000 crore. These deals have shown the success of the IBC legislation and the commitment of the government to clean up the NPA mess. Also there has been a Rs 2.1 lakh crore recapitalisation plan with a focus to reform the banking sector and improve on six key themes, which include customer responsiveness, responsible banking and so on.
The goods and services tax was a significant step in the field of indirect tax reforms in India. By subsuming a large number of Central and state taxes under the rubric of a single tax system, the GST has mitigated cascading and double taxation in a major way and paved the way for a single national market. Except alcohol, it has been applied for all products. It was significant to include petroleum products within the ambit of the GST. Within a year of the GST launch, 48 lakh enterprises have been brought under it, as against 66 lakh registered enterprises. This can be attributed to the simple procedures adopted under GST. The total gross GST revenue collected in September 2018 was Rs 94,442 crore. This shows the revenue boost to the government as a result of GST, which would help it to meet its fiscal targets comfortably.
The Modi government's decision to ban 500 and 1,000-rupee notes was a significant step in the formalisation of the economy. It was not just aimed at decreasing the cash component in the economy, but the larger purpose of demonetisation was to move India from a tax non-compliant society to a compliant one.
According to finance minister Jaitley, post demonetisation "about 1.8 million depositors have been identified... Many of them are being fastened with tax and penalties. Mere deposit of cash in a bank does not lead to a presumption that it is tax-paid money. Also in March 2014, the number of income tax returns filed was Rs 3.8 crore. In 2017-18, this figure has grown to Rs 6.86 crore. In the past two years, when the impact of demonetisation and other steps is analysed, the income tax returns have increased by 19% and 25%. The income tax collections have increased from the 2013-14 figure of Rs 6.38 lakh crores to the 2017-18 figure of Rs 10.02 lakh crore". The GST was implemented from July 1, 2017, that is post demonetisation. In the very first year, the number of registered assessees has increased by 72.5%. The original 66.17 lakh assessees has increased to 114.17 lakh. Hence it is very clear that demonetisation has achieved its given objectives.
Power sector reform
When Piyush Goyal took over the power ministry, the sector was in a mess with a high amount of stressed assets amounting to about Rs 9.64 lakh crore. He not only streamlined the chaotic power sector, but also transformed the renewable energy sector, offering a massive opportunity to investments. He reformed the financially stressed state-run power distribution companies through the UDAY scheme and focussed on improving operations while reducing cost.
Also the government did a massive improvement in the field of rural electrification. Before the Modi government taking over, India had 30.4 crore (304 million) people living without an access to electricity. It made up 40% of the world's population not having access to electricity. But it took dedicated efforts, grit and optimism of Goyal to make 100% of the villages in India electrified as on April 29, 2018.
Last Updated 25, Nov 2018, 9:26 PM IST