Economic policies – NDA versus UPA

Some time back, Arun Shourie a senior minister in the then NDA [National Democratic Alliance] government under Vajpayee [1998-2004] and erstwhile member of BJP observed that the economic policies being followed by Modi – government are just a continuation of UPA [United Progressive Alliance] plus the “cow’ [a euphemistic reference to sacred animal worshiped by majority Hindu community in India]. Shourie’s view is shared by many thinkers.

UPA – dispensation II [2009-2014] had pushed the country towards economic paralysis with all key indicators i.e. growth [manufacturing in particular], inflation, fiscal deficit, current account deficit [CAD], foreign exchange reserves and infrastructure etc showing dismal trend. In this backdrop and since, Modi is also following the same policies, they aver that outcomes under the present regime will be no different. The inference is flawed.

Modi’s critics are merely looking at the broad direction of policies viz., economic liberalization, encouraging foreign direct investment [FDI], ease of doing business, labour reforms, disinvestment of public sector undertakings [PSUs], rationalizing subsidies and fiscal consolidation etc. But, they do not see [or unwilling to see] the “manner” in which these changes are being brought about. So, how is Modi – dispensation different?

A big [indeed a metaphorical] change lies in its taking a comprehensive and holistic view of malaise plaguing the economy and improving the ‘quality’ of implementation in all key areas of policy reform. The process invariably involves identification of bottlenecks – both at macro as well as micro levels – and taking corrective steps. Some major areas where Team Modi has made a huge difference are discussed below.

Fiscal consolidation: Unlike the UPA dispensation which was used to making a huge compression in plan expenditure [for instance, during 2012-13 and 2013-14, it was cut by over Rs 100,000 crores in each year] to meet the fiscal deficit [FD] target, Modi – government achieved the target during 2014-15 without any such cut and this position continues during the current year as well. It has done so by boosting revenue based on acceleration in growth and rationalizing expenditure by cutting on wastage. However, in the interest of sustaining momentum of growth, finance minister, Arun Jaitely has relaxed road map to achieving 3% FD by one year.

Subsidy rationalization: The UPA – government was profligate in spending on major subsidies viz., food, fertilizers and fuel. Apart from ballooning expenses, its implementation of subsidy schemes was poor, ineffective and prone to massive leakages. Even while making lofty pronouncements about subsidy reduction, it never walked the talk. In contrast, Modi – government is leaving no stone unturned in reducing subsidies through effective implementation, improving efficiency in delivery systems and plugging leakages. The resounding success of DBT [direct benefit transfer] of LPG subsidy – even securing the distinction of making a place in the Guinness Book of World Records – bears ample testimony to this.

Investment-led growth: Under UPA, neither the government took up investment on its own in public sector nor created a policy environment conducive to investment by private sector including foreign investors. The bureaucratic and procedural hurdles made matters worse by delaying approvals even for pending projects. On the other hand, Modi has not only undertaken massive investment in infrastructure [railways, highways, road, power etc] but also, relaxed policies to attract foreign direct investment [FDI].

Modi’s USP lies in streamlining procedures and removing bureaucratic hurdles to give a big push to investment. True to his mantra of “minimum government and maximum governance”, he has completely eliminated scope for discretion and made all decisions policy driven. Regular interactive [including meeting via video-conferencing] with concerned central ministries/departments as well as state chief secretaries – to unclog bottlenecks and expedite approvals – provides an icing on the cake

Sector-specific policy initiatives: Unlike the UPA – dispensation which never even bothered to take cognizance of problems plaguing crucial sectors, the present government has conducted a comprehensive analysis of the factors contributing to the mess and implemented specific packages to resurrect them. Thus, for power sector, it has launched UDAY [Ujwal Discom Assurance Yojna] to restore the financial health of state electricity boards [SEBs] which at present is the single most crucial bottleneck in the way of putting it on a high growth trajectory.

In highways and roads, which was completely paralysed at the time NDA took charge, the government has implemented a major restructuring program leading its revival from the front [by undertaking massive investment on its own] and relaxed rules to enable participation of private sector by making PPP [public private partnership] model more investor friendly. The response thus far has been encouraging.

In steel, another crucial sector under stress due to global recession and dumping of products in Indian market especially from China, the government is putting in concerted efforts including hiking import duties to extricate domestic industry out of the morass. These steps will also help in reducing the NPAs [non-performing assets] of banks which in turn, will help revival of credit cycle.

PSU disinvestment: UPA – government was merely interested in garnering resources from sale of shares in PSUs to meet FD target per se. In contrast, Modi has a well crafted strategy that seeks to first revamp and restructure the concerned PSUs before undertaking divestment. Coal India Limited [CIL] provides a shining example; a substantial improvement in its fundamentals [courtesy, government’s initiatives in this regard] helped in garnering Rs 22,000 crores from 10% stake sale in January, 2015. A further sale of 10% during current year will yield another over Rs 20,000 crores. Likewise, policy reforms in oil sector have bolstered the prospects of upstream and downstream PSUs viz., ONGC, OIL, IOC etc.

Ease of doing business: Under UPA, in all the three phases of business i.e. setting up, running and exiting [in case, business turns out to be a losing proposition], entrepreneurs faced daunting challenges. That was because the business environment was stultifying due to a plethora of approvals/clearances, multiplicity of authorities [many a times, with overlapping jurisdictions] for granting clearances, a large number of compliance requirements [not to mention an intrusive inspection raj] and virtual absence of an exit route for companies in trouble.

Modi – government has taken up improving ease of doing business in a mission mode. Thus, it has drastically reduced the number of required approvals, promoted the concept of ‘single-window’ clearance, ensured coordination between various authorities [including those at the state level] for faster clearances, reducing and standardizing compliance requirements, adoption of self-certification route and literally doing away with inspector raj. It is also working on a Bankruptcy Code to enable faster exit.

With a view to encourage FDI especially from countries like Japan, USA etc [they have promised billions of dollars consequent to successful branding of India by Modi during his high profile foreign visits] and enable foreign companies set up businesses in a fast track mode, the government has even established country specific ‘dedicated cell’ in the Prime Minister’s Office [PMO] or Commerce Ministry.

Revamping social welfare schemes: A major chunk of Union government’s expenditure is on such schemes and programs to alleviate poverty, provide employment and basic facilities such as health, education, food etc. Under UPA, hardly any scheme was free from defective implementation and large-scale leakages. Modi – government has restructured and revamped them to ensure effective enforcement and prevent leakages. It is also making unstinted efforts to bring payments under these schemes on the JDY [Jan Dhan Yojna] platform which will help in better targeting and save substantial resources by plugging leakages.

Cooperative federalism: Be it investment, growth and employment generation, real action lies in the states. In this regard, unlike the previous dispensation, when the command and controls were all with Union government and states played subordinate role, under Modi, the latter have been catapulted to the centre-stage even as former merely acts as a facilitator. NITI Aayog [new incarnation of Planning Commission] is now a platform where the chief ministers [CMs] share their ideas and formulate policies.

The states can directly interface with foreign investors for collaboration agreements. The centre has substantially increased funds transfer to states by implementing 14th Finance Commission recommendations to give them 42% of its total tax collections [up from existing 32%]. It has transferred several centrally sponsored schemes [CSSs] to states and even in schemes where central funding is involved, they have been given full flexibility in formulation and deciding contents and scope.

Appropriate policies and good governance by itself won’t lead to desired outcomes unless the government shows the direction and the path forward. This is where Modi’s vision backed up by concrete initiatives has made a real difference. He has given us “Make in India”; “Digital India”, “Swachchh Bharat”, “Start-up India”, “Jan Dhan Yojna” etc through which government is galvanizing entrepreneurs with people participation to take India on a higher growth trajectory.

In sum, though Modi’s economic policies may be the same as that of UPA dispensation, the present government has drastically improved the ‘quality’ of implementation thereby promoting ‘inclusive’ development and assuring the people a much better future in terms of higher income and improved living standard.

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