{"id":3429,"date":"2015-04-14T17:30:58","date_gmt":"2015-04-14T12:00:58","guid":{"rendered":"https:\/\/teekhapan.wordpress.com\/?p=3429"},"modified":"2015-04-14T17:30:58","modified_gmt":"2015-04-14T12:00:58","slug":"why-modis-dream-of-acche-din-will-continue-to-remain-a-dream","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2015\/04\/14\/why-modis-dream-of-acche-din-will-continue-to-remain-a-dream\/","title":{"rendered":"Why Modi’s dream of acche din will continue to remain a dream"},"content":{"rendered":"

\"narendra_modi\"<\/a>
\nSushma Swaraj, the minister of external affairs, must be one unhappy woman these days. This, coming from the fact that prime minister Narendra Modi among other things is also India’s real minister of external affairs.
\nModi is currently touring Germany, after having visited France. In an op-ed in the German daily <\/span><\/span><\/span>Frankfurter Allgemeine Zeitung<\/i><\/span><\/span><\/span> the prime minister wrote: \u201cWe have re-energised the Indian growth engine. The credibility of our economy has been restored. India is once again poised for rapid growth and development…It is the only emerging economy where growth rate is rising. The prospects are even better.\u201d
\nPrime ministers need to say such \u201coptimistic\u201d things when they go on foreign visits. But things on the ground level in India are not very different than they have been in the past. Take corporate performance for one. In a research note released last week Crisil Research expects \u201cIndia Inc.\u2019s revenue growth to slip to a 7-quarter low of 2.5 per cent on a year-on-year (y-o-y) basis,\u201d for the period between January to March 2015. This is less than half the growth of 5.4% seen in the period October to December 2014.
\nCrisil believes that the steel sector will see revenue declines of 10-11%. The petrochemicals industry will see a revenue decline of 20-22% on account of drop in global crude oil prices. \u201cGrowth for construction and capital goods sectors\u2019 will continue to remain sluggish due to lower order backlog and slow project execution,\u201d the research note points out.
\nThe revenues of the automobile sector are expected to grow by around 6%. \u201cWhile sales <\/span><\/span><\/span>of cars and medium & heavy commercial vehicles have picked up, muted growth in international businesses and the two wheeler space will impact the topline.\u201d The two wheeler companies are not expected to do well primarily because of the non-seasonal rains in large parts of the country which will impact the production of the <\/span><\/span><\/span>rabi <\/i><\/span><\/span><\/span>crop. This will dent farm incomes.
\nAs Crisil Research points out: \u201cDomestic consumption and export-oriented sectors are likely to outperform but, here too, sectors heavily dependent on rural consumption such as motorcycles, tractors, and FMCG have been facing severe pressure on volumes as unseasonal weather conditions and slow growth in crop prices have dented farm incomes.\u201d
\nThis will have an impact on the Fast Moving Consumer Goods(FMCG) sector as well. Crisil forecasts this sector to grow at 8-9% during the period January to March 2015. The sector had grown at close to 14% in between April and September 2014, the first half of the last financial year.
\nWhat this clearly tells us is that the performance of the Indian companies will remain weak during the period January to March 2015. What is interesting is that before Narendra Modi came to power, corporate performance had been relatively stronger than it is now. During the period April to June 2014 (the first quarter of the last financial year) the revenues had grown by 12.8%. In each of the three quarters before that, the revenues had grown at higher than 10%.
\nSince July 2014, the revenue growth started to fall and has continued to fall. Modi came to power on May 26, 2014. Corporate growth is a function of many factors and just blaming the Modi government for it is not fair. But the claim that Modi made in Germany that \u201c we have re-energised the Indian growth engine,\u201d is not correct either. Without growth in company revenues, there is no way the overall Indian economic growth can be re-energised. Both are closely linked.
\nFurther, if sustainable economic growth is to be created jobs need to be created to employ India’s burgeoning workforce. Sample this\u2014Every year up till 2030, 13 million Indians will enter the workforce. This means more than a million Indians are entering the workforce every month. And if enough new jobs are created for them, economic growth will automatically happen.
\nBut is that the case? Are enough jobs being created? The trouble on this front is that India does not have good data on employment. In fact, the latest economic survey makes this point: \u201cThe data on longer-term employment trends are difficult to interpret because of the bewildering multiplicity of data sources, methodology and coverage.\u201d
\nDespite this, some broad inferences can be made by looking at data from multiple data sources. (I will spare you the details here. But anyone interested in the details can refer to <\/span><\/span><\/span>Box 1.3 Employment Growth and Employment Elasticity: What is the Evidence?<\/span><\/span><\/span><\/span><\/span><\/a> In Volume 1 of the Economic Survey).
\nAs the Economic Survey points out: \u201cRegardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, labor force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent. Creating more rapid employment opportunities is clearly a major policy challenge.\u201d
\nThis is a major challenge for the Modi government and honestly it doesn’t seem to have done much on this front. Jobs are essentially created by small entrepreneurs as they grow big. The labour laws in India essentially ensure that most firms start small and continue to stay small. For this anomaly to be corrected, India’s labour laws need to be simplified. Nothing has happened on this front at the central level, since Narendra Modi came to power.
\nOver and above this, the entire process of starting and running a business in India is not easy. As per the Ease of Doing Business ranking India ranks 142 in a list of 189 countries. When it comes to the ease of starting a new business it comes in 158th. When it comes to enforcing contracts India comes in 186th out of 189 countries.
\nWhat this clearly tells us is that the entire Indian system works against an individual wanting to establish and run a business. What it also tells us is that in order to run a business in India you need to be well connected and that explains the surfeit of crony capitalists who do well in India.
\nIf jobs are to be created the ease with which a business can be started and operated in India needs to be improved. Sadly, nothing much has happened on that front despite the so called dynamism of Narendra Modi. And unless this changes, the entire dream of <\/span><\/span><\/span>acche din <\/i><\/span><\/span><\/span>will continue to be just that.\u00a0<\/span><\/span><\/span><\/p>\n

The column originally appeared on The Daily Reckoning<\/a> on Apr 14, 2015<\/p>\n","protected":false},"excerpt":{"rendered":"

Sushma Swaraj, the minister of external affairs, must be one unhappy woman these days. This, coming from the fact that prime minister Narendra Modi among other things is also India’s real minister of external affairs. Modi is currently touring Germany, after having visited France. In an op-ed in the German daily Frankfurter Allgemeine Zeitung the … <\/p>\n

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