An unhappy contrast: As of now, GoI’s welfare and security policies seem more confident than its economic management

National security saw crucial, if not controversy-free, interventions via the passage of amendments to the Unlawful Activities (Prevention) Act and the National Investigation Agency Act.

It’s too early to take a call on this but perhaps not too early to flag it – the surefootedness displayed by the BJP government on matters of national security and social policy is not yet visible in economic management. The ‘yet’ is important. It’s been around three months since BJP was re-elected with an overwhelming mandate. Fairness demands that we give the government some more time. But the contrast is already striking.

And this is not just because the dramatic Jammu & Kashmir reorganisation bills were shepherded adroitly. Even when there’s been less drama, the government has been quite efficient on matters of welfare and security.

The first Cabinet meeting of this term extended the farmer income support scheme. Then, the government made clean water availability a signature theme. Then, in the budget session that saw 28 bills being passed – a 10-year record – welfare-themed legislations were prominent. Included in this list are laws on banning triple talaq, a new consumer welfare regulator, minimum wages, making Aadhaar a voluntary KYC option for individuals, and banning unregulated deposits.


National security saw crucial, if not controversy-free, interventions via the passage of amendments to the Unlawful Activities (Prevention) Act and the National Investigation Agency Act.

This is a partial list – but even then it’s clear proof of a government knowing what it wants and doing what is required. In economic management, though, and sticking to the legislative record, perhaps the only example of such surefootedness was the swift drafting and passage of amendments to the Insolvency and Bankruptcy Code (IBC). These changes were necessary in part after the National Company Law Appellate Tribunal put operational and financial creditors on a par in bankruptcy resolution, putting lending banks at great risk.

The other major economic legislation was amending the Companies Act that penalises some violations of corporate social responsibility norms with jail terms for executives. This was a classic case of aiming a totally unnecessary government bazooka at a small corporate problem. And entirely predictably, it made business leaders even more antsy.
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India Inc was antsy anyway because the passage of the biggest economic legislation of the budget session, the Finance Bill aka the Budget, didn’t seemingly do much to soothe concerns over macro, market and sectoral bad news.

And so, unusually for a government that has been so confident and assured in non-economic matters, its economic management has so far produced more questions than answers.

A sample of questions:
1. Has the government done enough to address a clear economic slowdown?
2. Is the slowdown structural or cyclical, meaning deeper or a soon-toreverse variety?
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3. If it’s the former, is there a structural consumption problem as well, meaning, have consumption appetites of India’s better off classes been satiated and therefore is increasing aam admi consumption the big challenge?
4. Even if it’s a cyclical slowdown we are facing, can sectoral problems be addressed by a gentle macro turnaround?
5. With the global economy not providing a growth impetus to India, can domestic policy take the economy beyond 6-6.5% growth rate in the next two or three years? Bear in mind that most economists reckon India’ absolute minimum annual average GDP growth rate should be 7% for any meaningfully quick economic transformation.

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Given these questions, what are we hearing from the government?
Post-Budget, the finance ministry has held a number of consultations with industry and market leaders, and the media has reported that a revival package may be in the offing. Automobiles, real estate, credit markets and foreign portfolio investors (FPIs) are reportedly sectors/ actors that may get close attention in a revival package.

A point to note here is that the Budget itself hadn’t indicated any need for specific revival packages and that bar the market’s unhappiness over the new tax surcharge on the rich, which affects FPIs, none of the bad economic trends was unknown before the Budget. Therefore, there’s a question whether the Budget was a major lost opportunity, assuming there’s a post-Budget economic booster in the offing.

In his extensive interview with ET, the prime minister made a number of broad statements of intent. Significant among these was his asking bankers to lend more, assuring that their decisions taken “in good faith” won’t lead to “witch hunts”.

Linked to this was his argument that banks’ bad loans problem was getting tackled and that more lendable resources are being made available to financial credit suppliers and that this, plus improved capacity utilisation by industry will lead to an uptick in private investment. The PM’s central argument seemed to be that process improvement will lead to a growth revival.

At this point, we do not either know whether there will be a so-called revival package – and what form it will take – or whether the assumption that process improvement will sooner rather than later change the economic tempo will bear out.

Therefore, it is fair to conclude that the questions we asked are difficult to answer as yet from what we can discern on government thinking on economic management. And that given the real dips in many economic numbers, such uncertainty can legitimately be a cause for worry.

So, to go back to the contrast we pointed out at the beginning of this commentary, such an approach doesn’t characterise the government’s management of social welfare and national security issues.

To put it mildly, this is not a contrast India can afford for too long.
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