100 days of Modi government: How business and economy are shaping

By Amartya Sinha | Updated: Sep 03, 2014, 09:57 AM IST

Amartya Sinha

With the Narendra Modi-led NDA government set to complete its 100 days in power, many of the long-delayed economic reforms have begun to take shape. While the government has been successful in reactivating the process of economic liberalisation, we still have a long way to go in executing some vital structural reforms which remains pending.

 

Following are a few areas where the government has been successful in moving ahead:

 

Railway infrastructure modernisation

As promised in the Union Budget, the government has raised the FDI ceiling in all areas of railway infrastructure to 100 percent through the FIPB (Foreign Investment Promotion Board) route. Earlier, FDI in railways was restricted to urban MRTS (Mass Rapid Transit Systems) only. The advent of FDI in all areas of railway infrastructure will lead to transfer of sophisticated foreign technology in the laying of high speed tracks, dedicated freight corridors, and the manufacturing of advanced railway coaches and locomotives in India.

 

Military modernisation

The government has raised FDI limit in defence manufacturing from 26 percent to 49 percent. The government has also increased its capital expenditure into the sector through higher budgetary allocations.The move to raise the FDI ceiling is slated to attract big-ticket strategic investments in the sector.

 

Tax Reforms & Exemptions

The government has raised the income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh for salaried employees. Tax exemption limit under Section 80c of Income Tax Act has also been hiked from Rs 1 lakh to Rs 1.5 lakh. To incentivise investments in the realty sector, the deduction limit on account of interest on home loan in respect of self occupied house property has been raised from Rs 1.5 lakh to Rs 2 lakh.

 

The income tax exemption limit for senior citizens has been revised from Rs 2.5 lakh to Rs 3 lakh.

 

In a major relief to small investors, the new govt has raised the Public Provident Fund (PPF) deposit limit from the earlier Rs 1 lakh to Rs 1.5 lakh.

 

 

Encouraging small entrepreneurs

In order to encourage small businessmen, an investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs 25 crore in any year in new plant and machinery has been implemented. The investment benefit will be available for the next three years (till March 31, 2017).

 

 

Deregulation of diesel prices

Despite the risk that some of its decisions may be portrayed as unpopular, the government has continued to marginally hike diesel price on a monthly basis to bring it at par with international market prices of the fuel. This bold step taken by the erstwhile UPA government and to be continued by the incumbent NDA-2 government is supposed to cut down losses of various state-owned oil marketing companies.

 

Financial inclusion

On August 15, 2014, Prime Minister Narendra Modi announced a new financial inclusion plan 'Jan-Dhan Yojana' under which every household will be given an insurance cover of Rs 1 lakh along with a savings bank account.

 

While the new government has made a grand start, there are a few areas where it is yet to make a credible step forward. The process of economic reforms seems to be stalling at certain points of time. In order to restore investor confidence and to break the policy paralysis logjam caused by the previous government, the new government needs to take some bold and difficult decisions in the months ahead.

 

Following are a few areas where the government has failed to make any progress:

 

FDI in multi-brand retail

Bowing to tremendous pressure from the kirana shopowners' lobby, the government has literally stepped back from implementing 51 percent FDI in multi-brand retail trade. The decision to allow FDI in retail was approved by the erstwhile UPA-2 government.

 

Corporatisation/partial privatisation of railways

At a time when the transport sector is suffering from tremendous losses, the government must initiate the process of corporatising and partially privatising the railways and all railway-related departments. This will increase efficiency of the transporter and decontrol the organisation from clutches of the Ministry of Railways of the socialist era. Moreover, the government is yet to fully rationalise railway fares prices. High subsidies on passenger fares remains a huge burden on the exchequer.

 

Deregulation of kerosene and domestic LPG prices

Despite of the huge losses suffered by public sector oil companies, the government has failed to deregulate the prices of kerosene and domestic LPG. The monster-sized fuel subsidy bill continues to dent a hole in the exchequer's pocket. The government must continue the process of deregulation of prices of kerosene and LPG to bring it at par with international prices.

 

Privatisation of loss-making PSUs

The government has failed to commence big ticket disinvestments in many loss-making PSUs, including BSNL, MTNL, Scooters India Ltd and Air India. The loss-making and inefficient PSUs have proved to be `white elephants` for the new government. The government must privatise most of the PSUs, which are proving to be a burden on the exchequer.

 

Labour reforms

Though the government has promised to execute labour reforms and the Cabinet has already approved such measures, the amendment bills are yet to be tabled and passed in Parliament. Amendments to the Factories 1948, the Apprenticeship Act 1961; and Labour Laws (Exemption from furnishing returns and maintaining of registers by certain establishments 1988) Act have been recently approved by the Union Cabinet.

 

FDI in insurance

The Union Cabinet has approved the move to raise the FDI cap in the insurance sector from 26 percent to 49 percent. The bill was recently passed in the Lok Sabha with a significant number of legislators voting in favour of it. But the government bowed to Opposition pressure and the bill was referred to the standing committee after being tabled in the Rajya Sabha.

 

Foreign educational institution bill

This is a very important piece of legislation which will facilitate the establishment of foreign schools and universities in the country. This much-awaited bill will pave the way for big ticket foreign investments in the education sector. This bill was envisioned during the erstwhile UPA regime and was supported by the BJP. There is no clarity on the incumbent government's stand on the bill.

 

FDI in online retail

Amid speculations that the new government may allow 100 percent FDI in online retail, the policy paralysis still persists as the new government is yet to allow liberalisation of this sector. The opening up of this sector will witness billions of dollars of investments coming into India in the next few years, which will modernise warehousing and supply chain infrastructure of the country.

 

Field trials of GM (Genetically Modified) crops

The government has failed to approve the field trials of genetically modified crops. The field trials and the subsequent opening of the sector will may lead to foreign multinationals, like Monsanto, pouring investment in high yield variety seeds, drought resistant and flood resistant crops along with biotechnology-based fruits and vegetables, which will significantly boost agricultural output in the long term.

 

Recently Monsanto had invited an Indian delegation for a junket in the United States. But unfortunately the BJP came under tremendous political pressure from Swadeshi Jagaran Manch of the RSS and pulled out four of its MPs from the delegation.

 

India must make the transition to biotechnology crops at a time when the developed world is making a transition to genetically engineered farming from the traditional organic farming practices. This step will help the agricultural sector to grow at a faster pace with higher yields.

 

On May 26, 2014 the 15th Prime Minister of India - Narendra Modi - was sworn-in and sentiment was buoyant that economic reforms will get the next push. While some small steps have been taken in the right direction, time is ripe for the new government to take some difficult and unpopular economic decisions which will pave the way for a more prosperous future.