Modi's first year: Slow progress in fixing economy

Mr Narendra Modi at a business forum in Shanghai last week, where the Indian Prime Minister made a pitch for the “Make in India” campaign to transform his country into a manufacturing hub.

Prime Minister Narendra Modi, in his bid to boost foreign investments in India, promised repeatedly to end "tax terrorism", or unpredictable tax demands on corporates.

Yet some 68 foreign funds and banks found themselves hit in the pocket to the tune of an estimated 6 billion rupees (S$126 million) by a tax not normally levied on foreign businesses - the minimum alternate tax.

At least one of the funds challenged the tax claims in court, forcing the government to hit the pause button on fresh claims.

The continuing lack of clarity on corporate tax, say analysts, has not only dented the government's image, but also exposed the gap between hype and reality.

Mr Modi led his Bharatiya Janata Party (BJP) to a landslide victory last year on the back of a promise to initiate an economic revival and create jobs.

Expectations were high that there would be immediate changes as Mr Modi was leading a majority government. The previous Congress-led government had been beset by corruption scandals and accusations of inertia and poor governance.

Though no one expected Mr Modi to fix the country's economic problems in one year, many had thought he would move faster on his reforms agenda.

Instead Mr Modi moved cautiously, opening up one sector at a time, from construction and defence to insurance. He also unveiled the "Make in India" initiative to boost manufacturing.

In the second half of his first year, the Prime Minister initiated big-bang reforms like amending land acquisition rules and introducing a unified tax system, with the goods and services tax scheduled to be implemented by April next year.

But these proposals have so far been blocked by the opposition in the Upper House of Parliament where the BJP does not have a majority.

Still, analysts noted that sentiments have become more positive, especially after falling oil prices helped slow India's galloping inflation rates and reduce its fiscal deficit. Finance Minister Arun Jaitley said yesterday that foreign direct investment in India had gone up by 40 per cent in the financial year 2014/2015 from the previous financial year.

"The mood is better than before but expectations have to turn to reality on the ground," said Mr Rishi Sahai, managing director of Delhi-based consultancy Cogence Advisors. "He (Modi) has got the blueprint but it gets stymied in the details."

The government had promised, for instance, to build 30km of road per day but, over the past year, it has built only 10km per day with issues such as land acquisition blocking progress.

So far, these have not affected Mr Modi's popularity substantially. A survey of 12,481 respondents by InstaVaani found that his approval rating was nearly 74 per cent.

An issue that has emerged and is raising serious concerns, particularly among India's ethnic minorities, is the resurgence of right-wing Hindu groups, emboldened by the fact that the Hindu nationalist BJP is in power.

These groups have organised reconversion programmes for those who had left the Hindu faith, in some cases, decades ago.

Mr Mohan Bhagwat, head of the Rashtriya Swayamsevak Sangh, the ideological backbone of the BJP, sparked outrage when he said that Mother Teresa's work for the poor had been motivated by a desire to convert Indians to Christianity.

Vandals attacked churches and defaced Delhi street signs that had Muslim names, fuelling insecurity among India's minorities. No Hindu group has been implicated in the church attacks.

"He (Modi) has to rein in these elements. Otherwise, it would be one step forward and two steps back. If he wants to leave a legacy, you need to have an inclusive agenda," said Dr Mohammed Badrul Alam, head of the department of political science at Jamia Millia Islamia University.

The mixed success of the BJP government is already seen to have had an impact on its political fortunes, with the populist Aam Aadmi Party defeating the BJP in state elections in Delhi in February.

As Mr Modi enters the second year of his term, the BJP will face a tough election in the Hindi heartland state of Bihar, where the party is politically weak and faces disenfranchised farmers angry over impending amendments to the law that will make it easier for corporates to get farmland.

Mr Ashok Malik, a senior fellow at the Observer Research Foundation, said the Prime Minister had tried to clean up the mess.

"The first year was spent on fixing the plumbing for economic revival. Some of the work is boring and not glamorous. It doesn't look like great stuff," said Mr Ashok. "But it is important he starts delivering from now on."

This article was first published on May 23, 2015.
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