Sem3.economics.atul.project.37.docx

Hidayatullah National Law University, Raipur, Chhattisgarh

A Project Report In Economics

RECENT REFORMS A CAUSE OF SLOWDOWN OF ECONOMIC GROWTH IN INDIA Submitted To:

Submitted By:

Dr. Hanumant Yadav

Atul Kumar Agrawal

Professor, Economics

Sem. III{sec-A}

HNLU, Raipur

Roll no. – 37

Date of submission – 16th August, 2018

DECLARATION

I hereby declare that this research work titled “Recent Reforms as a cause of Slowdown of Economic Growth in India” is my own work and represents my own ideas, and where others’ ideas or words have been included, I have adequately cited and referenced the original sources. I also declare that I have adhered to all principles of academic honesty and integrity and have not misrepresented or fabricated or falsified any idea/data/fact/source in my submission.

Atul Kumar Agrawal Sem. III {sec-A} Roll no. – 37

2|Page

Acknowledgements I feel highly elated to work on the topic ‘Informal Sector in India and BRICS Countries’. The practical realization of this project has obligated the assistance of many persons. I express my deepest regard and gratitude for Dr. Hanumant Yadav. His consistent supervision, constant inspiration and invaluable guidance have been of immense help in understanding and carrying out the nuances of the project report.

I would like to thank my family and friends without whose support and encouragement, this project would not have been a reality.

I take this opportunity to also thank the University and the Vice Chancellor for providing extensive database resources in the Library and through Internet. I would be grateful to receive comments and suggestions to further improve this project report.

Atul Kumar Agrawal B.A.LL.B. (Hons.), Semester-III Section-A, Roll No-37

3|Page

Contents I.

Introduction ---------------------------------------------------------------------- 5

II.

Objective of study --------------------------------------------------------------- 7

III.

Research Methodology --------------------------------------------------------- 7

IV.

Review of Literature ------------------------------------------------------------ 8

V.

CHAPTER – 1 : Goodss & Service Tax ------------------------------------ 9

VI.

CHAPTER – 2 : Make in India : --------------------------------------------- 12

VII.

CHAPTER – 3 : Jan Dhan Yojana ------------------------------------------- 15

VIII.

CHAPTER – 4 : Mudra Yojana ---------------------------------------------- 17

IX.

CHAPTER – 5 : Smart cities Mission --------------------------------------- 18

X.

CHAPTER – 6 : Manufacturing is Lagging -------------------------------- 19

XI.

CHAPTER – 7 : Export Sluggish -------------------------------------------- 20

XII.

CHAPTER – 8 : Findings ------------------------------------------------------ 21

XIII.

CHAPTER – 9 : Suggestion -------------------------------------------------- 23

XIV.

Conclusion ----------------------------------------------------------------------- 25

XV.

References ----------------------------------------------------------------------- 26

4|Page

INTRODUCTION India's economic growth unexpectedly slid to a three-year low in the last quarter, delivering a blow to Prime Minister Narendra Modi who is facing criticism for disrupting business activity through his shock cash squeeze last year. Gross domestic product grew 5.7 percent in April-June, its slowest pace since the January-March quarter 2014, government data showed. It was a marked slowdown from a 6.1 percent growth in the January-March period and was far worse than the median forecast for a 6.6 percent in a Reuters poll. It was in line with the poll`s lowest estimate. Although growth was already slowing, Modi's decision last November to scrap high-value old banknotes -- a bid to flush out the money Indians hide from tax officials -- wiped out about 86 percent of currency in circulation virtually overnight. While his drive to unearth unaccounted wealth did not deliver the desired result, it hurt consumer demand in an economy where most people are paid in -- and buy what they need with -- cash. Since then, an improvement in high frequency indicators such as sales of two-wheel vehicles, oil consumption, cargo traffic and rail freight raised hopes that the impact of the cash clampdown had bottomed out. The GDP data belied those hopes. Confusion ahead of the launch of a new goods and services tax (GST) also seems to have dampened economic activity. India lost its “fastest-growing major economy” tag as growth slipped below 6 per cent in the latest quarter. The moderation was partly the result of Modi’s boldest moves — demonetization, as well as the chaotic introduction of the goods and services tax that continues to disrupt supply chains. As talk of a stimulus to boost growth sparked concerns of fiscal slippage, foreign investors went on selling spree and rupee started falling. The government has collected US$150 billion in taxes on motor fuel since 2014. Instead of giving the benefit to people, the government is putting more burdens on them.

Agriculture exports, which had seen a fivefold increase under the Singh government, have since come down by 21%. At the same time, agriculture imports have risen by more than 60%.New investment is the lowest it has been in 13 years; bank credit growth has sunk to a 63-year low,

5|Page

while loan growth has fallen to 5.1%, according to the Reserve Bank of India (RBI). Moreover, in the last 36 months, the BJP government has written off corporate loans to the tune of $31 billion. This ridiculous generosity to the corporates is compensated by recapitalization of the banks through public funding. This, in other words, means that the ordinary Indian citizen is bailing out the nationalized banks that are plundered 1by the corporates, while millions of poor farmers are struggling hard for the debt relief amid severe agrarian distress.

2

1

http://www.atimes.com/how-modi-has-failed-as-prime-minister-of-india/

2https://www.google.co.in/gdp+growth+rate+of+india+from+2014+to+2018&gs_l=img.3..0i24k1.15278.16844.0.17260.4.4.0.0.0

.0.516.1098.0j2j1j5-1.4.0....:

6|Page

Objective of the Study  To study Recent Reforms made by the government.  To examine the reforms as a cause of economic decline.  To examine the need of policy attention towards Economic development.

Research Methodology Sources of Data Given a study of this kind, a descriptive & analytical approach has been followed to carry out the study. It is largely based on secondary & electronic sources of data. The internet, books& other references as guided by faculty of Economics have been primarily helpful for the completion of this project.

Scope of the Study The scope of study includes the purview within which the project work lies. This topic has been clearly enunciated with the help of books and articles from magazines, newspapers and other such earticle databases that have been explored. The subject explores the intricacies of reforms made by the government which cause the slowdown of economic growth in india.

7|Page

REVIEW OF LITERATURE Ganti N Murthy, Fixed Income Fund Manager, Former Head of Fixed Income, IDBI MF Bolstered by a majority in Parliament, the Modi Government implemented a series of reforms. Some of these were expected (like goods and services tax), but some were out of the blue (demonetization). Some of the other major reforms which went through are increasing foreign participation in insurance companies (from 26% to 49%), deregulation of oil and gas pricing, direct benefit transfer (DBT) of cash and good subsidiaries, allowing of foreign participation in defence and most important the setting up of the National Company Law Tribunal and passing of the Insolvency and Bankruptcy Companies Act. Jimmy Patel, Managing Director & Chief Executive Officer, Quantum Asset Management Co Ltd We believe the Modi government should work towards drafting and implementing a new Direct Taxes Code. A good starting point would be the blue-print which was formulated in 2008 which unfortunately never got implemented. A new and simple Direct tax code will help ease taxation worries for individuals and business, aid in ease of business, vastly improve tax compliance and also lower the needless tax litigations that individuals and business are subjected to by the Indian tax department. Although the GST design and implementation has been complicated but the GST as an indirect tax code as against separate excise, customs, service tax is a vastly simplified tax system for business. We should now learn from the Malaysian fiasco on GST and ensure to further simplify the implementation of GST. Vetri Subramaniam, Head-Equity, UTI Asset Management Company Ltd Next: the larger issue of privatisation. The weakness in the running of public sector enterprises has placed a burden on the exchequer ; in effect transferring the risk and cost to the tax payer and arguably on every citizen – present & future. The problem is not new but the opportunity to address it is now. The test case for privatisation that is being pursued at this moment is Air India and it is hopefully one that will mark the beginning of a much wider agenda. We need a comprehensive re-evaluation of why the government owns & manages ‘for profit’ entities in sectors which have healthy levels of competition, wide private sector participation and market regulators. Harsha Upadhyaya, Chief Investment Officer – Equity, Kotak Mahindra Asset Management Co Ltd The non-performing assets (NPA) situation in the banking sector is alarming. At least 15.8% of the total loans in the banking sector are tagged under the stressed asset category. The nudge from RBI to clean up the system has shown the actual depth of the trouble on the books of Indian banks (hidden bad loans). State-owned banks have already reported record level of bad loans resulting in huge cumulative losses of about Rs.55,000 crore in financial year (FY) 18 (reported thus far). Recent capital infusion of about Rs.88,000 crore was too little and too late.

8|Page

CHAPTER – 1

GOODS & SERVICE TAX What is GST ? Goods and Services Tax (GST) is an indirect tax (or consumption tax) levied in India on the supply of goods and services. GST is levied at every step in the production process, but is refunded to all parties in the chain of production other than the final consumer. Goods and services are divided into five tax slabs for collection of tax - 0%, 5%, 12%,18% and 28%. Petroleum products, alcoholic drinks, electricity, and real estate are taxed separately by the individual state governments. As a Cause of Decline of Economy Growth : Wall Street firm Goldman Sachs, in a note ‘India: Q and A on GST — Growth Impact Could Be Muted’, has put out estimates that show that the Modi Government’s model for the Goods and Services Tax (GST) will not raise growth, will push up consumer prices inflation and may not result in increased tax revenue collections GST is the necessity of the hour. It is very essential for the econic development. But GST implementation by this government is very shabby and as such failed to give the expected results. India's economic growth slipped to a three-year low of 5.7 per cent in April-June, underscoring the disruptions caused by uncertainty related to the GST rollout amid slowdown in manufacturing activities.

The average monthly collection under Goods and Services Tax (GST) in the eight months till March 2018 amounted to Rs 89,885 crore. "During the year 2017-18, total revenue collections under GST in the period between August 2017 and March 2018 have been Rs 7.19-lakh crore. While collection of indirect tax in FY2016 was Rs 8.47 lakh crore . Even though as a whole states' revenue may clip past at a CAGR of 16.6 per cent in FY18 over FY16 under the GST, 11 of them may need an additional Rs 9,500 crore compensation from the Centre this year, says a report.

9|Page

While large states like Andhra, Chhattisgarh, Gujarat, Himachal, MP, Odisha, Punjab and Tamil Nadu would need compensation from the Centre for any revenue loss under baseline scenario worth Rs 5,600 crore in FY18 smaller states like Goa, Jammu & Kashmir and Jharkhand would need Rs 3,900 crore compensation .The total compensation amount, therefore, would increase to Rs 9,500 crore in FY18 (baseline scenario Rs 5,600 crore) One of the main benefits that the new GST regime promises is a reduction of multiple taxes. But the truth is just the opposite. Article 246A now confers power on Parliament and every state legislature to levy goods and service tax. Thus, we are likely to have one parliamentary law and about 28 state laws that levy GST. And there is no constitutional requirement that all the state laws be uniform. The GST Council can only “recommend” a model law but nothing prevents each state from going its own way. The VAT experience is testimony to this. Such multiple levies by Parliament and the states, if not in harmony, will have disastrous consequences.

Impact Of GST :  Real estate prices The implementation of GST may significantly affect the real estate market. Buyers will now have to pay an 18% tax on real estate services. As a result, the market for real estate is estimated to decrease after GST.  Hike in Operating Costs The small businesses in India do not use tax professionals, and have conventionally preferred to disburse taxes as well as file returns at the personal side in order to save money. Meanwhile, they will need professional support to become GST compliant as it is a totally new system. However, it will bring benefits for the big names, but the small businesses will have to bear the extra cost of hiring professional. Moreover, the businesses will require training their workers as per the GST compliance, additionally increasing their operating cost.

10 | P a g e

 Service tax sector become costlier Before, GST was implemented service tax was levied at the rate of 15%. However, the new applicable rate has increased to 18%. This would increase the costs for financial facilities, such as business loans, home loans, and others. Furthermore, the insurance premiums and investments would also become costlier due to higher GST rate.

 Improper Slab Rate The council has decided to shift 177 items to 18% from 28% bracket which will cause a great harm to inflow of indirect tax. Government is also not charging any GST on jute, fresh meat, fish chicken, eggs, milk etc which were previously charged with VAT. There is no consensus among the different slab rates , govt. is keep changing the rate of different items.  Unfavorable for telecommunication sector as well “One of the major drawbacks of the GST regime could be the direct spike in the service tax rate from 14% to 18%” (GST: Impact on the Telecommunications Sector in India). The proposed GST appears to be silent on whether telecommunication can be considered under the category of goods or services. The entire issue of telecommunication sector assumes a serious proportion when India’s rural teledensity is not even 50%.

11 | P a g e

CHAPTER – 2

Make in India /Startup India The Modi government had promised to make India a global manufacturing hub catering to both the export and domestic markets. The government followed through on this promise by launching its flagship ‘Make in India’ programme in a bid to significantly boost local manufacturing and creating a new skills development ministry to provide vocational training to unskilled youth. It also launched a much-hyped ‘Startup India’ programme with the ostensible goal of making India the startup capital of the world, just like Israel. But none of these initiatives seem to have gone very far. In fact, how dismally India has done in export terms is borne out by the fact that the country’s trade deficit with China remains skewed in the latter’s favour by a ratio of four to one. According to a status report on the Startup India website, only 74 startups had been identified to receive tax benefits as of January first week. The NDA government's Make In India campaign has till early October attracted INR 2000 crore worth investment proposals. The campaign has, despite this,found its fair share of critics. The topmost of these criticisms is leveled against the incumbent government. It has been felt that the government does not walk its talk - labour reforms and policy reforms which are fundamental for the success of the Make In India campaign have not yet been implemented. A number of layoffs in companies such as Nokia India cast long shadows over the campaign. A number of technology based companies have not been enthused by the campaign launch and have professed to continue getting their components manufactured by China. Two years later, what is the status of ‘Make in India’? The CSO has released the quarterly growth rates of Gross Value Addition (GVA) of manufacturing at constant prices (2011-12). I have placed them along side the growth of overall GVA:

12 | P a g e

Since the announcement of ‘Make in India’ on August 15, 2015, there is no evidence that manufacturing has gathered momentum. On the contrary, it seems to have lost steam and, in 2016-17, the sector had weakened considerably. Between Q1 and Q4 of 2016-17, the growth rate of manufacturing GVA had halved. The weakness of the manufacturing sector is reflected in the steady drop in the growth rate of overall GVA. The conclusion is that apart from the announcement of ‘Make in India’, there has been little policy or administrative support. All other data point to the same conclusion. In the five quarters between Q4 of 2015-16 and Q4 of 2016-17, Gross Fixed Capital Formation (GFCF) as a proportion of GDP had declined — 30.8, 31.0, 29.4, 29.4 and 28.5. A drop of 2.3 per cent in 12 months is a disaster. Considering that GFCF was 34-35 per cent only a few years ago and the government has done nothing to step up private as well as pubic investment, it is a catastrophe. Credit growth to the industry sector has been negative since October 2016. Credit growth to micro/small and medium industries has been negative since March 2016 and June 2015 respectively.

Data on job creation point to the same conclusion. The eight leading job-creating industries created only 109,000 jobs during the period April-September 2016. That is a sign of stagnation. Data on electricity demand point to the same conclusion. The average Plant Load Factor of thermal plants is about 60 per cent reflecting poor demand for electricity. I had welcomed ‘Make in India’. It was innovative and aspirational. Unfortunately, it appears that there was little homework done before and practically no policy support after. ‘Make in India’ has turned into a hollow slogan.

IMPACT :  Loss for Small Entrepreneurs The Make in India campaign welcomes foreign countries to manufacture in India with open arms, this automatically eases up the various restrictions over trade with foreign countries, inviting the attention of the international commercial companies. However, these companies will not only seduce the Indian population but also would dominate the small local entrepreneurs and force them out of business.

13 | P a g e

 Disruption of Land As stated above, India is very rich in the agriculture sector. About 60% of the Indian soil is arable. With the emphasis being given to the Make in India campaign, thousands of companies would come forth to set up their factories on the land which could be used for cultivation. Eventually, this set up of manufacturing factories would lead to the permanent disruption of the agrarian land in the near future.  Manufacturing based Economy Indian economy is one of the largest economies in the world. It constitutes of three sectors i.e. agriculture, industry, and services. Now the Indian economy majors up from the service sector which contributed up to 57% of the GDP. But with the introduction of the Make in India campaign, the economy is likely to rely completely on the manufacturing and exporting while the import industry will remain static. This eventually will be a huge loss for the other economic sectors and would automatically reduce the advancement of Make in India.  Interest in International Brands As stated earlier, the brand value of Indian merchandise will definitely increase. But the Indian upper class, which can actually afford such merchandise, is addicted to the foreign label. This will eventually become a big hurdle for the local entrepreneurs as a great level of promotion is required to build the confidence of people in the local brands.  Pollution One of the biggest problems which are prevailing in India is pollution. According to statistics, India has a pollution index of 76.50. With the make in India movement, this pollution level is likely to arise in a couple of years. Eventually, making the condition in India worse. Hence, Make in India might be economically but it will have an inverse effect ecologically.  Bad Relations with China The Indo-China relation is already a problematic cause for the country, with the initiation of the make in India crusade, India stands as one of the most promising rivals for China. This automatically will worsen India’s long-term feud with China, gradually with the success of Make in India, it is possible for the situation to become worse among the two economically growing countries because India has the advantage of young and skilled workforce over China which will expectedly take make in India to new heights in the near future.

14 | P a g e

CHAPTER – 3

Jan Dhan Yojana Financial inclusion is not just about opening bank accounts, but also about using these accounts and providing access to formal credit. In fact, the major limitation of the JDY has been that while it has managed to get many people to open bank accounts, there is no commensurate increase in the use of these accounts, availability of formal credit, or savings in financial institutions, especially among the country’s marginalised and poorer sections.

Banking facilities : When the Pradhan Mantri Jan Dhan Yojana was launched in August 2014, apart from bringing every Indian household into the banking system, it also aimed to improve access to banking amenities such as ATM transactions, overdraft facility, short-term credit and insurance, among others. By August 16 this year, a massive 29.51 crore accounts had been opened under the scheme. However, there is little evidence to show that the Jan Dhan Yojana has been successful in achieving all its other objectives. Moreover, dormant accounts still make up for about one-fifth of all Jan Dhan accounts. For instance, the number of zero-balance accounts has always been a cause of concern. In September 2014, three months after the scheme was launched, 76.81% accounts were empty. A survey in last year revealed that bankers in public sector banks were allegedly putting paltry amounts of Rs 1 to Rs 10 in several Jan Dhan accounts, ostensibly to reduce the percentage of zero-balance accounts. On August 27, Finance Minister Arun Jaitley claimed that the number of zero-balance accounts had come down to 21.41% of the total. This claim could not be verified, because the Jan Dhan Yojana website3 no longer has the updated data of zero- balance accounts. Even the archival reports of the progress made under the scheme seem to have been taken off for the period between August 2014-April 2017 – meaning 33 months of data that was earlier available on the site was wiped out as of August 29. A questionnaire on the disappearance of data sent to the ministry of finance went unanswered. So, even if one goes by the finance minister’s claim that 21.41% of all the accounts opened under the scheme have zero balance, that’s not a significant reduction from the May 2015 figure. Reports such as this one published in Hindu Business Line suggest that zero-balance in January were 24.6% of the total (a slight rise from the 23.86% recorded in December, after the Narendra 3

https://www.pmjdy.gov.in/Archive

15 | P a g e

Modi government had demonetised Rs 500 and Rs 1,000 notes that were in circulation till November 8). The Reserve Bank of India had also noted in one if its recent papers that Jan Dhan accounts saw “unusual cash deposits4” during demonetisation as they received additional deposits of Rs 59,810 crore during the period between November 8 and December 31.

Financial inclusion remains a pipe dream : Even the government’s basis of evaluating the success of Jan Dhan Yojana may not be indicative of financial inclusion. The government evaluates the scheme’s progress based on the number of households covered under it (as opposed to individuals), presumably on the assumption that one account in a household can be used by other members as well, but research doesn’t back this theory. The paper written by Gunther said that only a few people use someone else’s accounts for their banking needs. “Only 2% of non-account owners use someone else’s account, perhaps calling into question the notion that account ownership of one household member translates into access for all others,” it stated. The paper further said, “Despite visible progress, I note that growth in account activity is nearly half of that observed for access to accounts,” meaning that the number of accounts opened increased at a rapid rate, but that was not matched by the activity in these accounts. For instance, under the scheme, everyone with an active account can access an overdraft loan of up to Rs 5,000. However, only 44.28 lakh accounts ( of the total 29.51 crore accounts) got an overdraft sanction under the scheme as on December 23, 2016, according to the government’s official press release5 .Of these, almost half the beneficiaries did not avail the loan, while while those who did received. Rs 316.56 crore in total (an average of just Rs 1,327 per disbursal) – implying that people were not reaping the maximum benefits of the facility. In addition, the Jan Dhan Yojana also had a stated objective to provide life insurance cover of Rs 30,000 to all those who opened accounts under the scheme between August 2014 to March 2015. An analysis showed that more than 14.71 crore accounts were opened during this period, all of which are eligible for life cover. However, till December 23, 2016, the ministry of finance received only 3,936 claims for life insurance and disbursed 3,421 of them, while rejecting others. This amounts to just 0.002% of total eligible beneficiaries.6

4

https://www.rbi.org.in/Scripts/MSM_Demonetisation.aspx http://pib.nic.in/newsite/PrintRelease.aspx?relid=156054 6 https://scroll.in/article/849604/government-claims-jan-dhan-yojana-was-a-big-success-heres-a-reality-check 5

16 | P a g e

CHAPTER – 4

Mudra Yojana Mudra stands for Micro Units Development and Refinance Agency. Launched by PM Modi himself three years ago, Mudra Yojana provides loans to people turning entrepreneurs under three categories: Shishu, Kishor and Tarun. Loans upto Rs 50,000 is provided under Shishu category. The amount is enhanced upto Rs 5 lakh under Kishor category and Rs 10 for Tarun entrepreneurs. Under the Mudra scheme about 60 per cent of the loans are expected to be disbursed to Shishu entrepreneurs by all the commercial public and private banks. The Problem : But there is a problem. The average of sanctioned loans under Mudra Yojana comes at Rs 46,530 while that of disbursed amount is Rs 45,034. This amount could not be considered enough to launch a start up that could provide jobs to others. This amount is also much lower than the average per capita income of Indians - Rs 1.11 lakh for 2017-18, according to advance estimates of the Central Statistics Organisation (CSO). Recently, information sourced through a petition filed under Right To Information Act by activist Chandan Kamhe revealed that the number of large-sized loans or disbursements from the banks exceeding Rs 5 lakh - that can generate employment - are mere 1.3 per cent under Mudra Yojana. Mudra NPA : Those monitoring banking sectors of India have raised concerns about Mudra Loans becoming a big liability for the banks in near future. Officially, the Mudra loans seem to have done well in keeping NPA (Non-performing Assets) lower compared to other bank loans. According to finance ministry data Mudra Yojana had a gross NPA ratio of only 4 per cent as of December 2017 - much lower than average 10 per cent for other loans in the case public sector lenders. However, some of the experts have calculated the Mudra Yojana NPA figures at over 14,350 crore in the short span of three years. What Do Bankers Say? The Mudra NPA could be a serious issue for the government coming in 2019. A senior State Bank of India official told that "having no-collateral for a loan that is being pushed by the government is bound to fail. The government wants us to sanction loans to anyone who comes to us but most of these applicants don't have any business plan. A lot of Mudra loans are being issued against banking principles." The pressure to give Mudra loans without following banking principles is being exploited by some "unscrupulous managers" who are indulging in corruption, the SBI official said. This claim is corroborated by another Punjab National Bank scam in Barmer, Rajasthan.

17 | P a g e

CHAPTER – 5

Smart Cities Mission crumbles The Smart Cities Mission initiated by the Modi government in June 2015 has failed to reach its development landmarks. 60 cities were selected between January and September of 2016 and another 30 in June 2017 and as per a data report released by the Housing and Urban Affairs Ministry, only 7 per cent of the Rs. 9860 crore allocated has been spent until now. The mere Rs. 645 crore spent on fulfilling the promises under this scheme has raised concerns in the Urban Affairs Ministry. A major chunk of the funds remain unutilised. According to government officials, work is stalled in most of the cities and many remain in the preparatory phase of creating detailed project reports and inviting tenders. This seems to be trend in Modi’s India across developmental schemes. Looking at the city-wise breakups, Ahmedabad has spent Rs. 80.15 crore, Indore Rs. 70. 69 crore, Surat Rs. 43.41 crore. This is out of the Rs. 196 crore budgets released for each of these 40 cities while only an abysmal amount is being spent. Other cities that got Rs. 111 crore from the Centre have spent even lesser. The concentration of developing a small area of the city as opposed to the city itself does not fare well for equal development and connectivity. Majority of the smart cities identified have financially prioritised area-based development which only benefit 4% of the city’s entire population on an average. With execution being heavily hit, various Special Purpose Vehicles (SPVs) have been set up, investing the money in sweep accounts to earn more interest. But housing ministry reviews that were no funds of the Centre’s or the State’s share was transferred to these SPVs. This is not the right architecture to drive the kind of progress and urban infrastructure that the Smart Cities Mission was set up for. Implementation of these projects across most cities has been terribly slow and with no clarity on the path ahead, the Modi government can write off the Smart Cities Mission as a failure much before 2022.

Another criticism this project also faces is the convergence of other policies set for urban India. Schemes like Swachh Bharat, Housing for All, National Urban Information System, were all started to improve urban infrastructure which overlaps the targets of the Smart Cities Mission. The Central government is unclear about how these can be integrated to reach the formulated goals. PM Modi has forgotten the sheer amount of idling funds under the various developmental schemes launched by his government. With this dismal rate of progress, Modi’s urban overhaul project will fail to reach its 2021-22 target. Another well-publicised but hollow scheme masquerading under the garb of development.

18 | P a g e

CHAPTER – 6

Manufacturing is lagging Undeniably, the manufacturing sector, apart from crore infrastructure, has the greatest potential for large-scale employment generation. Unfortunately, manufacturing is also the laggard in present times. The manufacturing sector growth at 1.2 per cent is the lowest in the last five years, and this is largely because private investments have failed to pick steam despite the Government’s various flagship programmes. The fall in the investment ratio over the last decade can be partly attributed to the global financial crisis of 2008. The ratio shows a steep fall from 38 per cent in 2007 to around 30 per cent towards the end of 2016. Private investment declined 19.2 per cent in 2011-12 to 16.8 per cent in 2014-15. Corporate sector investments dipped from 16 per cent to around 10 per cent in 2016. This has been attributed to increasing debt burden and a slowdown in private credit due to stressed assets in banks etc. These in turn have led to an increase in stalled projects — though it must be emphasised that projects were also stalled due to bureaucratic delays and other reasons such as non-availability of land and payment issues. Whatever the reasons, the delays in completion accounted for six to seven per cent of the GDP and crippled the growth momentum. Impact of Index of Industrial Production The Index of Industrial Production (IIP) data also tell a story. According to the Central Statistics Office, the cumulative industrial growth during April 2016-February 2017, as compared to the corresponding period of the previous year, was 0.4 per cent. Fifteen out of 22 industry groups in the manufacturing sector showed negative growth during February 2017, as compared to the same month of 2016. It is, then, obvious that the manufacturing sector, hobbled by lack of private investment, has failed to click. Equally obvious is the fact that the Government’s various measures and its repeated appeals for private investments, have not worked.

19 | P a g e

CHAPTER – 7

Exports sluggish If private manufacturing has been sluggish, the export sector’s performance too has been dismal, and this has contributed to low GDP growth in some ways. It’s not a coincidence that over the last decade and half or so, a high GDP growth came alongside booming exports. The near eight per cent growth during 2003-11 was complemented with a 20 per cent growth in exports. Exports were close to $319 billion in 2013-14; they were down to $274 billion (and this was an ‘improved’ figure as compared to 2014-15). It can be argued that export statistics are dependent almost entirely on the state of the world economy and also on the currency rates. The 2008 crisis, starting with the subprime issue in the United States of America and spreading across the globe, chipped off many millions of dollars from exports of many nations, India included. It has taken almost a decade for the global economy to find its feet again, but it remains to be seen whether India can quickly enough do so. On the currency matter, it must be accepted that the real effective exchange rate (REER), which is the exchange rate after adjusting for inflation, has seen a sharp rise over the years, thus rendering exports uncompetitive. The rise in the REER index has coincided with the sharp drop in export revenues. That said, it would be naive to believe that exports have done less than expected merely on grounds of global economic downslide and rising REER. GFCF(Gross fixed capital formation) is a measure of gross net investment (acquisitions less disposals) in fixed capital assets by enterprises, government and households within the domestic economy, during an accounting period such as a quarter or a year. In India, Gross fixed capital formation rate stood at 34.3% in 2011-12. This started falling steadily and touched 29.3% in 2015-16. It fell further to 27.1% in 2016-17. According to the latest numbers, in the first quarter of 2017-18, it stood at 27.5%. Since the public investment rate has not shown any decline (it stands at 7.5% of GDP), it is the decline in private investment, both corporate and households, that has been responsible for the steady fall. While the fall in corporate investment is steep compared to what was achieved in 2007-08, it has more or less stabilised at a lower level of around 13%. Household investment has continued to decline even in recent years. Household here includes not only pure households but also unincorporated enterprises.

20 | P a g e

CHAPTER – 8

Findings  CONNECTIVITY I. II. III.

Increasing number of railway accidents. 23km per day of highway construction achieved vis-a-vis a target of 41km. Air India’s finances are still precarious. The national carrier is still grappling with legacy issues.  TERROR, DEFENCE AND FOREIGN POLICY

I.

No strategy to pre-empt rebel attacks on security personnel in districts where Maoists are active.

II.

Ties with Pakistan and China are icy despite Prime Minister Modi making trips to both countries (a December 2015 stopover in the former).

III.

Relations with Russia—India’s once time-tested friend—too seem to be in the doldrums.  FARMERS

I. II.

III.

Decline in wholesale prices of vegetables and pulses has dented farm incomes. A loan waiver in Uttar Pradesh led to a moral hazard problem and delay in repayment of loans in other states. Acute drought in southern states led to a spike in farm suicides.

 GREEN ECONOMY AND ENERGY I.

Neglect of the forest and wildlife sectors. Decisions pending on a national forest policy, definition of forests, inviolate forest areas and a national wildlife action plan.

II.

Activists allege that the government is favouring industries and indiscriminately giving green clearances, ignoring the toll taken on the environment.

III.

I.

Ganga clean-up is yet to gather momentum.

 FISCAL SITUATION Demonetisation drive led to short-term cash crunch, hit small and medium enterprises. 21 | P a g e

II. III.

Pending cases of retrospective taxation on past transactions still unresolved. Inability to bring back black money stashed away abroad by citizens.  POLITICS

I. II. III.

Failure to get consensus on reform policies like a proposed land bill. Allegations of toppling elected state governments. Problems within the NDA: the Peoples Democratic Party (Jammu and Kashmir), Shiv Sena (Maharashtra) and Telugu Desam Party (Andhra Pradesh) are annoyed with the BJP leadership.  EMPOWERMENT—SOCIAL SAFETY, EDUCATION, JOBS, GENDER

I. II. III.

The Women’s Reservation Bill is still pending. New Education Policy still to be formulated. Job creation yet to pick up pace.  DIGITAL AND COMMUNICATIONS

I. II.

III.

Call drops continue despite mobile phone services providers promising improvement. Drop in digital payment transactions with the easing of a cash crunch that followed the demonetisation of high-value banknotes in November. Leakage of Aadhaar data.  OPTICS

I.

Rise of vigilante groups called Gau Rakshaks, who target people suspected of harming cows or consuming beef.

II.

Launch of the anti-Romeo squads in Uttar Pradesh, ostensibly to protect women from harassment, but seen widely as moral policing.

III.

Ghar Wapsi (homecoming), aimed at promoting the conversion of non-Hindus to Hinduism, and campaign against Love Jihad, allegedly practised by Muslim men to win over Hindu women.

22 | P a g e

CHAPTER – 9

Suggestions Here are my 8 suggestions: 1.) Incentivize savings and private investment. One of the reasons why our economy survived the recession post the Lehmann Brothers crash and the housing mortgage crisis in US in 2007 was our deep savings, of which household savings played a huge part. It acted as a buffer and also kept the private investment cycle going ensuring liquidity and demand generation. Today fixed deposit rates are plummeting and people are not incentivized to save. OUR Savings GDP % has gone to 30-31% which is much lower than 3637% as it used to be around 2004-05. We need to give it a boost up to 40% so that with a capital output ratio of 4, we can grow at 10% growth rate consistently. The saving ratio is going drastically down and if not arrested it will erode one of our biggest strengths. 2.) Cut down on lending rates. India is a land of small businesses. Over 5 million small businesses employing more than 40% of the workforce are the backbone of this growth engine called the Indian economy. These are largely in the unorganized sector and have suffered twin blows of GST and demonetization. They already grapple with issues like raising capital for projects, bids or increasing their stocks to compete with the organized sector. Their access to capital has been limited and a cut down in the lending rate could boost their morale to expand and grow, thereby generating more employment. 3.) Scrap the income tax in a phased manner It is time for the government to boost the morale of the middle class of India which has paid the biggest share of Income Tax. Let's do it gradually but definitively. A revenue of Rs 3-4 lakh crore would instead be in the hands of people coming back as either savings or private investment kick-starting the demand consumption cycle. Yes, inflation might get a temporary blip, but then that's a small trade off for an expanding economy which generates employment and encourages savings. It's about time the government understood that having reserves in your treasury isn't boosting the morale of the common man. Time to put some money in his pockets and let him spend or save at his discretion.

4.) Simplification of GST Our indirect tax system has been complex multi-layered for some time now. People thought GST would simplify it. However multiple slabs (0,5,12,18,28) and the fact that many end products are an aggregation of individual products with varying rates has compounded the woes of SMBs, MSMEs and especially the unorganized sector. Add to it the IT backbone of the system in a

23 | P a g e

largely not so digital savvy business environment and we have a recipe for unmitigated chaos. We need to simplify the input credit system of the GST which is a horrid nightmare for all. We have to do away with 3 different returns every month, probably reducing the exercise to once a quarter. 18% should be the upper cap limit for taxes on anything. Construction items taxed at 28%, are doing no good to affordable housing in India. 5.) End the raid culture The tax officials are having a field day in post demonetization India. Using scare tactics, they're harassing small businesses especially in the unorganized sector and feeding off their ignorance about the changing business environment. As a result corruption in the tax department has gone up and the business sentiment has been badly wounded. Coercion as a tactic has never worked with the Indian Businessman. They're way too smart to be coerced into compliance. A burning example of it was the demonetization exercise. The government has to co-operate with them and give them their due dignity, cause they and not the government are driving the economy and employment. 6.) Dispute redressal mechanism One of the reasons why India is not a manufacturing giant despite the demographic dividend is the fact that there is a lack of policy framework to resolve disputes which arise during the setup and operations of manufacturing unit. Tax disputes, labour disputes are a common occurrence and when things get stuck in a silo because of lack of decisions from the trial courts and appellate courts, the foreign investors get extremely weary and pessimistic. We need to put in a robust dispute redressal mechanism in place. 7.) Labour Laws and Trade deals Our labour doesn't have much access to the markets outside, even though cheap capital flows into our country for the multinationals. THE US, Europe largely resist the influx of our labour and place restrictions at WTO. We need better negotiators to leverage our demographic dividend. We have a trade deficit of over $50 billion with China. Our foreign secretary S. Jaishankar pointed out that restrictions imposed by China on access to their markets was the main reason. Our trade deficit with China has doubled in the last 10 years. We cannot let this happen for too long. 8.) Agriculture needs global push One of our core strengths as a nation is agriculture. We are nation abundant with resources and arable land. Fertile and blessed with rivers and all seasons, we should be an agricultural superpower. Ironically our farmers are in distress and their suicides have only increased over the years. We produce rice, wheat, other vegetables and milk at a price cheaper by 6-7 times compared to the world. It is a mammoth competitive advantage that we haven't leveraged.

24 | P a g e

Conclusion Narendra Modi has been attempting to depict the picture of improving the Indian economy. However, Modi’s efforts for economic and developmental reform have attained less progress. We have been seeing BJP spokespersons on television channels saying that in comparison with other world economies, the Indian economy is progressing at a faster speed. In reality, during some of the past few months, India is indeed a part of the worsening worldwide deflationary pattern. The world could be near to witnessing a 2008 model of recession. The government has also been unable to act on a number of crucial reforms that it had promised. While the government had promised a greater formalization and digitization of the economy, the move to demonetize 86 percent of India’s currency has seen nearly all of demonetized notes return to the RBI as cash continues to dominate India’s transactions. Moreover, non-performing assets have remained a major concern for India’s economy; they have grown from Rs 2.52 lakh crore in March 2014 to Rs 9.62 lakh crore as of March 2018. In dollars, non-performing assets make up more than $150 billion, of which nearly 90 percent is held by public sector banks. However, chief among the government’s unfulfilled reforms are those related to labor and land acquisition. The BJP pointed to India’s existing land and labor laws as holding back economic growth, investment, and development in India, but has been unable to advance legislation to enact necessary reforms in these sectors. As a result, perhaps the biggest promise made by the BJP in 2014 — job creation — remains unfulfilled, particularly as there is no clear indication of how many jobs were created in India. In its 2014 election manifesto, the BJP stated “The country has been dragged through 10 years of Jobless Growth by the Congress-led UPA Government. Under the broader economic revival, BJP will accord high priority to job creation and opportunities for entrepreneurship.” The manifesto pledged, that “Job creation [will be] central to our economic model.” Modi doubled-down on that goal, promising in 2013 that “the BJP would create 10 million jobs.”

25 | P a g e

References  Carson C. (1984) The underground economy : An introduction, 24-35  Jhabvala, Renana (1998), ―Social Security for Unorganised Sector‖, Economic and Political Weekly, Vol. 33, No. 22.  Datta Chaudhuri, Tamal (1989), ―A Theoretical Analysis of the Informal Sector, World Development, Vol. 17.  McCrohan, K., Smith, J., & Adams, T. (1991). Consumer purchases in informal markets: Estiamtes for the 1980s, Prospects for the 1990s. Journal of Retailing, 67(1),  Schneider 2005; Friedman, Johnson, Kaufmann & Zoido-Lobaton 2000.  Mitra, Arup (1994), ―Industry, Informal Sector Employment and Poverty, Indian  Journal of Labour Economics, Vol. 37, No. 3.  Mohapatra KK (2012) Women workers in informal sector in India: understanding the occupational vulnerability. International Journal of Humanities and Social Science,  Sen, Pronab (2016), “Demonetisation is a hollow move”, Op-ed: Mint  https://www.rbi.org.in/Scripts/MSM_Demonetisation.aspx  http://pib.nic.in/newsite/PrintRelease.aspx?relid=156054  https://scroll.in/article/849604/government-claims-jan-dhan-yojana-was-a-big-success-heresa-reality-check  http://www.atimes.com/how-modi-has-failed-as-prime-minister-of-india  https://www.google.co.in/gdp+growth+rate+of+india+from+2014+to+2018&gs_l=img.3..0i2 4k1.15278.16844.0.17260.4.4.0.0.0.0.516.1098.0j2j1j5-1.4.0

26 | P a g e