NDA 2 years: Creditable performance, don’t extrapolate that in numbers just yet: Financial express May 23, 2016

While it has been a creditable performance, we should be cautious in interpretation or extrapolation of the same in numbers, as that may be hasty

Viewed against the enabling environment created and the policies fine-tuned from the existing ones like power sector or urban development, right steps have been taken, which have to be persevered with and not be one-time announcements. The results will show with a lag.

Evaluating the performance of a government is a tough job, because rarely can the relation between action and result be quantified by an equation. Often, actions taken today are manifested in outcomes with a lag. Hence, drawing econometric relations and trying to understand the cause and effect is almost impossible as governments often change every five years, obfuscating further these relations.
Serendipity plays a role in getting good outcomes and what economists often refer to as the ‘base effects’ can work marvels. How, then, can one evaluate the performance of the NDA government in the last two years? This has become fashionable of late with media attention that it merits an opinion. But one should bear judgement here. Just like how one cannot say that RBI is responsible for high NPAs in banks, the same should be the case with the government and, say, inflation.
Any attempt at evaluation depends to a large extent on the premise of what we expect from the government. Often, we link GDP growth to performance; however, the government’s actions contribute to, but do not decide, the course of movement. Both the government and the critics go to the extremes—the government takes credit for GDP growth moving from 7.2% to 7.6%, while critics will say that it is still lower than a trend growth of 8-8.5% or that the numbers are not right. The truth is that GDP growth is affected by various factors over which the government may have no control—exports, private investment decisions, consumer spending, etc. As long as it does what it has promised to do, the government would have redeemed itself.
The view here is that the government affects us in two ways. The first is in creating an enabling environment to do our business. The second is the direct contribution made to the growth process. It can be said upfront that the government has delivered well on both these scores within the constraints which exist.
On the policy front, the NDA government has put in place several measures to plug loopholes and enhance growth prospects. But any critique would always throw up ambivalence.
First, the doing business environment has improved, but this cannot result in miracles. Investment flows in only when there is opportunity.
Second, stalled projects have been cleared, but for them to resume, we need to have other requisites in place such as consumer demand, cost of funds, financial viability, etc. While the first has been done, the second would take time.
Third, foreign investment norms have been eased, which has been positive in terms of response—though we should be careful while eulogising the same, as one is not certain if what has come in is the backlog or net new flows. The issue with foreign investment is that it rarely moves in a linear fashion and often comes in spurts and jerks.
Fourth, the Jan-Dhan initiative has been a major success for financial inclusion, which is quite remarkable.
However, it remains to be seen as to how the households utilise this benefit.
Fifth, power sector reforms have been put in place, with several states joining the UDAY (Ujwal Discom Assurance Yojana) scheme. This looks promising, but time will tell if it works out the way the architect visualised the same. We have had the financial restructuring programme (FRP) earlier, which did not deliver results as the discoms did not keep their part of the deal.
Sixth, the smart city concept, which is analogous to the JNNURM (Jawaharlal Nehru National Urban Renewal Mission), has started on the right note. The JNNURM ran into problems like funding and interest shown by the entities. Dedicated effort is required from the Centre, states and local bodies for fructification.
Hence, the government has done well in starting an all-round campaign for bringing about growth. The challenge for such programmes is that they have to be sustained and as governments reach the time for the next election, compromises are made. We have had a rather confused history of starting off well on various initiatives and then losing the plot. So, an objective evaluation can be made only after five years. Carrying this forward, it can also be said that planning for a period beyond five years is an academic exercise, as in this volatile world one finds it hard to predict even the performance in the next year.
A lot of housekeeping has been enabled through serendipity, which has provided a good cushion. Low crude prices has been the single most important factor that happened at the same time as the government came to power, which has improved the current account deficit as well as fiscal balances through savings in subsidy. Inflation—something over which neither RBI nor the government has control over—has come down from the double-digit mark, though there have been hiccups along the way. Households will tend to disagree with inflation coming down as home budgets have been hit hard cumulatively, thus choking spending power. A high statistical base has made the numbers look good. Prices have come down, but it is only the rate of increase which has come down; this still hurts.
The government is committed to walk the path of fiscal prudence, which is good in so far as that discipline will be maintained. Within this constraint, the government for the first time managed to stick to its capex of Rs 1.3 lakh crore for FY16.
Viewed against the enabling environment created and the policies fine-tuned from the existing ones like power sector or urban development, the right steps have been taken, which have to be persevered with and not be one-time announcements. The results will show with a lag. Often, when there are fiscal constraints, these programmes are given a miss, which should be eschewed.
There are other issues where one can be judgemental, where Parliamentary action is required. But that would not be justified as these externalities have become quite prevalent of late that there is constant opposition and stalling of discussion just for the sake of it. So, land reforms and GST would take their own course, and singling them out would not be fair considering that even the earlier government could do no better.
On the whole, it has been a creditable performance by the NDA government. However, we should be careful in interpretation or extrapolation of the same in numbers, as it may be hasty.