Understanding efficacy of ‘politics of reforms’ on grounding base for accelerated comprehensive development of India

written by: Khyati Srivastava (khyati.khush@gmail.com)

Politics of India has been seen to evolve since the inception of the Indus Valley civilization. Considering here the post independence politics of India, then it has further evolved essentially within the framework of the Indian Constitution that established India as a federal parliamentary democratic republic nation. Fundamentally, politics can be defined as activities related to governance of a country or area that primarily aim to improve life status of associated people through distribution of power over resources. With this fundamental idea of politics at core and constitution as frame, Indian politics has been adjusting its model since independence to achieve welfare for its people and development for the nation as a whole.

Indian democracy is world’s largest democracy and hence the Indian government has always been required to meet the aspirations of the immensely varied society and diverse population. After independence to now, India has come over acute backwardness and is now one of the world’s fastest growing economies. With growth came more wealth and with wealth more corruption (Ghatak et al. 2014). The former incumbent government was accused of taming corruption, and hence the democracy laid off them in the last general elections. It is the incumbent ruling party in which the nation showed tremendous confidence and was voted to power with absolute majority. The leadership promised reforms and development. The Government of India thus formed has been relentlessly working on reforms that not only mean to pave way for overall development of the nation, but also improving the lives of individuals and ensuring to reduce inequalities. The efficacy of ‘politics of reforms’ adhered by the government can be known by the performance of Indian economy in the last fiscal 2014-15.

Let us consider the following indicators in this context for the last fiscal to evaluate the impact of the reforms brought by the incumbent government on the overall economic health of the nation:-
1. Indicators:

Following is data on indicators of economic performance of India for the fiscal year 2014-15:

1.1. Growth: The Annual growth rate of Gross Domestic Product (GDP) was seen to improve to 7.5% in the last October-December quarter of 2014 (as per revised figures) as against 6.4% in the October-December quarter of 2013 (as per revised rates)[i]. In contrast to this, the Chinese economy had grown 7.3% in the same quarter. Further, the Indian growth rate is expected to be 7.4% in the Jan-March quarter 2015.

The highest growth is reported for services including electricity, gas, water supply & other utilities (10.1%) followed by trade, hotels, transport, communication & services (7.2%). Thereafter, manufacturing sector has expanded 4.2%, including mining & quarrying (2.9%) and construction (1.7%).

When the Economic Survey of India 2015 heads for more than 8% growth rate[ii] in the next fiscal year (2015-16), soon it is also expected that the India’s expansion will outpace that of China, Japan & Germany combined as projected by International Monetary Fund (IMF)[iii] and Christine Lagarde (IMF chief)[iv] recently.

1.2. Inflation: Control on price rise continued and remarkable downfall in inflation was noted, with wholesale price index (WPI) falling at 5-yr low of 0.11 in December’2014 in contrast to 6.40 in December’2013. Further, data available towards for the January-March (Q4) 2015 till date shows the trend to be followed as WPI is -0.39 in January’2015 as compared to 5.03 in January’2014[v], and for February’2015 the index provisionally stood at -2.06%, which is greater than the projection of -0.70% for February’2015[vi].

Food Inflation is reported to tremendously fall from 9.66% around April’2014 to 4.78% by December’2014[vii]. Retail inflation (CPI-Consumer Price Index) has also moderated. It declined to all time low of 5% in Q3 of 2014-15 after having remained stubbornly stuck around at 9-10% for last 2-years. It is expected to be 5.19% in January’2015 and 5.37% in February’2015. A slight nudge further is expected in March[viii] too due to unseasonal rains that occurred recently.

1.3. Business Confidence: The Business confidence index has been continuously rising from 49.9 in Q4 of 2013-14 to 56.4 in Q4 of 2014-15 as reported by Confederation of Indian Industry (CII). The forecast expects the index to rise to 58.18 by 2016 and 59.35 by 2050[ix]. With this, it is also necessary to quote the manufacturing sector growth. The Manufacturing PMI reported by Markit Economics and conducted by HSBC every month, rose from 51.40 in the beginning of Q1 of 2014-15 to 52.10 by the end of Q4 of 2014-15. In between it even shot up to 54.5 in December’2014[x]. The trends of Index of Industrial Production (IIP) have been positive, as it was -4.2 in October’2014 and rose to 2.60 in January’2015. The manufacturing production rose to 3.3% and electricity production shot up to 2.7% in the same period[xi]. Similarly, Services PMI reported by the same institutions every month, is reported to rise from 48.25 in April’2014 to 53.90 in February’2015[xii].

1.4. Consumer Confidence: The Consumer confidence index reported by Nielson also shows positive signs. The index rose from 121 in Q4 of 2013-14 to 129 in Q3 of 2014-2015[xiii], which is a 4-year high. Then the Consumer Outlook index (COI) reported by ZyFin Research presents COI to be 46.6 in January’2015, which is 10.6% higher than that in January’2014[xiv]. These indices portray the sentiment of people regarding inflation, consumer welfare, spending, employment, etc.

n this regards, it is relevant to quote the trends of consumer spending reported by Ministry of Statistics & Programme Implementation (MoSPI). The figures have shot up from Rs14580.88 billion by June’2014 to Rs15338.82 billion by December’2014[xv].

1.5. Investment, Markets and Banking: With all the above positive indicators, the Indian economy is becoming a favourable destination for investment. The Foreign Direct Investment data in India reflects the same, as it has increased from 2133 USD million by March’2014 to 5502 USD Million by January’2015[xvi]. Further, there is expansion noticed in Indian Stock Market. The figures climbed from ~20k index points in February’2014 to ~27k index points towards the end of December’2014, and reaching ~29k index points in February’2015. The Rupee remained relatively stable, and the Current Account Deficit (CAD) is continuously shrinking from 2% of GDP in Q4 of 2013-14 to 1.6% in Q3 of 2014-15. CAD is expected to fall further in Q4 of 2014-15 to be slightly above 1% of GDP, while the Finance Minister targets to maintain it at 1% of GDP in the next fiscal[xvii]. Also, there is remarkable expansion being witnessed in the Banking sector, while the issues pertaining to assets’ quality & earnings are expected to start declining (Standard & Poor’s ratings Services report[xviii]).