ET column, which had posited that there’s a big difference in economic policy worldviews of Narendra Modi and MICs — markets, investors and chattering classes. That this difference comes down to Modi prioritising the creation of an enabling economic environment for many, while MICs reckon the more important job, at least right now, is to enthuse the few in the private sector who take big investment calls.
Some news developments since then allow us to further refine the earlier argument, as well as the concluding question — with an appreciable growth pickup over the next few quarters absent, will Modi change his approach?
Top of the list of relevant news stories is the Cabinet’s decision last week to amend the Insolvency and Bankruptcy Code (IBC). Coming a mere two weeks or so after the National Company Law Appellate Tribunal (NCLAT) interpreted the IBC as a set of rules that puts financial and operational creditors at par in the Essar insolvency case, the Cabinet decision was both remarkably quick by government standards and spot on. It didn’t just restore the primacy of financial creditors, but it also put a new resolution deadline — 330 days — for IBC cases that included time taken by litigation. This puts courts, which have been endlessly hearing many IBC litigations, on notice to take decisions quickly.
The other very relevant news story was finance minister Nirmala Sitharaman keeping the Budget’s ‘rich tax’ as it is, and not acceding to MICs, who had desperately wanted an exception for foreign portfolio investors who form trusts.
Together, these two news items were a classic demonstration of our earlier argument that the Modi government is big on process improvements —hence the quick amendment to IBC —and not so keen on taking decisions —rolling back the ‘rich tax’ — the main virtue of which is enthusing the investing class. It’s possible to argue that other post-reforms governments would have probably taken more time to amend IBC and given in on the ‘rich tax’. Modi’s is not like any other postreforms government.
With Luv, From Guv
Further confirmation comes from the
extensive interview RBI governor Shaktikanta Das gave to ET’s Deepshikha Sikarwar and M C Govardhana Rangan. Among other things he said, Das, an RBI chief who’s more aligned with GoI’s policy approach than most of his recent predecessors were, made three points relevant to our discussion.
First, he emphasised changing overall environment (for example, systemwide availability of more liquidity) over special, targeted help in the matter of non-banking financial company (NBFC) liquidity problems. Second, he pointed to specific domestic sectoral issues and global constraints while discussing stalled private investment in the real economy. Third, he more than once stressed the importance of regulation-led clean-up, especially in finance.
Read together, these arguments from the RBI governor tell us he doesn’t think the economy, and GDP growth, need short-term booster shots, that process improvements are crucial and will show results but that stakeholders should be patient, and that as important as GDP growth is, maintaining regulatory focus on risky and/or dodgy behaviour by financial actors is no less important.
My World, My View
As we have argued, that’s pretty much how the government is looking at the economy, too. Therefore, there’s even more evidence for our hypothesis that, no matter how aggrieved MICs are (and with markets now going down, MICs will fret even more), Modi isn’t going to change his economic worldview in the face of a fresh batch of what chattering classes will describe as bad economic numbers.
The ruling hypothesis of the ruling establishment seems to be that a higher economic tempo is a matter of ‘when’, not ‘if ’. I had concluded in my earlier column by saying two or three quarters from now, everyone will be in a fair position to assess how much force this hypothesis retains. In the meantime, though, we can point to some ‘what ifs’.
Between now and, say, end of 2019, what if
— The global economic environment turns particularly hostile for India through an US-Iran conflict-led volatility in oil prices and/or a US-China trade war-led sharper deterioration in world trade volumes.
— Consumer demand, for FMCG and/or durables sectors, shows few signs of appreciable pickup.
— Regulatory ‘overkill’, for example, through investigative and other agencies’ actions on various alleged cases of financial fraud, further and substantially dampens investor and/or lender sentiments.
— Notwithstanding the three aforementioned what-ifs, BJP wins state assembly elections and a couple more states fall the party’s way via desertions from Opposition ranks.
What we are asking is if economic numbers take a noticeable turn for the worse but BJP’s political march continues unabated, will the government still retain its economic policy approach? This may be the most consequential question over the next few months.