NEW DELHI // Prime minister Narendra Modi’s government unveils its first – and highly anticipated – budget to the Indian parliament on Saturday, as supporters avidly watch for signs of the big-ticket economic reforms promised in last year’s election campaign.
A strong, reform-oriented budget that pleases businesses, investors and analysts would give a boost to Mr Modi’s government and his Bharatiya Janata Party (BJP), whose sheen has somewhat rubbed off since its decisive win in last May’s general election.
In elections to the Delhi assembly held earlier this month, the BJP won only three out of 70 seats, losing the remaining to the young Aam Aadmi Party (AAP). It was the second state election in a row in which the BJP fared poorly, coming after the Jammu and Kashmir poll in December.
Since Mr Modi’s election, the Indian economy has gone through mixed times. On the one hand, the International Monetary Fund has predicted a growth rate of 6.5 per cent for India in 2016 – up from 5.8 per cent in 2014, and higher even than China’s projected 2016 rate of 6.3 per cent.
In addition, inflation – a problem that India grappled with through 2013 and 2014 – has slowed. In January 2015, wholesale price inflation stood at -0.39 per cent, the third straight month of a negative rate. India’s stock markets have surged in the last eight months as well, and its foreign exchange reserves hit an all-time high of US$333.17 billion (Dh1,223.7bn) last week.
Some of Mr Modi’s early reform initiatives, such as executive orders – called ordinances – to streamline land acquisition for industries and the sale of coal-mining rights, have also been met with praise.
But for many people, not enough has changed.
Most prominently, Deepak Parekh, chairman of the non-government Housing Development Finance Corporation (HDFC) and one of India’s most respected corporate figures, has spoken out about the government’s inaction.
Mr Modi had enjoyed a “lucky nine months,” Mr Parekh told the Press Trust of India (PTI) news agency in an interview last week, because oil prices around the world had fallen dramatically leading to an easing of inflation and resource costs in India.
“After nine months, there is a little bit of impatience creeping in as to why no changes are happening and why this is taking so long having effect on the ground,” Mr Parekh said. Citing delays in HDFC’s attempt to raise fresh funds via a sale of shares, which finally received government approval in January, Mr Parekh said that it was still difficult to do business in India because of its tangle of regulatory and legal procedures.
Last year, the World Bank placed India 142nd in its index of 189 countries, ranked by the ease of doing business there. In October, a source from the commerce and industry ministry told PTI that Mr Modi’s government aimed to boost India to at least 50th place in this index.
On Thursday, finance minister Arun Jaitley countered Mr Parekh’s charge, saying that, if anything, his government had in fact drawn fire for pushing through some reforms – such as the electronic auction of coal mining rights – by issuing ordinances, rather than by getting parliament to vote on them.
“It’s an irony that after having seen lethargic governments, you today have a government which is criticised for being too fast,” Mr Jaitley said.
These ordinances lapse within six weeks from the start of the new parliamentary session unless they are converted into permanent legislation by parliament passing them.
But this is by no means a foregone conclusion: although the BJP has a majority in the Lok Sabha, the lower house of parliament, it is still in a minority in the Rajya Sabha, the upper house.
Some economic metrics testify to Mr Parekh’s observation that the prime minister’s rosy promises have yet to be fulfilled.
For instance, industrial growth slowed to 1.7 per cent in December 2014, down from 3.9 per cent in November. Bank lending to industries – a reliable indicator of industrial activity – grew by just 2.1 per cent in the period between April and December 2014, compared to 8.1 per cent in the same period the previous year.
"Bank lending is a very good indicator of the sentiment on the ground," John Samuel Raja, the founder of How India Lives, a company that analyses public data, told The National. "If, as a company, I'm looking for bank credit, that means I'm looking to expand, because I'm expecting the economy to do well."
Rana Kapoor, the president of an industry body named Assocham, told PTI on February 12 that “the newfound euphoria” that followed the election of Mr Modi, “needs to be backed by concrete policy action in order to see sustainable growth. In line with this, it is felt that the … budget for 2015-16 must aim primarily at growth.”
Mr Raja noted that expecting massive reforms within the first half-year of Mr Modi’s government was perhaps unfair, but that the upcoming budget is the ideal moment to “lay down a vision of the economy.”
“Because oil prices have come down, our fiscal deficit has come down, and inflation is under control. What more could [the government] ask for?” Mr Raja said. “These are the perfect conditions to make big moves.”
SSubramanian@thenational.ae