New Delhi: Indian Prime Minister Narendra Modi offered a wide-ranging rebuttal to critics who say he’s gotten lucky with low oil prices.
Loan growth has picked up, corporate rating upgrades are now outpacing downgrades, foreign direct investment hit a record last year and some key manufacturing sectors such as carmakers are growing rapidly, Modi said at an event organised by Bloomberg LP in New Delhi on Monday.
The focus is now on clean energy, farm incomes and creating jobs, he said. "Obviously there are some who find that difficult to digest and come up with imaginative and fanciful ideas to belittle that achievement," Modi said. "The fact is that India’s economic success is the hard-won result of prudence, sound policy and effective management.”
Nearly two years since a landslide election win, Modi is battling criticism that India’s 7.6 per cent annual expansion is thanks to crashing global oil costs, which help shrink deficits and curb inflation in the $2 trillion economy. He’s also trying to strike a balance between pleasing investors who want faster economic reforms and winning rural votes before this year’s state elections.
Several economists including those at HSBC and Deutsche Bank — as well as Modi’s political opponents — have said that India’s economic expansion masks underlying weaknesses. Deutsche’s Taimur Baig pointed to a record 15-month drop in exports, falling factory output and lower corporate earnings to question the data, while HSBC’s Pranjul Bhandari said the surge is likely to fade once oil prices stabilise.
Modi’s two years in office have belied expectations of big-bang reforms that came after his election win. He has failed to push through a goods-and-services tax that would create a single market among India’s 1.3 billion people, dropped a proposal to make it easier to acquire land and kept in place powers to retroactively tax companies. India’s stocks, bonds and currency are among Asia’s worst performers this year.
Disenchantment with the administration has also grown on concern that Modi will fail to provide jobs for the 1 million youth who enter India’s workforce each month. India created 296,000 jobs from June 2014 to June 2015, according to Labor Bureau figures for eight selected sectors.
This February, following back-to-back droughts and an election loss in the mostly rural state of Bihar, Modi vowed to improve the lives of Indians living in the hinterland. He expanded irrigation, revamped crop insurance, pledged to improve groundwater resources.
Every village would have electricity by May 2018 and every impoverished household would have cooking gas, he vowed, referring to the 70 per cent of Indian citizens who live in villages. Every poor family would get better health care, and Modi also aims to double farm incomes by 2022.
"With a good strategy, well-designed programs, adequate resources and good governance in implementation, this target is achievable," Modi said on Monday. "And, as a large share of our population depends on agriculture, a doubling of farmers’ incomes will have strong benefits for other sectors of the economy."
A boost in farm output will spur the increase in gross domestic product to 7.9 per cent in the year starting April 1, according to D. K. Joshi, an economist at Crisil, the local unit of Standard & Poor’s.
Modi has the tools to aid him: India has the world’s most optimistic company chiefs, most confident consumers and is on pace to have the largest workforce. Aiding technological development and gender equality will provide outsized benefits to India compared with the rest of the world, with the potential to add as much as $1 trillion to the economy, according to McKinsey.
Outflows from foreign funds are slowing, and direct investment touched a record $42 billion in 2015.
The administration plans to focus on education and skill development. It will offer 20 selected institutes additional funding as well as complete autonomy on decisions including the curriculum, Modi said on Monday. More money will be spent on improving the quality of primary education, he added.
The government will also work to boost investment in and usage of clean energy across the country, Modi said. "I know it will be difficult," Modi told the gathering of investors and diplomats. "But I am sure it is doable. And I am confident, it will be done."