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Friday, May 8, 2015

A trio of Politics, Economics and Vision: #NaMo in a year

Well, soon the Narendra Modi [#NaMo] government in center will complete it's one year, and there will be news and claims and anti-claims from all political outfits of the nation. I am an analyst, and I like to believe in numbers, I look for events, policies, procedures and impact that these numbers relate to. Hence, before the noise about our 'PM on flight mode' begins in news media and social media, I thought of checking out a few numbers myself. And then ofcourse, post a blog about it :-)

And yes, before we begin, as the title of this post suggests, I am trying to focus on two aspects of every set of numbers [three sets, to be accurate], the politics of it and the economics of it; and these together provide us a decent picture of the vision behind each of these initiatives.

A) Lets start with my personal favorite - The Prime Minister Jan Dhan Yojana.
Here are the real numbers as of 31st Jan 2015.
Total Number of Bank Accounts opened: 12.5473 Crore
Total Number of Zero Balance Accounts: 8.44 Crore [around 75%]
Total Number of Rupay Debit Cards distributed among these accounts: 11.07 Crore
Total Account Balance in these Accounts: 10499.62 Crore Indian Rupees
So, what do these numbers suggest?
Politics of it all:
1) 11.07 Crore families will now have an Accident Insurance cover of 1 Lakh each. In other words, Social Security in case of accidents to 11.07 Crore poor families of India.
2) 12.547 Crore accounts of poor available for direct benefits transfer [D.B.T.], including 8.44 Crore accounts with zero balance during account opening. So, next time, there is fodder money to be allocated among the 7.5 Crore rural families that are part of this big number, no Laloo can indulge in a scam. The benefit will directly get credited to the deserving accounts through NEFT. Let me rephrase, this is another milestone towards corruption free allocation of benefits to the poor.
3) Active Inclusion of 12.5473 Crore poor families in the Financial System of the country, which was infact the publicised motto of this scheme anyways.
Economics of it all:
1) With the current financial situation of India, the prevailing interest rates, all the offers for easy loans and finance, any reforms undertaken by the government would not have created sufficient increase in household savings for the country. So, instead of going after the same old crowd and incentivizing them for doing additional savings [increase tax exemptions, etc], how about go look into the so-called grey economy/parallel economy of India, and bring these people on-board. And did this bold move work !! Well, we did get a whopping household saving of 10499.62 Crore Indian Rupees from people who never operated any bank account before, and that is a number just until Jan 2015. A master stroke if you ask me, to help reduce the current account deficit of our country.
2) One of the important fiscal policy tools for government is transfers - of benefits, subsidies, etc and the parasite of corruption was eating up a portion of these transfers, no matter what. With so many additional accounts now available for D.B.T., this fiscal policy tool will become more efficient now.

B) Lets move on now to another of my personal favorites - The Make in India initiative.
25 Sectors, Flagship Delhi-Mumbai Industrial Corridor [DMIC] project to create a global manufacturing and investment destination along 1483 km long corridor spanning multiple states, and 24 cities. Four other Industrial Corridors are also conceptualized to cover most of the country's geography.
Politics of it all:
1) This initiative when complete will achieve a reduction of gap in manufacturing sector that India is currently facing, and add more employment opportunities for the growing population of India.
2) For its success, the leadership of India needs to collaborate with foreign investors, make new friends abroad, provide incentives for boost in foreign direct investment, seek momentum at an international stage for increasing and sustaining inflow of capital and investments in India, develop bi-lateral ties in trade and manufacturing sectors with old and new friend-nations. This kind-of explains the Flight Mode, by the way :-)
Economics of it all:
If you ask me, this one initiative is the unicorn of supply side policies. Get more industries, increase production, increase skilled labor, foster entrepreneurship, reduce the red-tape of administration, improve transportation and infrastructure-in-general, all this and much more - that economists suggest as supply side policies, is targeted by this initiative. And it is a common agreement, that supply side policies if successfully implemented, help in creating a sustained improvement in the economy of the country.
[demand side economic policies deal with GDP, consumption, government spending, investments, etc while supply side economic policies deal with increasing production, lowering unemployment, etc to boost GDP for good and are usually long term policies.]

C) And now, the decision that many like to gossip about - decision to add excise on petrol-diesel rates to keep them the same, despite international collapse in rates
Yeah, some time in last few years, people got serious about the Shale Gas, the process of Fracking became available, and large deposits found of cheaper Shale Gas just screwed up the market for Petroleum products. Petrol and Diesel were getting cheaper everyday. But guess what, NaMo government decide not to follow trend of international rates so accurately, and in came additional excise, just equal to the latest fall in international rates. Net impact to general population - no change in petrol and diesel prices any more.
What will this achieve? As per the estimates, the two full stops put in November [1.5 INR for both Petrol and Diesel] and December [2.25 INR for Petrol and 1.00  INR for Diesel], will generate an additional 17000 Crore INR for the government. Those are the numbers.
Politics of it all:
1) Anyone who has been in Singapore would know about the COE concept for vehicles there. Basically, all owners of vehicles end up paying an additional amount while buying the vehicle, increasing the effective cost of vehicle, and this COE is imposed by the Singapore government to keep the number of vehicles and in turn the side effects of too many vehicles like traffic jams, pollution, etc under control. Now, think of India and think that Petrol price drops to 45 INR. Can you imagine the frenzy that this will create. With Car and Bike loans so abundantly available, so many more people will start buying vehicles just because the fuel is now cheap and affordable. Putting a restriction to falling prices of Petrol and Diesel - for me is the essential governance decision taken by NaMo and team.
2) This money is dedicated for developing 15000 km of roads. Just imagine that.
Economics of it all:
1) This will result in a reduction in government spending by 17000 Crore INR [otherwise needed for those 15000 km of roads], which also means a reduction of fiscal deficit by 17000 Crore, making our budget more balanced, and reducing the need for external borrowing by 17000 Crore.
2) One of the issues that economists all over the world state about India is the very low proportion of taxes that get collected, as compared to its overall GDP. This also means that the Indian government has to keep looking for new ways to match its revenue expectations and imposing consumption tax, service tax, value added tax, excise duty are all various means which it can use to this effect. If you ask me, I view this new excise levied more as a consumption tax than excise. If I am using more Petrol, I will pay more to the government - as simple as that. And this usage has been projected to add 17000 Crore INR more. Best part, this has been done swiftly, without getting involved into discussions like those on GST, etc.

Three different instruments of economics - one which will cover for current account deficit, other which will boost supply side economy, third which will cover for fiscal deficit.
Three different initiatives - one which will provide access to social security and banking services for one-and-all, one which will generate employment for many, one which will help build this country's infrastructure.
Three different decisions - one restoring faith in 'sabka saath sabka vikas' slogan, one showcasing dream about a better future, one displaying resolution in achieving fiscal targets.
Three different visions - one to build infrastructure of today, other to employ the youth of today and tomorrow, third to include everyone in this path to progress.

Yes, there are so many other initiatives and plans and scam free governance examples and recent announcements that we can talk about. But, for me, these three sum it all up.
On the question about how did NaMo and his team perform last year, I have my answers :-)