Has Modi delivered?

1. Has Modi delivered? And how much leeway will the political system afford him Sunil Jain Managing Editor The Financial Express January 2015

2. What the UPA left behind • Stagnant economy … sub-5%, no investment • Policy paralysis • Tax Terror • MGNREGA, Land Bill, Environmental Terror • Iron ore mining stopped by courts • Coal blocks cancelled • Rising inflation • Troubled CAD • In short, no one expected India to get back on track for next 2-3 years at least

3. What did we want Modi to do? SHORT TERM • Fix the tax terror • Fix the subsidies, move to Aadhar-based cash transfers • Raise prices of natural gas • Provide more telecom spectrum … the last two would bring in immediate investments, $15-18bn in oil and $10-12bn in telecom • Rein in food inflation by dumping FCI stock

4. What did we want Modi to do? SHORT TERM • Stop FCI’s open-ended procurement … move towards an ‘incomes policy’ in place of the MSP-driven system • Clean up mandis … Azadpur, Vashi • Approve a bank holding company • Privatise PSUs • Bring GST … BJP states were opposing it • Change centre-state relations

5. What did we want Modi to do? SHORT TERM • Raise FDI limits in insurance • Raise FDI limits in defence • Allow FDI in B2C e-commerce, live with FDI in retail • Fix the UPA’s bad land acquisition law

6. What did we want Modi to do? LONGER TERM • Fix labour laws • Scrap the coal mining and other laws that keep commercial miners out • Fix the fisc • Fix the Doing Business kind of indicators

7. What did we want Modi to do? LONGER TERM • Bring in the Direct Tax Code • Clean up tax exemptions • Make sure states clean up electricity sector … use the FRP leverage • Work on PPP framework/laws to fix the current problem of PPP paralysis • Allow RBI to clean up banking

8. How has Modi done? Mixed picture • Certainly industry seems less optimistic • First budget was lacklustre, possibly because govt didn’t have enough time • All the major numbers have turned out to be incorrect … Rs 1 lakh cr tax shortfall • Ghar wapsi drowned out development agenda • Rajya Sabha is a major political challenge

9. How has Modi done? Good • Jan Dhan Yojana … does many things • Coal Ordinance … will get disinvestment cash as well as bring in commercial miners • Price and CAD under control … Acche Sitare • Labour laws via Rajasthan • Defence … 49% looked bad, but worked out • WTO victory … global visits great success • No more tax terror … Shell and Vodafone

10. How has Modi done? Bad • Completely goofed up gas pricing, no real moves on LPG – could have followed diesel route of UPA • Telecom … despite defence releasing spectrum, no auction, will kill Digital India • Nothing on FRP-type power solutions … even cancelled UMPPs • Nothing on bank divestment company • Railways … nothing on PPP which is critical • PSUs … no privatisation as yet

11. How has Modi done? Indifferent • GST has been a washout so far, no issues resolved despite BJP being in power • Land Acquisition … nothing for industry • Agriculture … some action on bonus states, freed Azadpur but no land for alternative mandi, very little FCI stocks sale … very much work in progress

12. How does the future look? • None of the $100bn of cleared projects have taken off … with banks and India Inc over-leveraged, taking off will take 2-3 years • If BJP gets too aggressive, as it did with Mamata on Saradha, could affect passage of Bills … Land Acquisition is a good example • Govt seems to a bit defensive about reforms, so that’s a bit worrying … retro tax law is a good example of this, so is land • Is too know-it-all … telecom/gas examples

13. How does the future look? • Cairn shares stuck and government playing the heavy on its field extension, wants to increase the ONGC stake • No one big project private project has been announced or cleared • Can’t even sell SUUTI stake in L&T,ITC • Need to see if Modi will move on BSNL/MTNL or Air India privatisation

14. How does the future look? • Doubling of worker definition in Factories Act has exempted half of factories from it • Essentially, Modi is trying to fix the huge hike in ICOR over the past few years, from 4.4 in FY04-11 to 7.4 in FY12-14 … in short run, fixing the Doing Business indicators is the best solution … And this does not involve political parties • Fixing the defence licensing, self-attestation are all good examples of this

15. What to watch for • What kind of powers RBI will get • If not enough powers, can’t clean up bank balance sheets, so RBI needs to be able to force banks to force India Inc to deleverage • Have done SMA, SMA1, need to put group exposure norms in place • Rajan’s attempt to complete ‘missing markets’

16. What to watch for • Will be a lot more action in infrastructure like smart cities etc • A lot will, of course, depend on how the new PPP framework comes up • Will govt move on acre-based cash transfers to farmers • Will RSS dominate Modi

17. Why we’re positive • Modi is focussed on the nitty gritty • Solar Power Gujarat story • Kisan Mandi Delhi • Open market wheat sales after rice flopped • Article 254(2) • LARR consultation • Factories Act • Coal price pooling • Clearing defence deals to attract investors

18. Thank you