Stock markets are saying something, Mr Prime Minister Narendra Modi

Stock markets are saying something, Mr Prime Minister Narendra Modi

FPJ BureauUpdated: Saturday, June 01, 2019, 01:56 AM IST
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The stock markets tanked sharply on Wednesday. A 723-point crash was the biggest single day loss this year. At 26,717.37, the benchmark Sensex was at the lowest level since mid-December last. Foreign institutional investors sold shares worth Rs.1700 crores on Wednesday. In all, they have sold shares worth nearly Rs. 9,000 crores in the last eight trading sessions. Indeed, the Indian market has performed the worst among all major global markets in recent weeks. There are several factors for the downturn but the immediate trigger could well be the sharp spurt in crude oil prices. The new regime in Saudi Arabia seems to be testing waters, examining if the recent sharp dip in oil prices had sufficiently hurt the shale oil industry in the US. Of course, higher oil prices would do much more than dampen the spirit on the bourses.  Overnight, the budget estimates for fuel subsidy and even for current account deficit have become suspect. State-owned oil marketing companies will be staring at losses should crude oil prices rise above the current $68-70 per barrel. Current prices of crude in the global market are some 44 percent higher than those prevailing in early January this year. Crude oil prices aside, the major causes for the downturn on the bourses cannot but be domestic. Corporate earnings are dispiritingly low. Off-take of credit is lackluster. Companies are still not able to plan expansion and diversification given the low demand in the economy and uncertain conditions. Despite the emphasis on `Make in India’ there is no noticeable spurt in the manufacturing sector, with even big names in the industrial sector relying on relatively cheap imports from China to bolster their bottom-line. Whether it is consumer electronics or steel or steel products, the Chinese imports dominate the domestic market. Failure of successive governments to raise the duty barrier within the acceptable WTO parameters remains inexplicable. Yes, consumers might be immediate beneficiaries of these imports but eventually it is going to have an adverse impact on the capabilities of the domestic manufacturing sector, leaving it unready to stand on its own feet once the imports become costlier. Given the slowdown in the Chinese economy and the higher costs of exports due to increased labour and input costs, it is time the domestic manufacturing sector abandoned its reliance on imports. Reports that the Chinese are now shifting emphasis from cheap to quality consumer goods ought to worry Indian importers. The point is that despite nearly a year in power, the Modi Government has not been able to bring about a significant shift in the domestic industrial sector. Yes, power generation in the public sector has gained a boost. There is now transparency in the allocation of coal mines and telecom spectrum, but this by itself is not good enough to bolster the growth rate.

Looking back, it seems the Government might have erred in settling for piecemeal, incremental reforms instead of exploiting the honeymoon period to go in for big-ticket reforms at one go. For instance, it ought to have pushed through the GST Bill within a couple of months of its coming to power when the Opposition was still in disarray and there was little resistance to the Government both inside and outside Parliament. Prime Minister Modi’s style of functioning too could be flawed insofar far as he has concentrated much of decision-making in his own and in the hands of a few select bureaucrats. Even when some tasks were easily achievable, such as a clear and categorical end to the retrospective tax horrors, the Government has allowed taxmen to persist with their bad ways. Confusion over Minimum Alternate Tax which spooked the markets is a case in point. On top of all this, the specter of a bad monsoon hangs over the economy. Food shortages may not result from insufficient and uneven rains but the rural distress could mar the political climate and force the Government to write off farm loans and to distribute thousands of crores of rupees on compensation. Also, the downturn in the market sentiment might throw out of gear the Government’s disinvestment programme from which it had estimated to raise Rs. 70,000 crores this fiscal.  Of course, things can change for the better once the Government realizes that slow-motion reforms and decision-making needs to yield to drastic and fast- track decisions in the economic sphere. Boldness is needed. There has been little sign of that thus far. We hope Modi can grasp the challenge. Announcements like the Swachh Bharat are fine, but Indians should be able to see that Bharat is indeed Swachh now. Of that, there is little evidence as yet.

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