Why Modi's dream of acche din will continue to remain a dream

Apr 14, 2015

- By Vivek Kaul

Vivek Kaul
Sushma Swaraj, the minister of external affairs, must be one unhappy woman these days. This, coming from the fact that prime minister Narendra Modi among other things is also India's real minister of external affairs.

Modi is currently touring Germany, after having visited France. In an op-ed in the German daily Frankfurter Allgemeine Zeitung the prime minister wrote: "We have re-energised the Indian growth engine. The credibility of our economy has been restored. India is once again poised for rapid growth and development...It is the only emerging economy where growth rate is rising. The prospects are even better."

Prime ministers need to say such "optimistic" things when they go on foreign visits. But things on the ground level in India are not very different than they have been in the past. Take corporate performance for one. In a research note released last week Crisil Research expects "India Inc.'s revenue growth to slip to a 7-quarter low of 2.5 per cent on a year-on-year (y-o-y) basis," for the period between January to March 2015. This is less than half the growth of 5.4% seen in the period October to December 2014.

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Crisil believes that the steel sector will see revenue declines of 10-11%. The petrochemicals industry will see a revenue decline of 20-22% on account of drop in global crude oil prices. "Growth for construction and capital goods sectors' will continue to remain sluggish due to lower order backlog and slow project execution," the research note points out.

The revenues of the automobile sector are expected to grow by around 6%. "While sales of cars and medium & heavy commercial vehicles have picked up, muted growth in international businesses and the two wheeler space will impact the topline." The two wheeler companies are not expected to do well primarily because of the non-seasonal rains in large parts of the country which will impact the production of the rabi crop. This will dent farm incomes.

As Crisil Research points out: "Domestic consumption and export-oriented sectors are likely to outperform but, here too, sectors heavily dependent on rural consumption such as motorcycles, tractors, and FMCG have been facing severe pressure on volumes as unseasonal weather conditions and slow growth in crop prices have dented farm incomes."

This will have an impact on the Fast Moving Consumer Goods (FMCG) sector as well. Crisil forecasts this sector to grow at 8-9% during the period January to March 2015. The sector had grown at close to 14% in between April and September 2014, the first half of the last financial year.

What this clearly tells us is that the performance of the Indian companies will remain weak during the period January to March 2015. What is interesting is that before Narendra Modi came to power, corporate performance had been relatively stronger than it is now. During the period April to June 2014 (the first quarter of the last financial year) the revenues had grown by 12.8%. In each of the three quarters before that, the revenues had grown at higher than 10%.

Since July 2014, the revenue growth started to fall and has continued to fall. Modi came to power on May 26, 2014. Corporate growth is a function of many factors and just blaming the Modi government for it is not fair. But the claim that Modi made in Germany that "we have re-energised the Indian growth engine," is not correct either. Without growth in company revenues, there is no way the overall Indian economic growth can be re-energised. Both are closely linked.

Further, if sustainable economic growth is to be created jobs need to be created to employ India's burgeoning workforce. Sample this-Every year up till 2030, 13 million Indians will enter the workforce. This means more than a million Indians are entering the workforce every month. And if enough new jobs are created for them, economic growth will automatically happen.

But is that the case? Are enough jobs being created? The trouble on this front is that India does not have good data on employment. In fact, the latest economic survey makes this point: "The data on longer-term employment trends are difficult to interpret because of the bewildering multiplicity of data sources, methodology and coverage."

Despite this, some broad inferences can be made by looking at data from multiple data sources. (I will spare you the details here. But anyone interested in the details can refer to Box 1.3 Employment Growth and Employment Elasticity: What is the Evidence? in Volume 1 of the Economic Survey).

As the Economic Survey points out: "Regardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, labor force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent. Creating more rapid employment opportunities is clearly a major policy challenge."

This is a major challenge for the Modi government and honestly it doesn't seem to have done much on this front. Jobs are essentially created by small entrepreneurs as they grow big. The labour laws in India ensure that most firms start small and continue to stay small. For this anomaly to be corrected, India's labour laws need to be simplified. Nothing has happened on this front at the central level, since Narendra Modi came to power.

Over and above this, the entire process of starting and running a business in India is not easy. As per the Ease of Doing Business ranking India ranks 142 in a list of 189 countries. When it comes to the ease of starting a new business it comes in 158th. When it comes to enforcing contracts India comes in 186th out of 189 countries.

What this clearly tells us is that the entire Indian system works against an individual wanting to establish and run a business. What it also tells us is that in order to run a business in India you need to be well connected with the bureaucracy and politicians and that explains the surfeit of crony capitalists who do well in India.

If jobs are to be created the ease with which a business can be started and operated in India needs to be improved. Sadly, nothing much has happened on that front despite the so called dynamism of Narendra Modi. And unless this changes, the entire dream of acche din will continue to be just that.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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15 Responses to "Why Modi's dream of acche din will continue to remain a dream"

Mahadev prasad

Apr 25, 2015

dear Vivek sir your research and comments on Indian economy and present Government is indeed eye opener.India is lagging behind in devlopment and progress and setting up business is not easy here ,the previous government had established a sstem of corruption so deeply that it will take one decade for any government to bring progress and devlopment of the Indian economy. Nice to read your comments I hope the government and people understand .

Like (1)

Sanjiv Gupta

Apr 16, 2015

I fully agree with Mr Vivek. You see, for anything to percolate to common man in India, it has to pass through rigid and impermeable bureaucracy and official apathy. Government has hardly done anything to make this passage smooth and accountable. Common man cannot sue government agencies for inefficiency and apathy. Their is no accountability. Tax-payers money continues to be gobbled up by the powerful and utterly misused and wasted. Lofty schemes are another way to blow-up taxpayers money.
Modi has good intentions but he surrounded by crazy people who believe in banning and dictating their views. Anyway, he is last hope for India. Lets hope that government will introduce accountability and efficiency in its delivery machine.

Like (1)

Ravindra Duvvuri

Apr 15, 2015

Does Mr Vivek Kaul really expect 10 years of misgovernance and economic stagnation brought about by UPA rule to be wiped out by 10 months of BJP government ( I am sure he does not; he knows better than this)? The Modi government is taking slow but steady steps to bolster India's economy, the effect of which we will probably begin to see in this fiscal year.

Like (2)


Apr 15, 2015

The underlying bias was so obvious that I felt I was reading ET!

Like (2)

Prasanna Venkatesan

Apr 15, 2015

Hi Vivek, Are you awake? When hard nosed world bank and IFC are predicting 8.5% And the ever grumbling RBI Governor also predicting 7.5 % growth, why are you playing jaalra to the congress inspired nay Sayers and some of the eternally pessimistic western press. Pl. do not expect miracles in 12 months, what a misrule of congress, did in 60 years.Be patient and optimistic.Modi has no family or personal empire to build on. If you still believe only Rahul Gandhi will usher in the golden age, God bless you because, even his own party men do not have such hopes.only Raahu Kaalam - bad times, has begun for congress.

Like (2)

Penugonda Prabhakar

Apr 15, 2015

PM dream told i rich dreams many times Richard as it is i talking to rich.

Penugonda Prabhakar

Like (2)

Jeevan Shetty

Apr 14, 2015

Very disappointed by the poor quality of the article. Most of the data used are already in public domain. PM did not announce India's economy is up and running in full steam. He said it energized and ready to take off.
May be the article title is intentional to draw more readership.

Like (1)

Brij Singh

Apr 14, 2015

India shining or BJP shining-neeeds to be defined. Recent news on front page of TOI dt 14 April 15 "Attach train if Rlys don't pay dues :HP court" is a good example of India shining.The land of two farmers was acquired in 1998 for laying the railway line, but still after 17years when the land cost has multiplied many times, the poor farmers are fighting their battle to get their dues. The bureaucrates responsible for this dealy should be made to pay from their pockets, the interest @12% to these poor farmers otherwise you can not finish naxalism from this counrty where the justice is for rich and poor fight only loosing battle. Only hope is judiciary which also BJP is bent upon to make them toe their thinking.

Like (1)

D Ghosh

Apr 14, 2015

Mr. Modi's dream will remain a dream because his team has no clue how to convert a dream to reality. They have already started manipulating the numbers starting with GDP calculation. High value defense projects are being signed with foreign countries but this will not generate any employment back home worth mentioning. Similar amount invested in commercial projects would have generated huge employment and real GDP growth would have clocked. Make in India will only remain a slogan and will never become a mission accomplished unless he gets the right kind of people to guide the government in right direction. I met Mr. Modi in 2010 when he was Gujarat CM in connection with a new shipbuilding project. He wanted to open a shipbuilding park in Bhavnagar and wanted entrepreneurs to establish a shipyard in a particular area selected by him. It didn't matter to him whether the area was suitable or not for shipbuilding. Gujarat Maritime Board would not allot any other area for shipbuilding. His dream of shipbuilding park has remained a dream till now.
We saw a similar dream with GAIL's tender recently. Till such time that the bureaucrats frame rules the country's manufacturing industry will never grow let alone compete at the international level. Presently India is way behind China in terms of development, infrastructure and manufacturing facility and this gap will only widen. We will not catch up with them even in 100 years.
I have no doubt that Acchhe Din will never come.

Like (1)


Apr 14, 2015

Dear Sir
Appreciate your write ups and views, but I think you are just so negative with the government I mean the MODI Government.

For example assume just assume I run a company in a country which u dream of is the best country with best government with the best infrastructure with the best policies and what if I don't perform and contribute in terms of revenue. will you still be cribbing about the government?

Also i do appreciate you assessment of government why not assess from the point they took over the nation to the place they are taking towards to.

Now what problem is it that if Modi visits places and sushma swaraj doesn't she anyways reporting to Modi only. What wrong did he say if he is markeing India there, its better than inaction sir? Or do you still wish you wanted Manmohan singh to be the primeminister and sell the nation sell the borders and shatter our country.

Like (2)
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