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Economy
The government went in a self-destructive mode. Failing to contain prices and corruption, fast-track project clearances and even lift the mining ban, the UPA focused on winning elections by passing laws on food security and land acquisition, and raised wages under the rural job guarantee scheme. However, the economic data for much of 2013 was disappointing. Growth plunged to below 5 per cent. Auto sales fell month after month. Manufacturing could not bounce back. Interest rates could not be lowered to boost consumption. Only exports surged. Price rise contributed to the Congress defeat in the assembly elections. P. Chidambaram tried to cut government expenditure, keep fiscal discipline, talk up the markets and public mood, but there is a limit to things a finance minister can do when politics prevails over economics ahead of elections. Despite a normal monsoon, food prices soared. Middlemen manipulated prices —first of onions, then tomatoes and potatoes. Governments slept as middlemen robbed consumers. Some connived. The Sheila Dikshit government sold subsidised food but it was not enough to douse public anger. She and her government were dealt a crushing defeat.
The quantitative easing by the US Federal Reserve triggered dollar outflows, weakening the rupee and the stock markets, and widening the capital account deficit. The government responded by imposing curbs on gold buying. Global currency and equity markets saw respite after the new Fed chief, Janet Yellen, promised to continue bond buying, which makes cheap capital available for investment, part of which flows to the emerging markets, including India. The year saw the Modi phenomenon unfold with political and economic repercussions. Goldman Sachs called Narendra Modi "an agent of change". Three-fourth of the 100 CEOs polled by Nielsen wanted Modi to lead India. His business-friendly image, performance in Gujarat, emphasis on "minimum government, maximum governance" and decisive leadership have enthused foreign investors. If the US Fed remains investor friendly, foreign institutions would stay on, betting on the Modi leadership. How the US handles the issue of denial of visa to Modi will be interesting to watch. Given the UPA non-governance, the BJP would have got power handed over to it on a platter. However, the AAP (Aam Aadmi Party) may play the spoilsport. Team Kejriwal’s economic policies are vague, if not altogether retrograde. Its anti-industry bias becomes clear from the call for an audit of the power discoms in Delhi. If there is a hung Lok Sabha or a make-shift government of regional parties, the foreign investor will be the first to head for the exit door. Under the UPA, the prospect of bankruptcy of the treasury scared foreign investors. A possible game-changer like the GST (goods and services tax) fell prey to bickering among states. The food law was questioned at the WTO (World Trade Organisation) Bali summit but a last-minute agreement, believed to be at the cost of agricultural subsidies, saved the day for the UPA. Tired of a rudderless government, business houses shifted loyalty from "original reformers" Mamohan Singh and Chidambaram to Modi, who remains untried outside Gujarat. The December Assembly results lifted the BJP fortunes, pushed the stock markets to a new high and bolstered economic confidence. However, economic and political realities for the New Year are still grim: food prices and interest rates are uncomfortably high and chances of a clear BJP victory, post-May 2014 general election, are uncertain after the rise of the Aam Aadmi Party.
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Price
rise stumped growth too. The RBI could not loosen monetary policy.
When Raghuram Rajan took over as RBI Governor, hope resurfaced. His
inspiring inaugural speech lifted spirits, but he soon disappointed
investors by choosing to fight inflation over softening interest
rates.
