'Achche Din not here but we are moving in the right direction'

'Continuation of tax terrorism, which we witnessed under the UPA, is driving away investors'

'Modi's biggest achievement is bringing inflation under control'

Land reforms and environmental clearances are two major hurdles the government has to cross for the economy to pick up, says Krishnamurthy Subramanian (bottom, left), associate professor of finance, Indian School of Business, Hyderabad and visiting professor of finance, Kellog School of Management.

In this interview with Shobha Warrier/Rediff.com, on Skype from the US where he is on a research project, Subramanian analyses the first 365 days of the Modi government.

While Subramanian is convinced that the good deeds of the government will soon be visible to all, he cautions that it does take time to make changes, particularly when there is a lot of overhang from the previous government.

Subramanian received his MBA and PhD in finance from the Booth School of Business, University of Chicago. He has worked at J P Morgan Chase, New York in investment banking and in the interest rate derivatives desk and with ICICI Ltd in the derivatives research group. He is also an alumnus of the Indian Institute of Management, Calcutta and the Indian Institute of Technology, Kanpur.

Expectations were very high when Narendra Modi took over as the prime minister of India. Rating agencies all over the world painted a very rosy picture of the country. Has he succeeded in living up to the expectations?

There will always be a gap between expectations and reality. During the UPA (United Progressive Alliance) regime, India’s image was negative but when Modi came to power, it changed -- there was a kind of euphoria.

Yes, some of the reforms did not move as fast as you would have liked. Part of it is because the Congress as the Opposition is giving back what the BJP gave it during the UPA rule. It is payback time and the BJP is facing the same obstructionist policy they themselves had followed when in opposition.

The land acquisition bill is critical for the revival of the economy. Manufacturing in particular is affected because the Opposition is not allowing the bill to be passed.

During UPA’s rule, environment clearance was a major hurdle, first Jairam Ramesh and then Jayanthi Natarajan. During Modi’s first 365 days, we haven’t heard much about environment clearances which is actually good news. Not hearing bad things is good news.

Land reforms and environmental clearances are two major hurdles the government has to cross for the economy to pick up. The policy paralysis and lack of direction that was prevalent under the Manmohan Singh government have changed.

You said there is direction in what the Modi sarkar is doing but former minister Arun Shourie recently said the government is directionless…

I think Arun Shourie has his own axe to grind. I don’t think the government is directionless. We have Arvind Panagariya (vice chairman of Niti Aayog), Arvind Subramanian (chief economic adviser to the Government of India) and Reserve Bank of India Governor (Raghuram Rajan) -- three very intelligent people at the helm of affairs and both the prime minister and finance minister seem to be listening to them.

Talent without probity can hurt rather than benefit and that was what we saw in the UPA period. On the other and, we see talent and direction now.

In fact, if you read the Economic Survey, you see a lot of clarity on what the government wishes to achieve. The direction for the fiscal deficit is on the positive side as it has been brought down. Public spending has increased. If you look at the macro level indicators, be it inflation, fiscal deficit, or current deficit, all have come down. Of course, you can attribute some part of it to luck, also.

The RBI governor, on his part, is taking good steps in removing hurdles on the credit side.

I think these steps are in the right direction and I am positive that things will start looking better in the coming years.

Investors are losing hope and shying away from India and investing more in China because of the policies put forward by Finance Minister Arun Jaitley. Do you agree?

The government needs to be careful about its hyper aggressiveness in tax collection policies. A lot of investor angst is because of this and not because of lack of faith in India’s growth story.

The prime minister’s visits to various countries have put India on the world map once again. I am in the US right now and I hear qualified people and investors tell me that in the next 10 years, India is going to be the country. I was not hearing this a year or a year and a half back. They always pointed out that India faced the same kind of problems that was prevalent in all middle-income countries and thus could not be a high growth economy.

When was the last time an Indian prime minister was on the Time magazine cover? Time has a very good understanding of where things are going. Time feels that, once more, there is enough promise in the India growth story.

Do you feel one year is too short a period to bring about changes, and is it unfair to expect miracles?

Part of it is true. It does take time to make changes, particularly when there is a lot of overhang from the previous government. At the same time, it is true that some of the expectations that could have been met, still remain miles away. The land acquisition bill, for example. The previous bill could really hurt the economy. Please note that agriculture has not been growing in the past two decades. So, we have to provide jobs in manufacturing. A good part of the agricultural population has to move from farmland to the organised manufacturing sector.

But the bill has been branded as anti-farmer and anti-poor.

If you are going to condemn Indian farmers for the next 20 years, it is only going to hurt them more.

Indian agriculture is plagued by various problems, which cannot be fixed immediately. Developed countries use sophisticated technology in agriculture. Where is that kind of technology in India? When growth is not happening, how is the farmer going to feed his family? It is time to look for alternative options. That is why, jobs in manufacturing sector are crucial.

Modi sarkar is accused of more talk, less action. Do you agree?

To some extent, the criticism is valid. Perhaps that is the style of the government and the prime minister. But the results of what he has done will start showing soon.

In the last one year, what is the biggest achievement and biggest disappointment of the Modi government?

The biggest achievement of the Modi government is bringing inflation under control both in terms of consumer price index and wholesale price index. Inflation hurts the poor more than the rich. Part of the credit should go to the government because they have given the RBI fgvernor a free hand and definitely a lot of credit has to go to the RBI.

The land acquisition bill not getting passed is a big disappointment. However, I am more frustrated by the continuation of tax terrorism that we witnessed under the UPA. It is hurting the investors.

The last time when I interviewed you, I asked you whether achche din were coming. Now that the government is going to complete 365 days, what do you feel?

Achche Din has not really come but we are moving in the right direction. I will say, achche din aayenge (good days will come).