Has India missed the tide?

The countdown has begun. General elections must be held by May 2019 when this government completes 5 years, so pundits are scoring the government's achievements and warning on what banana skins to expect between now and then. M Chakravarty gave him an "'A' for a more robust capitalism." The Goods and Services Tax law, contract labor in all industries, tight control of fiscal deficit, increased tax-to GDP ratio, mainly through indirect taxes, improved road building and the bankruptcy law, which allows creditors to get back some of their money, are some of the positives. The first case under the new bankruptcy code involved Synergies-Dooray Automotive which defaulted on loans of Rs 9 billion. Creditors got back Rs 540 million, just 6% of the total debt. However, when Bhushan Steel defaulted on loans of Rs 460 billion last year it was promptly taken to court by the State Bank of India and has been bought recently by Tata for Rs 352 billion, giving much higher returns to creditors. Rs 830 billion has been repaid by 2,100 companies for fear of being declared bankrupt and being forced into liquidation. Modi has been very generous in implementing a plethora of welfare schemes, wrote T Kundu. Zero balance bank accounts, free gas connections, free electricity connections to villages, rural roads and toilets. Generosity has to be financed and Modi was extremely lucky that the price of oil fell from over $100 a barrel in 2014, when he got elected, to below $40 a barrel in 2015. As the high price of oil was already priced into the economy he was able to increase excise duty plus taxes on oil to over 100% while keeping the price at the pump at the same level. With international price of crude at around $80 per barrel fuel prices in India have reached to over Rs 80 per liter in some states, while regular petrol is selling at around $3 a gallon in the US, which works out to less than Rs 55 per liter. Tax on gas is at 18% in the US. As consumers spend more on fuel they will cut down on other spending, reducing demand, inflation will increase, forcing the Reserve Bank to increase rates, and the current account deficit will increase, putting downward pressure on the rupee. It should be easy to reduce prices by cutting taxes but that will send the fiscal deficit out of control. Fiscal deficit target has already been allowed to slip. The only alternative is to increase taxes on other products. Companies have been told to pay more tax by disallowing legitimate expenses. In the guise of protecting local industry the government is increasing duties on all kinds of imports. Even free food served at temples have to pay GST at 18%. "There is a tide in the affairs of men..." said Brutus. Unfortunately for India the tide may have left already.