The year?s twists and turns, its depths and its lows were, not surprisingly, best captured by contrasting headlines at its beginning and at its end. If the flavour of the year was India?s collapse and its subsequent recovery, albeit weak, the lead headline on January 1 was India?s current account deficit (CAD) at a record 5.4% in Q2 and a fiscal deficit that was so large, 80% of the year?s target had been used up by August 2012 itself; at the end of the year, the headlines were about the CAD being largely under control (Q2 CAD was a mere 1.2% of GDP) but, on the fiscal side, it was remarkably similar with 84.4% of the year?s deficit being used up by October. The year began with the rupee at 54.69, the Sensex at 19,581 and GDP at 4.7%; it ended with the rupee at 61.8 after having travelled all the way down to 68.83 and the Sensex at 21,033 though GDP growth was roughly similar?in between was a remarkably topsy-turvy journey, some of which is covered on the graphs on this page, the salient parts of the rest on the different pages of this special section.
The other big story on FE?s page 1 on the first of January was the impending US fiscal cliff which, added to the dismal economic performance?0.1% GDP growth in the December quarter of 2012?spelt disaster for the global economy; not surprisingly, India?s exports growth was contracting in the last few months of 2012. By the end of 2013, US growth had roared back to 4.1% (in the September quarter), a number not seen in six previous quarters. While both were reason enough for the Fed to finally start its taper, the biggest reason was an agreement on the budget, phew!
On FE?s front pages, the year began with the National Highways Authority of India (NHAI) threatening to take the environment ministry to court for delaying projects?a few weeks prior to this, the GMR Group had driven off the 555-km long Kishangarh-Udaipur-Ahmedabad highway for which it had promised to pay NHAI over R9,000 crore on an NPV basis. At the end of the year, not much had changed in terms of environmental clearances, but stung by a 4:1 loss in the assembly elections, a chastened government ensured environment minister Jayanthi Natarajan was recalled to the party and Veerappa Moily was given additional charge of the ministry?Moily managed to clean up a large part of the mess his predecessor left in the oil ministry and give a fillip to exploration that was stuck for a long time. Expect a series of clearances soon, a possible R45,000 crore of which were outlined in an FE story just a few days ago. And, for what it?s worth, NHAI is likely to award its first build-operate-transfer project in the year soon.
If the year?s biggest upset was the rupee and the CAD, the biggest plus was the stunning pullback, largely orchestrated by finance minister P Chidambaram?RBI Governor Raghuram Rajan?s swap arrangements which collected a surprise $34 billion also played a role in the rupee?s recovery. The Cabinet Committee on Investment (CCI) was nowhere nearly as powerful as conceived by Chidambaram and so could not overrule individual ministers who were recalcitrant in clearing projects, but it did an amazing job by clearing projects worth R4,01,100 crore. Getting these projects back on track will take time?as Credit Suisse?s House of Debt report pointed out, India Inc?s average interest cover has fallen from 4.2 in Q2FY12 to 2.7 in Q2FY14.
Balancing the budget, another big positive for an economy that looked like it could be downgraded for much of the year, has not been easy either, but a savage cut in expenditures, both last year and this year, has been Chidambaram?s response. And while the collapsing rupee made a mockery of the diesel and LPG subsidy cuts, there is little doubt they are working. Chidambaram?s ability to stay within his ?red line? has been made easier by postponing R1.4 lakh crore of expenditure?that?s more than 1% of GDP?but over the years, under-budgeting and postponing expenditure, apart from dumping R64,000 crore of subsidies on oil PSUs, has become par for the course.
On the whole, the government made remarkably little use of its successfully implemented Aadhaar programme?by the end of the year, 53.34 crore people had Aadhaar numbers. A total of R1,700 crore was disbursed for LPG subsidies in 184 districts, showing enough proof of concept were any government willing to move ahead with the project.
How tortuous decision-making was in the year is best demonstrated by what happened on gas pricing. With Reliance Industries Ltd?s (RIL) gas output falling in the prolific D1/D3 fields and the company arguing it would not invest if gas prices weren?t freed up fully as was promised in the original contract, PMEAC chairman C Rangarajan was asked to head a panel on it; Rangarajan suggested a half-way house for a few years, but it took six months for the Cabinet to clear the formula, and another six to decide whether to allow RIL to avail of this since the government believes RIL was suppressing output till prices rose.
If this wasn?t enough, the commerce and industry continued to put all manner of roadblocks in reforms like FDI in multi-brand retail and pharmaceuticals; it even opposed Mylan?s $1.8 billion takeover of Agila Specialities and also wants to somehow cap royalty payments?if Tesco still came in, it was after a year of needless to and fro.
The other spoiler, and there were so many, was the taxman which went after MNCs particularly with a vengeance. As a result, while tax arrears rose from R3.3 lakh crore in FY12 to R4.8 lakh crore in FY13?within this, transfer pricing adjustments rose from R10,908 crore for FY07 returns to R70,016 crore for FY10?the outstanding Mutually Agreed Procedure (MAP) tax cases with the US rose to a stunning 100. Problem was, US tax authorities simply refused to even enter into MAP negotiations as long as SK Mishra was in charge of international tax negotiations. On the eve of his roadshow to woo US investors on July 10, finance minister P Chidambaram transferred Mishra without even a replacement job.
With some of the government?s last-minute flourishes beginning to deliver and the political climate looking dramatically different with the Congress in disarray, the BJP looking stronger, and minnow AAP changing the political discourse like never before, 2014 is going to an exciting year.
Happy New Year!
