Essay: Cautious Optimism

Vedanta founder Anil Agarwal had an interesting meeting with PM Narendra Modi some two months ago. Agarwal was sharing his blueprint for reviving the Indian economy with the Prime Minister, and the latter was listening in, intently.

Agarwal later told BW: “Time has come to free and provide autonomy to the PSUs. I don’t say that give to us. But they should be free and autonomous to take their own decisions. Plus, we need to empower the district collectors, and make sure that loans / credits are available more easily.”

With the Modi government having won an unprecedented second term with record numbers, expectations are huge.

Agarwal continues: “Looking internationally, the Modi government has a unique opportunity to balance ties among the triad of US, China and Russia, especially in the light of the trade war between China and the US.”

With the world economy showing signs of slowing down, there are tell-tale signs for India too. As Gaurav Dalmia, Chairman of Dalmia Group Holdings, says, “It’s not often that the oil prices go northward when the world economy is slowing down… So, India will have to be watchful.” He adds that with the monsoon this year expected to be sub-normal that puts additional pressure on the economy.

Marico Chairman Harsh Mariwala sums up the mood in Corporate India thus. “In the first term, the Modi government acted as a welfare state should have,” he told BW Businessworld. Mariwala is alluding to the Swachh Bharat campaign, Ujjawala Yojna and the Power for All drive. In the new term, however, the Modi government should squarely “concentrate on reforms,” says Mariwala.

From welfare state to second generation reforms is only a logical progression, many would say. But As Niti Aayog Vice Chairman Rajiv Kumar says, reforms are not worth it “if they don’t improve the standards of living”.

“I think it’s an incredible verdict. For me personally, it’s much bigger than what was expected. Instead of any anti-incumbency, it turned out to be a pro-incumbency vote —which reflects the fact that the people of this country have reposed a huge amount of trust in the Prime Minister. They have declared that they believe in what he says, they believe in what he stands for and they also believe that he will improve the future, their own future, in the coming years,” says Kumar.
“A very large number of people have been directly and tangibly benefited from the better delivery of services and better delivery of schemes and projects that the Prime Minister has launched. Thus, the verdict also has placed enormous responsibility on the incoming government to not just continue with that delivery but to also improve all aspects of the economy and make sure that there are sustained improvements as you go along,” adds Kumar.

Today, the BJP-led NDA boasts of 45 per cent of popular vote share — something that the Congress parivar used to enjoy in its heydays. With an astute Amit Shah at the helm, the party says that it’s fighting for a 50 per cent-plus vote share across states, with the Modi-led juggernaut succeeding across the length and breadth of the country.

The economic challenges, however, may prove tricky in the days and months to come. As Congress’s Rajeev Gowda and Salman Soz point out: “The most serious of the challenges will be in the financial sector. The NPA crisis is yet to be resolved. The situation unfolding in the NBFC sector is likely to compound existing problems. Transparency with respect to the NPAs in the financial sector is a necessary condition for fixing problems that have undermined business activity for several years. Indian banking faces an epochal challenge which will need radical solutions. If the financial sector crisis is not addressed, India must brace itself for an unprecedented slowdown that is likely to cause ripples across the economy”.

Banking sector reforms are something that even Niti Aayog’s Kumar lists as the top priority for the new government. Farm distress, jobs and an overall slowdown would challenge the government in the coming weeks and months.

As BJP’s Gopal Krishna Agarwal says, “Employment is an important catalyst for the economic growth. India is having a very fast population growth of new jobs seekers. So far the focus has been on entrepreneurship and self-employment but the issue cannot be tackled without focusing on the missing link of the manufacturing sector which has not performed as per the government’s expectation. It is hoped that the market reforms will give a boost to the manufacturing sector. The challenge before the government will be to ensure that our manufacturing sector is internationally competitive so that it does need to hide behind protective tariffs.”

The following pages present to you the economic challenges facing the Modi government and the likely prescription for overcoming the economic woes of our times.

What is certain is that the prescription may taste bitter at times, but the long-term result is something that will inspire people to go with it.