Hopes Now Get Pinned Higher

Prime Minister Narendra Modi swept back to power with a much bigger mandate than the one he had received in 2014. In his words, the “silent majority has spoken.” It is a defining moment for the country and a piquant moment for Narendra Modi – for expectations from him as a leader have only got bigger just when challenges before the economy have exacerbated too.

During his first term, we saw PM Modi traverse the continents  in the hope of inviting foreign direct investment (FDI) into the country and some of these diplomatic calls were the first ever by an Indian Prime Minister.  It was a quick fix, which he was advised would put the economy on the fast track. The laissez-faire that he promised with major reforms within the system, however, was not convincing enough for global investors to want to park their money in India in full spirit.

Yes, the implementation of the Goods and Services Tax (GST) did establish that his government could undertake such complex exercises across the nation. And, demonetisation, though only an unfinished agenda, seems to have proved a point with the people of India that corruption will be tackled boldly through such trials and tribulations. In his rousing speech, Prime Minister Modi had said, “People are chanting ‘Modi, Modi’. But this is not a victory for Modi, it is the victory of the people who are desperate for honesty in the system. It is not Modi’s victory, but a win for people’s hopes and aspirations.” Confidence in Modi  had so obviously been soaring among the electorate, frantically hoping to see India march forth toward economic prosperity and a place in the world.

India is forecast to become the world’s fifth largest economy in 2019, with a GDP in excess of $3 trillion. India’s GDP is expected to surpass that of  Japan’s by 2025, to make India the second largest economy in the Asia-Pacific region. India’s quest for prosperity though, occurs at a point in history when trade conflicts among major economic powers are escalating. On a geo-economics scale, the US-China trade conflicts, the faltering WTO and collapsing multilateral institutions, along with a looming threat of recession, mean two things for India. India needs to either redefine the rules of the game and plunge into the global order, or simply follow the others.

The Indian economy has so far been buoyed by domestic consumption, which is only a part of  the story. The next phase of India’s economic growth can only be derived from an export-led economic model. How ready are we? India’s cumulative trade deficit with its top ten trade partners is $142.52 billion, while the trade surplus with some amount to a paltry $ 31.69 billion. Whether we will be able to become competitive in the world order will depend on Industry 4.0. The task is cut out for us.

Banking reforms
The tremendous mandate the present government has received is a political opportunity to drive ahead its agenda of incremental privatisation and reforms in the public sector (PSU) banking space. Inefficient and sluggish public sector banks are out of sync with the times. They are able to neither perform the job of capital management nor do they absorb the risk and credit tools of modern banking. With political interference adding to their woes, the PSU banks are a passive force in our quest for growth at both the macro and micro level. The twin balance sheet problem of NPAs and the diminutive credit scenario have halted the momentum that impacts job creation. Who takes the coveted finance portfolio in the absence of ailing Arun Jaitely is a matter of speculation now, but should be PM Modi’s foremost concern for Reform 2.0.

The rural distress and slowing investment are two major issues that need to be addressed urgently. The moot question is: how can growth be brought back on track without robust private investment? Private investment is of utmost importance for India if the nation is to emerge as a best - in -class economy.

Rural distress and pending reforms
The next point to ponder on is the Prime Minister’s epochal call to double the income of farmers by 2022-2223  a promise he made in 2016. To do this, he will have to increase farmers’ incomes by 13 per cent to 15 per cent a year. It is imperative, therefore, that agriculture receive a cohesive policy response and attention on the basis of good last mile connectivity, which is something the government has achieved reasonably well under Nitin Gadkari. We hope the Prime Minister persists with his Model Agriculture Produce and Livestock Marketing Act 2017 and has it implemented across all states. Bringing into effect the Agri-Marketing Reforms Council and the crucial agri- marketing reforms at the pace at which the GST was rolled out, requires strong and capable leaders at the helm of affairs.

The euphoria with which the present government has received this tremendous mandate rides on hopes that PM Modi will address the precarious job situation and the much-talked-about youth dividend. Uneven labour reforms across India are responsible for uneven growth and are directly linked to the ease of doing business for both domestic and foreign companies. It is important to bring flexibility in terms of hiring and retrenchment, which is an overarching hindrance for companies contemplating recruiting manpower in large numbers. We hope that action will be initiated with the major skill development programmes across India.

Defence production is an area that is overwhelmingly at odds with the requirements of our country and the Armed Forces. Defence production could be the next big opportunity after IT, telecommunications and the indigenous pharmaceuticals industry. The modernisation of the Armed Forces is imminent, but military equipment imports are a burden on the exchequer. It is crucial therefore, to bridge the hiatus in the capability for research and development of indigenous technology. Back in 2014, PM Modi had emphasised on building defence capabilities indigenously. The uptick in defence exports is good news.

Disinvestment in underperforming ordnance factories was shelved last year despite the recommendation of a Ministry of Defence - led committee in 2016. Leading experts on defence have voiced concern about the 41 ordnance factories across the country. Without corporatisation, Make in India in defence production will remain half baked. Will PM Modi be able to unlock the value in this sector and get started on the reforms? If he does, defence production could provide the capability, jobs and skills that the country is in dire need of.

As we go to Press, a new Cabinet formation is underway. Hopefully, incumbents are being assessed on the basis of their last performance in a portfolio, which should send out a clear message that the government is for development and reforms. Let’s hope for the best.