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Sushma Ramachandran
With economic slowdown looming large, the newly minted Narendra Modi government will have to hit the ground running in tackling key issues in its second term. This will be easier, in a sense, than before because of the prospect of policy continuity. Equally it will be more difficult simply because the pace of growth is lagging just when it is time to step on the accelerator to meet aspirations of the electorate.
Firstly, farmers’ woes should be right on top of Modi’s economic agenda. In this context, one must refer to his comments that price rise has not been an issue during the elections. Conversely, it is just that this low inflation that created a crisis for farmers, with reduced commodity prices, leading to depressed agricultural incomes. A partial relief has been given in the interim budget with the Pradhan Mantri Kisan Samman Nidhi but this is only a palliative. Farm incomes need to be raised through structural reforms in the agricultural sector, including in the area of marketing to eliminate stress caused by the cyclical pattern of surplus and shortages faced in many crops. Modi promised to double farmers’ income by 2022 in his first term. Now he has to make good on this commitment in his second term.
The second priority has to be on raising investments and expanding job opportunities. Both go hand in hand. One way, being touted by many analysts, is to do so by filling countless vacancies in government jobs. But these vacancies were created because it was recognised that the government had surplus manpower. Administrative reforms dictated that government machinery needed to be made leaner and more efficient. Filling vacancies en masse will just make the State even more bloated and unwieldy. Instead, creation of new jobs through promotion of investments in the infrastructure sector should be the objective. This will not only create jobs but also the much-needed assets and help in raising the pace of economic growth. This had slowed down to 6.6 per cent in the third quarter of 2018-19 indicating that growth for the full year would be lower than expected seven per cent.
Yet another challenge before the new government is to revive demand. Declining sales of cars and two-wheelers have been indicative of the lower growth in the last fiscal. Whispers are being heard that there might even be a cut in personal taxes to stimulate consumption. But what could have an impact equally would be the rationalisation of the GST tax system. Some commodities like cement are being taxed at high levels. Bringing down tax on key items could stimulate demand and revive industry. The Make-in-India programme, which had an impact on the electronics industry, could also be extended to more segments of the economy.
Similarly, giving pep to exports will be high on the agenda. These have gradually declined as a proportion of the country’s GDP — from 25.4 per cent in fiscal 2014 to 17.9 per cent by fiscal 2018. This would include hard negotiation with the US on its plan to withdraw Indian products from the generalised system of preferences (GSP) that gave them access to the American market at low tariffs. A major diplomatic initiative is needed to make a breakthrough with the Trump administration on this contentious issue which has a significant impact on the competitiveness of Indian exports.
The trade deficit has also been widening due to higher international oil prices. The Modi government’s first term was cushioned by softening prices that enabled it to mop up higher revenues by raising taxes on oil without impacting consumers. Buoyant revenues, in turn, helped to keep the fiscal deficit in check. This situation has drastically altered as world oil prices are now soaring. A strategy needs to be evolved urgently to deal with the impact on an economy that imports more than 80 per cent of its oil needs.
The challenges facing Modi 2.0 are immense. The pressure to ensure that growth reaches all sectors of the economy is even greater than in the previous term with such a decisive mandate having been given to the the party. It is a grand opportunity to carry out bold initiatives on the economic front. It now has to be seen whether the new dispensation has the vision and the drive to implement such measures. These are imperative, otherwise the country will not reach the nine or 10 per cent annual economic growth needed to pull it out of poverty.
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