By:
Ravi Sinha
Stable government has been the buzz word in India for quite some time; it
has actually been one of the focal points of General Elections of 2014. In
India since 1984 no government at centre could take charge of the office
without the added baggage of unlike minded friends as alliance partners. The
rise and growth of regional aspirations and emergence of regional power
centres, however, has always been blamed in the academic circles as bad
economics and governance since pulls and pressures of conflicting interests had
brought the governance at standstill on many occasions. Just at a time when the
country seemed to be destined to policy paralysis, the electoral verdict of
2014 has changed the dynamics of governance altogether.
A clear and decisive mandate to the NDA Government at centre clearly
suggests that the days of coalition compulsions are over. While the political
pundits are deliberating over the cost-benefit analysis of too powerful a
government with toothless opposition and weakening regional forces, India’s
business community has finally got what it has been looking for: a stable
government with business friendly face as the Prime Minister of India. However,
with the obvious sky high expectations the challenges for the new government at
office is not that easy. And it is not just the business captains of the
country; rather even the young first-time voters who turned out in record
numbers to cast votes are equally restless to see the tangible results too
soon.
What can the government do to make sure the perception of policy
paralysis changes? Of course, the only answer to this is the measures that the
new government can take to revive the economy. Once the economy is on a growth
curve, many other pending issues will naturally be on the back seat with
collective consciousness backing the growth story of the country. Hence, the
new government has some real challenges to deal with beyond the euphoria of a
stable government at the helm of affairs.
A turnaround of the economic wheel is, however, not easy as the current
account deficit clearly suggests there is no room for any largesse on part of
the government; rather subsidies and other beneficiary measures have to be
curbed in the short term. What affects the most to the average Indians,
interest rate, can also not be cut till the time inflation is not curbed. It is
a catch 22 of Indian economy and a balancing act is something that will be the
first acid test of the government.
So, the first task that is cut out for the Narendra Modi Government is to
control the inflation that has been the prime reason why they have been given
the mandate. This can be quite a challenge, if the forthcoming Monsoon does not
play as sportingly as the voters for the Modi Government. After all, India’s
economy is still dictated by the monsoon fortunes. Naina Lal Kidwai, CEO, HSBC
India has a suggestion for the government when she says, “The government
should, on a priority basis, restart the investment cycle. It should free the
land, labour and capital markets from their rigidities; make fiscal prudence
the cornerstone of its functioning; evolve a plan for mitigating food
inflation. On the social side, it should look at areas like health, environment
and education.”
However, framing a roadmap for fiscal consolidation is easier said than
done; it has its own challenges. The government will have no option but to
constantly increase the fuel prices to completely eliminate subsidy and that is
something which may not go down well with the voters who have high expectation
of government’s largesse. Use of direct transfer of cash for subsidies is one
of the many measures to help check the public anger, but then such attempts in
the past have been met with quite resistance by various sections, including the
party that is now in power. Deepak Parekh, Chairman, HDFC has a word of caution
in his wish list when he says, “The economic agenda is huge. What is needed is
simplification. In the World Bank ranking on ease of doing business we are
right at the bottom. I think the name of the game should be to make it simpler
for people to invest.”
Though the government seems to be determined to improve business
environment by easing laws and policies, it is not something that can be
achieved in a short span of time. As a matter of fact, a long term strategy is
needed to see tangible results after easing the FDI norms and time-bound
clearances of projects. After all, a poor business environment has deterred the
investment in India, of late, which is the biggest reason of decline in growth.
Add to it, corruption and leakage in the system at every level and the new
government has a challenge in hand to deal with.
There is no denying that long-pending reforms such as GST and DTC need to
be implemented at the earliest. There is also a need to expedite the
liberalisation of FDI regime. The India Inc is by and large optimistic that
with a strong mandate, the new government will do well and will implement
economic policies that benefit people and industry.
Rahul Gaur, CMD of Brys Group has a caveat here when he urges the new
government to ease credit flow to industry and infrastructure. According to
him, at a time when the government does not have financial surplus and the
nation is struggling to manage with the shortages, the core focus should be to
identify the execution capability to execute the large infra projects. For that
the government should better create an atmosphere where private players have
access to long term funds.
“The policies of the government have to be clear on the lending norms and
the government should target steps to boost lending to infrastructure sector. Housing
and infrastructure can revitalise the economy, create more jobs and bring
overall change in the outlook to the economy. I do understand the reluctance of
banks to fund infrastructure due to asset liability mismatch but then better
infrastructure is the only way to help the country grow at above 8% GDP. I feel
the time has come for the government to roll out clearly defined measures for
ease of credit flow,” says Gaur.
Analysts have often pointed out that one of the key areas where India
could have reaped its demographic dividend is the manufacturing sector;
something that China has already done in the last over two decades. The new
government must take pro-active steps to encourage local manufacturing and for
that it should give fast track clearances to stalled manufacturing projects;
re-look the SEZ policy which have thus far proved to be detrimental and also
the government can put the Delhi-Mumbai Industrial Corridor on a fast forward
execution.
Many economists believe instead of pro-poor policies like NAREGA,
streamlining the manufacturing is a better way to bring the poor into economic
mainstream and also lessen India’s dependence on the agriculture. However, all
these measures may sound to be very easily achievable, yet it needs time and
concerted efforts to achieve. That could not be achieved in the last few years
due to the compulsions of coalition politics. The challenge of governance is no
doubt beyond the euphoria of a stable government.
