Modi’s majority gives India political space to take tough decisions & spur economy: Sanyal

Modi’s landslide majority allows govt to pass measures to boost investment but it will also need help of monetary policy makers, Sanjeev Sanyal says.

File photo of Prime Minister Narendra Modi | Arvind Yadav/Hindustan Times via Getty Images

Singapore: India has the political space to undertake “difficult” tasks to revive economic growth, an adviser to the nation’s government said after Prime Minister Narendra Modi was reelected to office with a landslide majority.

The government can pass measures to spur investment, Sanjeev Sanyal, principal economic adviser at the finance ministry, said during a discussion on India’s politics versus economics organized by Nomura Holdings Inc. in Singapore. The task will, however, require help from monetary policy makers, given that the real cost of capital in India is high, he added.

“This is the prerogative of the central bank,” he said referring to the Monetary Policy Committee’s upcoming interest rate review early next month. “Inflation is not seen as a concern.”

Investors in India are closely watching for how the central bank as well as Modi drive the economy amid concerns of a prolonged slowdown. With data due Friday expected to show gross domestic product growth slowed for a fourth straight quarter, market expectations on interest rates signal another cut on June 6 as inflation stays below the central bank’s 4% medium-term target.

Expectations are also growing for Modi to push through land and labor reforms after his Bharatiya Janata Party won 303 of 543 elected seats in the lower house of parliament to secure a single-party majority. But following through on some of the pledges appears difficult without the required numbers in parliament’s upper house.

“There are structural problems,” Sanyal said, citing the need for reforms in land, labor, legal and lending, among others. “Despite this mandate, this government doesn’t have a majority in the upper house.”

The next generation of reforms will be very much intra-city infrastructure, Sanyal said, adding that the country is already seeing major investments in metro systems in larger cities. – Bloomberg.