Thursday, 18 August, 2022
HomeOpinionEx-IAS officer’s take on 6 key economic challenges new Modi govt faces

Ex-IAS officer’s take on 6 key economic challenges new Modi govt faces

The new Modi government must go beyond statements and take concrete action on ground to address the economic challenges.

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It would be an understatement to say that Narendra Modi’s new BJP-led NDA government will inherit an economy that doesn’t appear to be in the pink of health.

There could be a debate on the actual GDP numbers and the unemployment figures, but almost everyone will agree that despite being one of the fastest growing economies in the world, India faces some serious challenges.

Some of these challenges are a result of what happened (or didn’t happen) in the country and some are on account of factors beyond the national boundaries.

Also read: Modi’s sweeping win tilts India’s political economy against much-needed reforms

Let us look at the current state of the Indian economy:

  1. On the fiscal front,there is serious trouble. The fiscal deficit is ballooning, as Vrishti Beniwal succinctly puts it in her article ‘India election winner gets an economy riddled with problems’, and the target of 3.4 per cent of the GDP is likely to be missed. Industrial output fell for the first time in nearly two years in March 2019, and this will impact the deficit targets. Some estimates reveal that the Centre’s revenue growth during 2018-19 is likely to be around 6.2 per cent instead of the budgeted 19.5 per cent.
  2. The current account deficit (CAD) too appears to be under enormous pressure. Although it is projected to be around 2 per cent of the GDP, the brewing Iranian crisis and the trade tensions between the US and China do not augur well. Analysts are not sure about rupee’s prospects despite its improved performance in the last few weeks.
  3. There has been turmoil in the Reserve Bank of India (RBI), and other scheduled banks are sitting on a ticking time bomb of non-performing assets (NPAs). Despite infusion of huge amount of capital in the public sector banks, there has been no significant improvement in the credit flow.
  4. Fixed investments have remained stagnant at nearly 30 per cent of the GDP for the past few years. Make in India did drive substantial FDI initially, but lost steam subsequently. Investments by private domestic players have also virtually dried up.
  5. Employment figures have been contested. However, if the ‘leaked’ NSSO data is to be believed, the unemployment rate of 6.1 per cent in 2017-18 is the highest in the last 45 years.

The broad indicators of the economy are a cause for concern as Stephanie Fraser of Asia Pacific Foundation of Canada highlights in her paper ‘What has ‘Make in India’ made for India?’. She says that the “campaign also unfortunately appears to be out of sync with the employment realities of India”. “… Global companies have been unsparing in their criticism,” she concludes.

Also read: Modi’s key test with Trump will be to ensure Make in India doesn’t clash with Make in America

The grim economic scenario calls for effective steps by the new government on various fronts. These can’t merely be in terms of statements and announcements but should centre around concrete action on the ground. The new government can’t do much about international factors like the Iran crisis, the US-China trade relations and the increasing protectionism in the developed world, but it can do a lot within the country.

At the outset, it will have to accept that there are serious problems with the Indian economy, only then can it address the issues.

There are some issues that can and must be resolved at the earliest:

  1. Revive credibility of institutions. The RBI is not and shouldn’t be seen as the arm of the government. It should be allowed freedom on the monetary policy front. The ‘misunderstanding’ between the central bank and the government during the past few years consumed a lot of time, which could have otherwise been invested in getting to the bottom of the crisis facing the banking industry.
  2. Fiscal deficit must be tackled with focus on increasing revenue collection. GST-related processes can and must be streamlined and the glitches in the IT backbone need to be sorted out. As the assessment of the GST returns gets underway, there will be a large number of operational issues on account of the powers vested in those who are likely to make these assessments. These will have to be resolved. On the expenditure front too, leakages continue to be a source of major concern. Aadhaar has unnecessarily got mired in controversies, and instead can be used as an effective tool to prevent leakages.
  3. In view of the enormous employment potential of the MSMEs, issues related to production (land, capital, labour, taxation, electricity, transport etc.) can be addressed through a major policy intervention in this sector. This sector has been hit badly by demonetisation and GST. Without its revival, unemployment-related challenges cannot be overcome.
  4. India has climbed up the ladder of ease of doing business. However, private sector investment continues to be low, and doesn’t reflect that ‘ease’. The project monitoring group (PMG) set up by the UPA-2 can fast-track investments. It needs to be revived at the central level and instituted at the state level too. Fast tracking of clearances will boost investor confidence. It will also streamline the processes.
  5. Power sector is the backbone of the economy. UDAY, or Ujwal DISCOM Assurance Yojana, started off well but most states did not go beyond financial restructuring. ‘UDAY’ will need to be implemented in letter and spirit to usher revival of DISCOMs to ensure supply of reliable and reasonably priced power to other sectors.
  6. Human resource management will be the key to making things happen on the ground. Top management posts cannot be left vacant (for instance, coal production suffered during 2017-18 due to the absence of a full-time CMD). Efficiency and integrity must be the primary criteria for these posts.

Also read: In the next five years, Modi will need to fulfil promises without blaming Congress

The task of preventing an economic slide is a tough one, but can be accomplished by the new Narendra Modi government.

The author is a retired civil servant and former secretary in the government of India. Views are personal.

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  1. My civil service aspirant friend told me that only centrists or left leaning will be recruited, free market advocates will not be selected. This is an important reason why the country is obsessed with socialist schemes draining money.

  2. We were always told that the leakages in the Aadhar system were fixed by the nDA , but now the author ( who knows better than us) says that many leakages have to be plugged ! What was happening all these five years ?
    Again he has indirectly suggested that NDA adopt the Project Management Group concept of the UPA.
    Given the intense dislike shown for any UPA era scheme, this is unlikely.

    The stumbling block could well be the refusal to listen to advice from professionals on the economy.

  3. On a lighter note, any new government has the luxury of throwing up its hands and saying in despair, Look what the previous lot has left for us. Not possible in 2019 …

  4. Once ram temple is built in Ayodhya people would be happy and live long! Economic development and other vital things would occupy backseat. Mr.Modi knows how India votes and go ahead on those lines!

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