Saturday, February 4, 2023
HomeOpinionPM Modi cannot continue to neglect macro-economic issues

PM Modi cannot continue to neglect macro-economic issues

Sub-6% growth is a cold shower for India, and new finance minister Nirmala Sitharaman needs to quickly put together an agenda for immediate action.

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The buzz in presumably well-informed circles in the capital has been that Narendra Modi’s second term in office will be different from the first. Having used the last five years to consolidate his and the Bharatiya Janata Party’s political power, it is said that Modi will now focus on the economy, and further that he is willing to front-load action in a way that he was not willing to do five years ago.

Certainly, the economy needs fresh momentum, with quarterly economic growth dropping below 6 per cent, and hitting a five-year low. Growth for the full year is not very different from where the Modi government began. Readers might recall that the initial promise held out was of achieving double-digit growth. That being far removed from today’s reality, India has also lost the claim to being the fastest-growing large economy; China is back ahead. That is a cold shower if ever there was one.

As I had written in these columns two weeks ago, this is a multi-faceted challenge, with problems confronting agriculture, manufacturing and exports, as well as fiscal and monetary policy — for both of which the room for manoeuvre is very limited. The larger narrative could be that the growth momentum generated by the first flush of reforms has petered out in the course of 15 years of relative inaction. A fresh wind is now required. Is the government up to the task?

A picture of TN Ninan, chairman of Business Standard Private Limited

Change will have to begin with Modi, who, by all accounts, has shown little active interest in macro-economic issues, preferring instead to focus on the effective implementation of projects and programmes (to good effect, of course, as the election results show). It is obvious that this neglect cannot continue. The prime minister has to address himself to understanding the key policy levers that are available to him, including (for instance) the government’s stance on the rupee’s external value and how it can be nudged down in order to make Indian exports more competitive. As a starting point, the belief in a strong rupee has to be given up.

Growth is hard to come by in an environment in which the overhang of financial mismanagement by banks and companies is still there, when too many businessmen are too busy writing down debt to think of making fresh investments, and when consumers are focused on the EMIs (equated monthly instalments) on their loans. For good measure, governments are sucking up too much of the available savings, preventing market interest rates from falling — affecting current cash flows and future investment. Tax revenue has fallen short this past year, and has to be given a boost; but how is one to do that in the middle of a slowdown?

Also readIndia’s household debt has risen 80% in 2017-18. It could bite if incomes don’t grow

In short, Nirmala Sitharaman as the new finance minister has her work cut out for her, as does Piyush Goyal, who is the new man in charge of both foreign trade and industry. Both will need to quickly put together their agenda for immediate action, along with medium-term policy goals: To make the use of capital more efficient, the labour market more flexible, and the physical infrastructure such as to be effective support for industry and trade. What is needed is systemic thinking, not ad hoc approaches that focus on quick fixes by impatient ministers eager to hit the headlines.

The finance minister could begin with further rationalising and reducing the number of rates for the goods and services tax. The Reserve Bank should press ahead with further cuts in policy rates. Disinvestment needs to be given a kick-start, with Air India an obvious starting point. But if this is to be a serious plan, the question has to be asked: Where are the buyers? Should the window for foreign buyers be opened wider, in this and other sectors?

And then, what about the underlying issues confronting agriculture, the water economy, and the business of improving the quality of education? All three issues are in the hands of new inductees into the council of ministers, and a key question will be how well they perform. As someone used to say, the nation wants to know.

By Special Arrangement with Business Standard

Also read: Modi Govt sees Rs 1.6 lakh cr tax shortfall, deficit 3.9% of GDP leaving fiscal hole

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  1. Modi is neither bothered about economy nor india, he is only concerned to be seen globe trotting, enjoys being on world stage. The economic disparity is increasing between the rich and poor, indias natural resources like coal, gas and oil and licenses for telecom or industrial plants are being given to super rich with this govt exploiting our tax paying citizens to save the psus neck deep in debt having financed the supra rich. The super rich like to do a vulgar display of their wealth with the middle class being burdened more and more in the name of modi pet schemes. Modi uses the brainwashed bhakts for electoral returns but chooses to be seen with the likes of Priyanka chopra, there is no place for any jhumla,as that was only electioneering

  2. Two new people in important ministries of finance and water looks like a big risk. People talk about land and labour reform but frankly no one can survive the political backlash from allowing factories to fire people freely or force some farmer to sell land. I think realistically we will just muddle along with minor changes around the edges. maybe some disinvestment but we would be lucky to get an average of 6.5- 7% gdp over the next five years.

  3. As India becomes Hindu under the BJP, so does the rate of growth becomes Hindu, like in the 6os and 70s! The two are undoubtedly connected, though clearly not on a 1:1 basis.

    Till now Modi has enjoyed the fruits of the work done by earlier governments. Now it is his turn.

    I’m not optimistic as he himself doesn’t understand economics very well. Jaitley was a lawyer and the new FM too has little experience in this field.

    So wait for the Hindu rate of growth to be reached soon.

  4. “Else we face the prospect of the UP / Biharisation of India.”

    And pray, what is that? Such moth-worn cliches….

  5. For the shower to feel really cold, say growth is now below 4%, as per the methodology we grew up with. Jobs are being lost, not created. To pick one of three inductees the column mentions, the new HRD minister. He is an ideology faithful, in a world where Indian educational institutions barely figure in the top 500. How well the education system performs has a direct bearing on young Indians being prepared for the fewer jobs that will be on offer. Ideology driven restrictions on the cattle trade have harmed farmers – a stressed / distressed lot – and other employment intensive sectors. We need to have an honest conversation about what is good for the economy and India, give up some of our shibboleths. Else we face the prospect of the UP / Biharisation of India.

    • Apparently a knowledgeable comment but sorry to say the underlying tone is clearly Leftist+illeberal+pseudo-secular. If you had managed to keep your ideology out of it, your comment would have been much more useful. That’s the main problem with many of India’s “intellectuals”.

      • Typical from pseudo nationalist Aaa, you yourself have no solution to provide but will grudge the experts who actually can provide a solution. Such anti intellectualism is celebrated today and starts right at the top. Minions like you are only following the cue.

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