By: Siva Soorya
Continuity in implementation of necessary government policies and reform measures is important because it can provide a stable environment for economic growth.
2019 is the year of India’s 17th election and is expected by many to be the year when India finally overtakes the UK and France and becomes the world’s fifth-largest economy. It is also expected to continue to hold the tag of the “world’s fastest growing large economy.” Under the stewardship of PM Narendra Modi, the BJP government, the country’s present ruling political party, can be credited with attracting more Foreign Direct Investment (FDI) ($25.1 billion according to a Financial Times report in 2018), improving the ease of doing business and setting a platform for local entrepreneurial and digital businesses to grow. Continuity in implementation of necessary government policies and reform measures is important because that can provide a stable environment for economic growth. Irrespective of which party is elected to power in the ensuing election this coming May, the government will have to one way or another the following economic issues.
The Modi government must be given credit for keeping the fiscal deficit in check, down from 4.3% of the country’s GDP in 2014 when the administration too over, to 3.1% by 2018. With an additional source of tax revenues from the introduction of the Goods and Services Tax, a new indirect consumption tax in India, the government has a bit of leeway to spend money on other agendas to boost its chances during elections. But recently, fiscal worries have emerged since state governments controlled by the newly-elected Opposition parties have doled out waiver-farm loans to the tune of almost $15-20 billion. Usually these governments take out loans from government-run banks to fund these waiver loans, in which the receiving party is “waived” of parts or all of its obligations if it cannot repay the moneys borrowed. Thus, these local governments then expect the national government to bail them out in the case of non-repayment. Former Reserve Bank of India Governor Raghuram Rajan had stated that “To incentivise better behaviour, any state’s borrowing above agreed limits should be funded through special bonds that are explicitly free of any federal guarantee.”
Creating jobs for the 1.5 million people entering the workforce every year should be the number two priority for the government. Though PM Modi has created an upturn in the performance of the Indian economy (which was in a very bad shape in 2014), many say there is “economic growth sans jobs.” According to the International Labour Organization’s latest report, the number of jobless in the country increased to 18.6 million in 2018. It should be noted that there is no definite way to accurately measure employment in an economy which has a vast informal labour force. The BJP government though has revived job prospects in the construction and textile industries, where there is a high number of informal business practises. Yet, the new government should also create new avenues of employment in sectors where there is high demand for products and services, both domestically and internationally.
Distress in Agriculure:
Problems in the agricultural sector boiled over in 2018. Many Indian farmers are in heavy debt, reap low profits and are unskilled to work in other sectors. Moreover in recent years, erratic weather patterns, low rainfall, extreme drought and floods, various bans on exports and relaxations of imports of key food items such as pulses, potatoes, rice have not helped the situation. With the sector contributing to 16% of the country’s GDP and 43% of its labour force, this sector needs some major reforms and as mentioned previously, farm loan waivers are not the solution. The most crucial step I would argue is the development of agri-infrastructure. The number of storage silos and warehouses in the country are woefully low compared to other countries and need to be increased. The central government needs to invest in technology, especially in artificial intelligence, computer algorithms to predict soil quality and aerial imagery analytics to make farming processes more efficient and lead to better decisions for improving yield and productivity. On the bright side, they have taken some solid initiatives in terms of creating an e-agri market which allows more farmers to fix the prices of their crop produce and introduce a crop insurance scheme.
Ease of Doing Business:
The need to create a better business environment and in turn, generate more jobs for those leaving agriculture and for those in urban schools and universities is a must for the new government. The last few years have seen India’s rise in the ‘Ease of Doing Business’ rankings- from 130 in 2016 to 77 in 2018 (the best rank attained by a South Asian country in recent times). Prime Minister Modi had spoken about the need to power India to higher rankings by reducing human intervention in processes and increase the use of modern and digital technologies to speed up decision making. He holds advocating a work culture based on modern technologies will further promote policy-driven governance.
In the midst of taking hard calls on improving the economy, one must not forget the economic impact of a failing environment in a developing country such as India. A World Bank study released in 2016 revealed that India lost more than 8.5% of its GDP in 2013 due to the cost of increased welfare and lost labour due to air pollution. At its current size of $2.6 trillion, the loss equals about $221 billion. According to the World Health Organization (WHO), eleven out of the 12 most polluted areas were in India in 2018. Apart from creating a health crisis, it can really hinder economic investment into India, further reducing job prospects. Pollution would also have an indirect effect on rainfall patterns, causing further agrarian distress. To respond to this issue, the Clean India Movement, a nation-wide campaign to clean up India’s roads, infrastrastructure, streets and rural areas is expected to have a positive impact on the economy. Sample this fact: On average, households in open-defecation (ODF) villages (villages in where modern sanitation and restrooms are not readily available) accrued cumulative benefits of Rs.50,000 ($720) per year in 2017. Looking after nature is an unavoidable prerequisite for sustaining economic development.
While the Modi government has successfully brought in some much-needed and vital economic reforms- introduction of an unified tax, implementation of the Insolvency and Bankruptcy Code, real estate regulation and development and subsidy reforms, it still has a few more initiatives to implement to put Indian economy on the right track. When you gloss over this article, these are the same issues which plague any country. Whatever happens, “The election is likely to be a turning point for the Indian economy.”
Bhatt, A. (2018, January 23). PM Modi is the first Indian Prime Minister to attend the WEF global meet in 21 years [Digital image]. Retrieved from https://www.ndtv.com/india-news/world-economic-forum-2018-india-to-become-5-trillion-economy-by-2025-says-pm-modi-in-davos-inviting–1803729
India, G. O. (2018, February 24). The Powerpoint Presentation [Chart]. In The Economic Times. Retrieved from https://economictimes.indiatimes.com/news/economy/policy/putting-india-on-the-road-to-faster-growth/articleshow/63052068.cms
Iyengar, R. (2018, December 28). India’s economy had a wild 2018. Will next year be better? Retrieved from https://edition.cnn.com/2018/12/28/economy/india-economy-modi-election/index.html
Rajan, R., & Banerjee, A. (2019, January 01). Eight things India must do in 2019: The economic challenges we face and the reforms we need to carry out now. Retrieved from https://timesofindia.indiatimes.com/blogs/toi-edit-page/an-economic-agenda-for-2019-the-challenges-india-faces-and-the-reforms-it-needs-to-carry-out-now/
World Bank, D. (2018, November 1). India climbs 23 places in World Bank’s rankings [Chart]. In LiveMint. Retrieved from https://www.livemint.com/Politics/GwXhAdltCo1TCbRTAm5z0H/India-up-23-places-in-ease-of-doing-business-rankings.html