Urgent Imperatives for the Economy
The new government has to prioritise tasks
The incoming government led by Narendra Modi faces a heavy burden of expectations. It is not easy to vanquish inflation, create jobs by the million and boost economic growth to Chinese levels, all of a sudden. But some things are simpler than the rest. The simplest of all is an announcement that Reserve Bank of India governor Raghuram Rajan will stay at his job and will have the backing of the new government. Investors would cheer. The UPA government got its Cabinet Committee on Investment act together a little late in the day. So, while the committee cleared 6,00,000 crore worth of investments, no projects rolled out. Some were stalled by unavailability of land. Some have been held back purely by political uncertainty. The renewed political mandate at the Centre should take care of this constraint on growth.
Changing the land acquisition law is tough. Encouraging states to innovate solutions at their level — such as leasing of land from farmers — is one solution. But moving ahead with the goods and services tax is relatively easy, considering the spadework and consensus among states already achieved on the subject. Another vital but relatively easy step is to push through the Bill pending in the Rajya Sabha since 2003 to allow merchant mining in coal. Scrapping state monopoly in coal and auctioning off coal blocks to professional miners would boost investor sentiment, crystallise investment and remove a binding constraint on the Indian economy. The Congress and regional parties might not be averse to giving the government a helping hand on this front.
A stronger rupee inhibits imported inflation and makes it easier to phase out diesel subsidy. If the government finds the courage to scrap fertiliser subsidy and switch to direct cash transfers for food subsidy after hiking support prices to compensate for the rise in fertiliser prices, containing the fiscal deficit would be relatively easy. What these steps call for is political courage, which would be in plentiful supply at the beginning of a stable government enjoying popular goodwill.