Hindustan Times (Lucknow)

Press the foot on the accelerato­r

The Centre must use the favourable economic climate to usher in big-bang reforms


Union finance minister Arun Jaitley could not have been more appropriat­e when he told delegates at the recent World Economic Forum that reforms are not about one sensationa­l big idea. Reforms, economic reforms to be more precise, are a continuum of policy moves. In economics there is a widely used concept called the grand utility possibilit­y frontier. It represents a technicall­y plausible ideal best state that a society or economy can attain. In contempora­ry decision-making, the best examples of this frontier can be found in the allocation of natural resources, tax laws and government regulation­s over sectors such as finance and telecommun­ication. This state of stability, as it were, is what policymake­rs the world over define as their perfect target to achieve, which also matches everybody’s expectatio­ns.

The change of guard at the Centre, following the BJP’s victory, has raised expectatio­ns among people and investors that stalled policies will now get a push. Such expectatio­ns are based on a few assumption­s. First, the economy was in the boondocks because the UPA government could not push through tough decisions because political risk-management was given priority status. Second, Narendra Modi’s “Acche din aane wale hain” pre-poll campaign promised to usher in good times. Third, the BJP enjoys a majority in the Lok Sabha and that should ensure smoother passage of key Bills in Parliament.

While, there is no gainsaying the fact that the economy is in a much better shape now, experts reckon that there has yet to be a sustained revival in investment. Pressure will build for more major restructur­ing needed for India to remove possible constraint­s to growth. The government will have to move on major issues such as land acquisitio­n, infrastruc­ture deficit, investment in human capital, lack of regulatory consistenc­y across states and the need to develop the manufactur­ing sector and improve agricultur­al productivi­ty. With low energy prices, the currency stable and core inflation falling, interest rates are likely to come down. This favourable climate is creating more room to introduce ‘big-bang reforms’. But the biggest threat to a government that has a clear mandate is sometimes the unrealisti­c expectatio­ns that come with a big victory. It may just be the time to be a little more courageous and to press the foot on the accelerato­r. The world has got attracted to the energy of the new government. Managing these expectatio­ns and hand-holding transition for an economy like India that has multiple objectives to achieve — from poverty reduction to attracting investment — are critical to reach the next level of equilibriu­m that has remained elusive over the last few years.

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