EDITOR-IN-CHIEF
Prime Minister Narendra Modi and the BJP won the battle of 2019 by pulverising their opponents and earning another five-year term. His government now has to win the war—to fix a rapidly slowing economy.
The prime minister began his first day at work with government estimates of a decelerating economy and of India losing its tag of being the world’s fastest growing large economy. The GDP estimate for the January-March quarter of financial year 2018-19 was 5.8 per cent, the lowest in the past five financial years. The 6.8 per cent GDP estimate for FY2018-19 was less than the 7.2 per cent of the previous financial year.
It’s a gloomy picture wherever you look. Economic activity across sectors is in the grip of a slowdown. Agriculture, hit by back-to-back droughts between 2014 and 2016, continues to be in distress; agriculture, forestry and fisheries grew 2.9 per cent, down from 5 per cent the previous year. The index of industrial production, a measure of industrial activity, grew just 3.7 per cent in the quarter ended December 2018, the lowest in five quarters. India’s unemployment rate had risen to 6.1 per cent in 201718, the highest in 45 years.
Consumption, the single engine powering the Indian economy thus far, is sputtering. Passenger vehicle sales fell 21 per cent in May; FMCG sales too are down. Sluggish economic growth, rural distress and less disposable incomes have left buyers more cautious than they have been in the recent past. The delicate fiscal balance remains hostage to the vagaries of unpredictable geopolitical fac- tors such as an escalation in tensions between the US and Iran or even the US-China trade war.
Our cover story, ‘How to Jumpstart the Economy’, written by Executive Editor M.G. Arun and Senior Editor Shwweta Punj, looks at the government’s team tasked with fixing the economy and what it plans to do. A raft of new committees led by the prime minister have been formed to address unemployment and falling investment. It is now left to the prime minister and a core team of ministers—finance minister Nirmala Sitharaman, railways and commerce minister Piyush Goyal and road transport and highways minister Nitin Gadkari—to resuscitate the economy.
In India, there is nothing like a crisis to get things going. Especially when the government realises that without the economy growing at full pace, there can be no money to fund
welfare schemes such as piped drinking water and houses for all. Prime Minister Modi needs to seize the initiative and usher in the reforms needed to kickstart the economy. He needs to continue the structural reforms like the bankruptcy code and GST his government initiated in its previous term. The economy needs to be freed from a stifling bureaucracy and government controls by unleashing the animal spirits of a nation filled with entrepreneurs. The government should attack the role of the bureaucracy with the same enthusiasm with which it went after black money in its previous term. Above all, it should use its image of being incorruptible to good advantage by charting an audacious plan for genuine disinvestment in the public sector by getting out of businesses like aviation, hotels and telecommunications, and monetising many of its other enormous unproductive assets like surplus land. One of the biggest drags on the economy is the decline in private investment. New investments in India plunged to a 14-year low of Rs 1 lakh crore in the December quarter of fiscal 2019. The government needs to create a conducive atmosphere for businessmen to invest. This Modi government should ignore the gratuitous ‘suit-boot ki sarkar’ jibe of the opposition and be far more business-friendly. Connected with this is fixing the broken financial system where lending has gone into a funk. In fact, I believe the government should privatise public sector banks and stop leaning on the taxpayer to support them.
Skilling and education, of course, are long-term imperatives that the government must pursue. In the short term, however, it needs to roll out a roadmap for sectors that can deliver a quick boost to jobs, like MSMEs, tourism and real estate, and kick off large infrastructure projects such as the Mumbai-Delhi expressway to stimulate demand for steel and cement.
Rather than get trapped in myriad schemes, many of which never take off, the government should look at sectors that can rev up the economy. It needs to formulate a new export strategy to recover lost ground in textiles, gems and jewellery, and leather goods. The ongoing US-China trade war is a great opportunity for India to step in with some of the products that China made for the US. We need better infrastructure and connectivity, improvements in competitiveness and logistics, infrastructure, and simplification of land and labour laws to attract global investment and make Indian industry globally competitive.
The electorate voted for Prime Minister Modi in 2019 because they believed he could deliver on the economy. This time round, his government cannot blame anyone else for its failures. Prime Minister Modi is known for his audacity and risk-taking. He needs to show that on the economic front because the buck stops at his table.