New Government Will
Change India's Fortunes
Written by: Dr. Gandham Sri Rama Krishna
Published
in the journal of Indian Economic
Panorama, New Delhi, Special Annual Issue December, 2014,Vol.24, No.
3A, PP.14-18.
Introduction
In this
turbulent environment, Narendra Damodardas Modi took oath as the Prime Minister
of India, he gave a ray of hope to the people of the country. People voted for
the change and took India on the path of development. Modi's pledge to economic
growth, end of corruption and creating job opportunities has generated lot of
expectations among people. Let's look at
what common people expect from the new government.
The new government is expected to boost
industrial sector by clearing pending project and starting of manufacturing
units.
The new government has its hands full, with an
economy on the skids and an imbalanced fiscal deficits. The new government now needs to deliver on its promise "better
days are ahead" to keep the faith of those who identified with Modi's
politics of hope. The starting point should be to balance the budget, control
inflation, reducing interest rates and create infrastructure by clearing
pending projects. In which, major announcements are expected relating to the
streamlining of processes for small and medium enterprises, river interlinking,
rural roads, and supply-side constraints. Modi is expected to codify the roles
of decision-makers and set clear expectations of them.
Modi India-fied
People should
expect Mr. Modi to make the Central Cabinet machinery more focused by
streamlining power and authority, particularly in the areas of national
security, foreign trade, investment, manufacturing, energy and infrastructure,
and placing these sectors under competent leaders. And people should expect him
to continue to appoint the key posts with efficient and honest officers who
deliver results, not favours, restructuring of few ministries like finance, HRD,
agriculture, manufacturing and infrastructure, defence, external affairs,
railways, banking sector etc. People have high hopes that Modi will control corruption,
inflation, crime rate and bring back black money stored in Swiss Bank by
business tycoons and politicians. Empower bureaucrats and technocrats to enable
faster decision-making. People can also expect him to make the bureaucracy work
hard for the benefit of all the people. If India’s giant administrative
apparatus can be energized at all levels, and if corruption can be kept in
check, this can make an enormous difference in the lives of all Indians. Narendra
Modi has promised that his government will “not to be vindictive” towards his
political opponents. Indeed, the best way to neutralize his critics would be
for Mr. Modi to show that secularism thrives, not through public arguments and
abuse, but through development. People are expecting that Modi will streamline
the power and authority of centre cabinet. People wanted that key positions
should be give to competent leaders. So that the country will prosper.
The new government
should focus on the following issues;
·
Indian Economy is Stumbling: First of all, there is an urgent need to control inflation. The
new finance minister has to control inflation, slowdown in the economy and stabilize
the volatile rupee. What people expect from the new government are the increase
in supply and lowering of taxes. The government needs to decrease the pressure
of indirect taxes. That austerity could prove hard to sustain. Spending
accounts for 11 percent of India's GDP, offering a critical growth lever.
Continuing to defer payments to state-run companies that would compensate them
for selling fuel, fertilizer and food below market prices, can create havoc
with their finances and make them rely on borrowings to fund operations.
Meanwhile, tax revenues are unlikely to recover immediately in a weak economy. A sharp narrowing in the current account
deficit(CAD), to an expected 2 percent of GDP from a record high 4.8 percent in
the previous fiscal year, was helped by steps to curb gold imports. Public finances are in dire straits as government spending
has outpaced revenues. A fear of losing fiscal powers forced some states to
delay the rollout of a nationwide goods and services tax (GST), which economists
estimate would have boosted India's economic growth by as much as 2 percentage
points. In the meanwhile Indian equity markets have extended their losses and
are trading at day's low. The new
government aims to address state concerns and implement GST in an
"appropriate timeframe". For its part, India could initiate realistic
tax reforms, like eliminating transfer-pricing and retroactive taxation. People
are expecting that Modi will bring attitudinal changes in the people for
countries growth.
·
Education
and Employment: The new government needs to make
people aware of the importance of education. There is a need for allocation of
funds to provide better education and establishment of more quality educational
institutes. Modi in his agenda promised to create ample job opportunities. The
way to achieve this is by encouraging investment and skill development. Apart
from creating fresh job opportunities, laws need to be enacted for job security
as well. Modi says UPA schemes such as the employment guarantee programme and
Right to Education will continue.
·
Need for Agriculture
and Rural Development: Since
Modi talks a lot about 'big push' in the agriculture sector, one can expect
some radical changes. It also depends on external factors like monsoon and
changes in weather etc. Several states have reported declining yields and new
techniques, seeds and ideas are needed to rejuvenate this sector. One of Modi's
biggest achievements has been the revival of agriculture in Gujarat, and he is
likely to replicate that nationwide. Modi has proposed a market stabilization
fund for farmers to get the optimum price for their produce. but a new
government is unlikely to change it. "We will not sell dreams," says
BJP national treasurer Piyush Goyal. Farmers expecting that Modi will provide
better pricing for they produce agriculture products.
Government must look after the fertilizer subsidies, farm
credit, crop insurance. Poverty alleviation through micro-credit and social
entrepreneurship. Rejuvenating rural economy through micro finance. Therefore
new government should encourage social entrepreneurship for rural development.
Modi also maintaining the MPs that in every parliamentary constituency at least
one village has to be develop as a model village. hoping that the same path
will be taken by other villages.
·
Irrigation Projects: A total of 163 large and medium irrigation projects are delayed due to
various reasons such as land acquisition, resettlement and rehabilitation of
the affected population clearance from
the Ministry of Environment and Forest, litigation, geological surprise in the
foundations and paucity of founds. This has conditioned the approach that the
new government continue to take in implementing irrigation and water policies,
irrigation institutions and in allocating public-sector budgets.
·
Corporate Role :The
expectation of industrial bodies have also hiked up as they believe that the
new government will focus on promises made to small-medium enterprises. SMEs
contribute around 40 percent to the total export. Adi Godrej industrialist on
expectation from new government should restore ease of doing business in India,
address the tax rules and provide fiscal stimuli to boost industrial production
needs. The industrialists are expecting incentives in taxes paid by them. They
want to encourage small scale industries by giving them some relaxation and
also want to provide more opportunities to skilled professionals in all the
sectors. There are high expectations everywhere, but what is more important now
is that the economy needs urgent attention and nourishment. Entrepreneurs expects the government to
focus on true development and encourage entrepreneurs to become truly
productive, efficient and self-sufficient. Expectations are to have a stable,
decisive, business friendly, transparent government, uninterrupted electricity,
skill development, making youth ready for corporate life, and developing
tertiary skills. Even the corporate sector is also hoping that the situation
will change under the new government.
People are hoping that Modi will utilize National Small Scale
Corporation (NSIC) for starting manufacturing units by the young graduates and
make the country world number one position.
·
IT Service: Software service has earned India
recognition, electronic hardware is an area where-in India has lagged
behind. The performance of IT services
is likely to improve in 2014-15. The government must clarify about royalty
implications on software, eliminate minimum alternate tax (MAT) on SEZs
(Special Economic Zones) and take steps to minimize litigations.
·
Encouraging Foreign
Investment: Indian
economy growth has slowed down to less than a 5 percent annual expansion, while
consumer inflation is nearing the 10 percent level and foreign investments in
the country has been declining. New government will push for more foreign
investment policies and will also encourage individual Indian states to pursue
their own foreign investment deals. India needs FDI in all sectors which allow 100
percent FDI under the automatic route in all sectors and give national
treatment to foreign owned companies. The New government promised to cut red
tape and encourage foreign investment in the sectors which needed for job and
asset creation.
·
The Role
of Cities: Mr. Modi has made it clear that smart
cities need to play a much bigger role in development in the 21st Century.
Indian cities enjoy little autonomy in revenue mobilisation and expenditure
management. A major initiative would be to announce the 50 largest cities as
candidates for the status of 'smart cities', offering large funds to those that
are given full autonomy and mobilise greater resources.
·
National Strategy for Combating Terrorism: New government strategy also recognize that the war on terror is a different kind of war.
This updated strategy sets the course for winning the war on terror. A more
peaceful and prosperous future will demand a clear and credible strategic
vision from Modi, including a zero tolerance approach to terrorists and their
sponsors. They have acquired guns, hand grenades and guerrilla war expertise
over the years and routinely targeted security forces and other government
officials, which containing terrorism to Naxal threats, should be identified as
the top priority of the new government. New government should also handles the
most important and sensitive issues of
Centre-State government.
- HR Issues: The BJP wants to reform labour laws to boost
job-intensive manufacturing and create as many as 1 crore jobs per year
for youth entering the workforce.
Changing the law would be politically tricky, though, and Mr Modi may seek
to encourage competition between India's states to boost job creation. Existing industrial / labour
laws need to be amended and the new government is actively considering it.
Indians is having highest HR in the
world. But majority are lacking skills for development. Modi government
constitute on skill development to the young and energetic youth to bypass
China in the development.
·
Corruption
Control: The
government's real challenge in this area will be is fighting corruption. Corruption has been rampant. Scams and scandals were
tumbling out of the closet with alarming regularity. New government is likely
to use the unique identity platform for better targeting. "The immediate
priority is to institute a policy of transparent allocation of natural
resources including that of coal," says Narendra Taneja, National Convener
of BJP's energy cell.
·
Foreign Trade Policy: Faster economic growth can be achieved only through
good international trade. All the
industrial bodies related to the export are expecting some key changes in the
upcoming foreign trade policy that will in turn, reduce transaction costs of
Indian exporters and make them competitive in the world. Government should make efforts to reduce cost on
transport for export commodities agriculture. The government should promote
inflow of foreign technology to promote India's industries.
·
Centre-State Relations: The new federal government will need to amend frayed
ties with state governments, who often complain of New Delhi's big brother
attitude. It will be clear that whether the new government will be able to
fulfill the expectations of people of Kashmir and Andhra Pradesh. Hope Modi is
able to fulfill the expectations of the people and lead them to the 'promised
land'. The States should, in turn, be
expected to mobilise most of their own resources for development and hold
themselves accountable to their citizens. Centre must motivate the states to
create their own resources and must accountable to their citizens.
- Infrastructure: There is a need to develop the infrastructure of the
country. The under-developed infrastructure is the hindrance in the
economic growth of the country. The development of infrastructure will
increase the economic growth. India desperately needs
infrastructure upgrades for its roads, bridges, national highways,
seaports and airports and what
is required is the provision of connectivity with every Indian village. All of which will cost untold dollars
from both domestic and foreign investors.
People should expect from the new
government to deliver the promises of a dramatic upgrade in the state of
infrastructure. People should also expect him to implement a firm timeline
for the completion of the golden triangle roads to at least six-lane
divided highways and introduce fast trains. Narendra Modi strictly applies
his 'minimum government and maximum governance' mantra to these two key
infrastructure ministries, the country can expect better Railways and
better aviation facilities. Highways is another key ministry, most of the
National Highways work has been halted and the conditions of the roads
have also been very bad. Modi is likely to take up road building works in
a big way. Rural roads, communication and supply side constraints.
- Privatization: The new government is likely to focus on selling its
holdings in state-run firms that could raise much-needed revenues to trim
India's ballooning fiscal deficit and boost economic growth.
- Subsidies: Mr. Modi's government needs to examine how it subsidizes
basic commodities if it is to contain the fiscal deficit and avoid a
ratings downgrade. The new government is likely to continue oil decontrol,
and restructure oil subsidies, which totals Rs 1 lakh crore. The new government will immediately need
to take a decision on slashing subsidies spending. Subsidies cannot be washed
away in the foreseeable future. People should expect the new Prime
Minister to replace wasteful subsidies by targeting direct cash transfers
to the needy. These subsidies are wasteful which do not reach many poor
people, and are a major source of corruption. Modi has to concentrate on
wasteful expenditure like security expenses of political leaders, using of luxury carry by
ministries.
- Defence: More foreign investment in defence would help India
reduce imports, modernize weapon systems and speed up deliveries of
hardware it needs for operations and training. The new government would
allow some greater foreign investment in defence industries. India has to
warm-up defence equipment because 24x7 threat by Pakistan and China.
- External Affairs: India’s
top priorities should be a measure to strengthen its relationships in its
immediate neighborhood. Modi will need to reinvigorate India's relationship
with China and the United States. Economic cooperation and development
will not be impossible without sustained peace – and that will not be easy
to achieve in a region beset by deep-rooted tensions including India and
Pakistan, and the threat of state-sponsored terrorism. Making matters
worse, India and China are locked in a longstanding border dispute. Terming
the agreement towards setting up BRICS (Brazil, Russia, India, China,
South Africa) new development bank a significant step, Indian Prime Minister
Narendra Modi said an open international trading regime is critical for
global economic growth as well Indian economic growth. In this statement on the agenda
"sustainable development and inclusion growth" at the sixth
BRICS summit he said the global economic growth environment remains
uncertain and recovery was still fragile despite improved prospects.
- Insurance Service: Attempts to raise the cap on foreign investment in
India's $45 billion (Rs. 2.70 lakh crore) insurance sector, to 49 per cent
from 26 per cent, have met resistance from employees at state-controlled
insurers and their political backers.
- Banking Sector: The new government will need to help state-run
lenders battling rising bad loans caused by the slowing economy, rising
interest rates and project delays. Modi will need to address the problem
of rising bad loans at banks, which have stifled credit flows to
corporations. Rising bad loans threaten to choke the gradual recovery in
Asia's third-largest economy, according to the OECD. However, Corporate debt restructuring (CDR) is
being misused. It has been grossly misused by the lenders and
corporate. The banks have resorted
to random use of Corporate Debt Restructuring (CDR) to change their non-performing
loans into healthy assets. The banking system is yet to reach the
rural areas and the ATM and cell phone transactions be made to available
to rural people free of cost.
·
Black Money Control:
Black money refers to funds earned on the black market on which income and
other taxes were not paid i.e., unaccounted money. The total amount of black
money deposited in foreign banks by Indian is unknown. Modi government constitutes SIT (Special
Investigative Team) to unearth black money. New
government has been constantly
trying to strengthen the legislative
framework to control generation of black money in the country as well as
control the flight of such elicit fund to foreign shores. New government is
moving fast to recover ill-gotten money stashed abroad and they will not have
to wait for long. Measures taken by new government to tackle black money.
- Power Projects: The priority of the newly-formed government should be
to deal with the power shortages and provide connectivity to every village
in India. The new government is also expected to weak clauses in the
nuclear liability law to increase nuclear power generation in the country.
It will be able to effectively
address India's major economic issues. The new government may implement the
so-called Gujarat model of distributing electricity that has been widely
praised for delivering reliable 24-hour power supplies in the state. The
new government should give them priority for solar and nuclear power
generation. The government should
concentrate on solar energies which must be given to the rural areas at
subsidized rates.
- Gas Pricing: In January, India notified the new gas pricing
formula that could double the prices of locally produced gas from 1 April 2014,
but the poll regulator stopped the government from raising the prices. The
new government should regulate the gas, petrol and diesel pricing
Conclusion
India needs to be back on the path of development. Modi's
claims to make the country an economic powerhouse can only be achieved by the
overall development of the country. Likewise the Gujarat model of development,
there is a need of a separate model for every Indian state. For the economic
growth of the country investment plans need to be renewed. There are projects
which have been delayed for over 30 years. A proper execution plan is needed
for these projects. Cutting down of bureaucracy to draw quick and efficient
implementation of crucial development projects.
Several
measures introduced will stimulate private investment and economic activity. But
there are important policy decisions which need to be addressed for sustained
high growth. So there is no doubt that the
new government is going to have its hands full when it comes to resolving these
issues. It will have no choice but to learn from previous mistakes. It
is quite obvious, however, that it will no longer be able to take the average
Indian for granted. The new government will be able to bring about the much
needed change for India.
The new
government cannot just enjoy its position of power. But will have to display
much more serious attempts to drive the growth and development of the country.
It is quite clear that the current state of affairs cannot go on and it will be
interesting to see how the new government takes on this expectations. People
have high hopes on Modi that he will develop the country in these days of world
recession.
Reference
·
The Hindu New Paper, July 19, 2014.
P. 8
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www.equitymaster.com
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www.yourstory.com
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www.india-economics.hubpages.com
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www.thehindu.com
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www.in.reuters.com
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www.profit.ndtv.com
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www.project-syndicate.org
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www.newindianexpress.com
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www.ibnlive.in.com
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www.businessnonstop.in
·
www.articles.economictimes.indiatimes.
com
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