Prime Minister Narendra Modi-led NDA government has completed two years in office amidst indications that India’s economic recovery is taking firm root and most economists, including those at IMF and other global institutions are of the opinion that the country’s economy is poised to achieve its potential growth rate.
What have been Modi government’s biggest achievements? For Dharmakirti Joshi, Chief Economist at Crisil one of the biggest achievements of the Modi government has been its coordinated work with the RBI to control inflation. “India had seen 10%-plus levels of inflation for seven years in a row, but by setting up a process of monetary policy targeting, the government and the central bank are working in the right direction to reduce inflation,” Joshi tells FE Online.
Joshi also credits the government for its macroeconomic prudence on fiscal deficit. “This has ensured that India’s economic fundamentals remain strong. What stands out is that unlike China, we have not followed the path of credit creation to boost growth,” he says.
What stands out for Sahil Kapoor, Chief Market Strategist at Edelweiss Securities is the government’s emphasis on ‘Make In India’, Jan Dhan Yojna and ease of doing businesses. “The new bankruptcy code should help improve the ease of doing business and ease pressure from the stressed banking sector. Amendments to double taxation agreement with Mauritius is an another important step,” Kapoor says. “Record budgetary allocation to infrastructure development has been a key area of support to the domestic economy as well,” he adds.
However, despite the emerging confidence both on corporate earnings and GDP growth front, several economic indicators such as industrial growth and exports have been dwindling in the last few months. Add to that the fact that the government has been unable to introduce big-bang reforms such as GST Bill, Land Acquisition Act and changes in labour laws.
So, what are the government’s failures? More importantly, what should be the focus areas in the coming years? What steps are needed for India to achieve a robust economic growth rate? We take a look at five areas highlighted by analysts:
1) Agriculture: Crisil’s Joshi is of the opinion that delayed focus on the agricultural sector is one major shortcoming of the Modi government. “Agricultural sector has been in distress for some time now, and should have been given better attention. Now, the government should look to aggressively focus on the goals it has announced, such as doubling of farmers’ income. This makes both good political and economic sense,” he says.
2) Focus on Make in India, GST: The government should sharpen its focus on Make In India and likely target electronics, as imports in this segment constitute a large portion of the import bill, feels Kapoor of Edelweiss. “Passage of GST bill appears to be gaining credibility and would be an important trigger for the economy,” he adds.
3) Revival of private sector capex: Anand Radhakrishnan, Chief Investment Officer–Franklin Equity at Franklin Templeton Investments India stresses on the importance of private sector capex. “Apart from the consumption theme, another growth driver for the economy could be investments coming from private sector capex. Despite being a gradual process, this theme is an important and sustainable growth enabler. Some prerequisites for a meaningful growth in the private sector capex include benign inflation, necessitating lower interest rates and better transmission of rates along with a sustainable rise in domestic demand leading to optimal capacity utilization as well as continued support from government capex in key sectors like infrastructure,” he explains.
4) Uday, Indradhanush & digitisation: PSBs reforms (Indradhanush), bankruptcy code, clean-up of banking NPAs, power sector reforms (UDAY) are important incremental steps, says Joshi. “I would like to point out that each one of these reforms is in initial stages, and there is a need to aggressively pursue them to ensure implementation. For the remaining period, the government should stress on making a success out of its key programmes like UDAY and Indradhanush,” he adds.
Joshi also wants the government to look at increasing internet penetration. “Tech readiness is another area that should get attention from the government. Access to internet is of paramount importance to ensure that the reforms achieve potential,” he feels.
5) Railways: Sahil Kapoor wants the government to strengthen its delivery in Railways. “Record planned expenditure in gross budgetary support should help railways stage a strong comeback as the economic recovery strengthens. The focus should be on increasing freight volumes and reducing transportation costs. Dedicated freight corridor should be given the highest priority,” he concludes.