Modi 2.0 must utilise political capital, leverage mandate to implement economic reforms

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Updated: May 31, 2019 2:25 PM

The political capital that the government has generated via elections should be spent to push long pending decisions, Neelkanth Mishra, wrote in The Indian Express.

PM Narendra Modi Swearing in Ceremony LiveImage: PTI

With the BJP winning landslide majority, its next task will be to work for economic reforms, says renowned equity strategist Neelkanth Mishra. The political capital that the government has generated via elections should be spent to push long pending decisions, Neelkanth Mishra, co-head of Asia Pacific Strategy and India Strategist for Credit Suisse, wrote in The Indian Express. For a country as big as India, there is never a dearth of options on what needs to be done and several issues have resonated time and again with a long wish list of reforms already in place, problematically, for decades now.

For example, numerous suggestions have been made in the direction of improvising railway sector in India. Ending the government monopoly by splitting it, corporatising it, privatising or listing it has been advised, the importance of railways for economy is highlighted and other problems of the sector have been documented. While administrative reforms are being discussed for half a century now, concrete steps are awaited.

Further, India’s heavy dependence on foreign energy must be the foremost issue to tackle. “One cannot grow economically without consuming more dense forms of energy, and India either does not have domestic sources of dense energy, or does a poor job in extracting and using them,” Mishra wrote. The threat is real when even a $10 rise in crude oil is frightening for the growth.

Secondly, the domination of government-owned PSU’s is worrisome financial system. The Government made an assumption that privatisation of financial system by stealth will work after 90% of the bad loans in the past few years turned out to be in PSU banks. “This had worked (even if unintentionally) in airlines and telecom, but once the NBFCs growth slowed due to a funding crunch, the problems in this approach have become obvious,” Mishra wrote. Hence, it becomes pertinent that the government approaches financial architecture in India decisively.

Moreover, rethinking foreign capital inflows will be required. With the capital inflows as a share of GDP hitting the 2002 levels, this could limit economic growth, particularly given rising energy imports, says Mishra.

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