Forty months after Narendra Modi sworn-in as the Prime Minister of India on the promise of ‘Achhe Din’, the GDP is at three-year low, taxpayers are confused about GST implementation, banks are reeling under the pressure of mounting bad loans, private investments have fallen to a rock bottom, and the government is staring at fresh Lok Sabha elections of 2019 — just 18 months away.
Caught in a rock and a hard place situation, Narendra Modi has finally formed an Economic Advisory Council under the chairmanship of NITI Aayog member Bibek Debroy. Before the Modi-government, during UPA I and UPA II, then Prime Minister Manmohan Singh also formed PMEAC for his two full terms. The question now arises why exactly PM Narendra Modi felt the need to form an Economic Advisory Council after three years when his government took even the most radical economic decisions such as demonetisation and the GST without one? The answer, perhaps, is that the government needs good advice to lift India’s economy from the self-inflicted crisis.
The 5-member Economic Advisory Council to the Prime Minister (PMEAC) will address the issues of macroeconomic importance. The council will also analyse and advise the Prime Minister on any issue, economic or otherwise, referred by him. Besides Debroy, the council includes NITI Aayog’s principal adviser Ratan Watal as its member and economists Surjit Bhalla, Rathin Roy and Ashima Goyal as part-time members.
The government, and now the PMEAC, have many challenges ahead to address as soon as possible to boost the GDP numbers — the scale on which the government’s economic success will be measured. At a time when the government is reportedly considering pushing the economic growth while allowing the fiscal deficit to expand, the advice from the PMEAC would be crucial.
Here are the top five issues plaguing the Indian economy which the government needs to address as soon as possible to put India back on track, especially before the elections. It is here where the PMEAC might come in handy for Narendra Modi.
Economic slowdown: The 5.7% fiscal first-quarter GDP growth pit the country behind China on the list of world’s fastest-growing major economies. The slowing growth is sure to hurt the image of Prime Minister Narendra Modi and may even hurt his personal popularity in the 2019 General elections.
GST hiccups: There is still widespread confusion among the taxpayers with regard to the implementation of GST, what with the GST Network — running into snags due to the rush of filing invoices. Meanwhile, in the first month the implementation of GST regime, while the government’s collection was high at nearly Rs 95,000 crore, the net revenue was muted, considering the high input tax credit claims at Rs 65,000 crore.
Demonetisation: Narendra Modi and Arun Jaitley might also do well to take a stock of the real gains or losses that have accrued out of the unprecedented move of demonetisation. With the Reserve Bank of India reporting that 99% of the banned currency has returned to the system, the critics have questioned the whole point of the move which hurt vital sections of the economy.
Credit cycle and private investment: India’s credit growth is stifled, with the banks reeling under the pressure of mounting bad loans. Earlier May, the government notified an ordinance for speedy resolutions of NPAs in efforts to deal with the problem of India’s chronic bad loans, which have surged to Rs 9.63 lakh crore. Meanwhile, high-interest rates discourage small and medium enterprises to take loans and fund growth. This, in turn, is slowing down employment, and is hurting the investment cycle.
Government’s non-tax revenues: There is a growing concern over the government’s non-tax revenues this year, especially with it becoming more likely that it will not be able to meet its ambitious disinvestment target of Rs 72,500 crore.
The deteriorating public finances may also hurt India’s position internationally. If the rating global agencies cut India’s rating, it might force investors to dump Indian assets in favour of safer havens, Bloomberg reported. Earlier this year, rating agency S&P ruled out any upgrade in India’s sovereign rating from BBB- through 2017. Moody’s has kept its Baa3 rating on India since January 2004 and Fitch has kept India at the lowest investment grade rating of BBB- since August 2006.