Time has come for the new Prime Minister to take some much tough decisions on the economic front and guide India to the road to progress
Prime Minister Narendra Modi’s speech on ‘tough decisions’ in the next couple of years to nurse an ailing economy has sparked off speculations about what measures he might take. The upcoming Union Budget is the first signal on which way the Government will go in restoring the economic health of the country and send out cues on how the Modi Government proposes to deliver on its poll promises.
Mr Modi knows that the time has come to take these hard decisions as they are always taken at the start of the term. The harsh realities of the economy must have come as a shock to Mr Modi after sitting in the Prime Minister’s chair. “I have taken over the reins of the country in circumstances when there is nothing left behind by the previous Government. They left everything empty. The country’s financial health has hit the bottom”, said Mr Modi recently, while commenting on the state of economy he has inherited from his predecessor, Mr Manmohan Singh. However, this is nothing new as most Prime Ministers have made similar charges against their predecessors.
Can Mr Modi really administer the bitter pillIJ The economy is slipping because of various factors. The first big challenge is rising prices. Inflation has hit a five months high due to the rising prices of rice and vegetables; onions have become scarce. While contingency plans are in place Union Minister for Finance Arun Jaitley has attributed this scarcity to withholding of stocks on apprehensions of a weak monsoon. He has asked the State Governments to come on board and discourage speculative hoarding. He is also targeting exporters while the release of food supply is also attempted. Public Sector Undertakings may also step in to intensify the purchase of essential commodities to ease the situation.
Rising fuel cost, in the view of ongoing Iraq crisis is another issue in front of the Government. While this is a global concern, the price of crude oil per barrel has gone up to $114 recently, which will have a huge impact on our import bill. Iraq is India’s second-largest oil supplier after Saudi Arabia. High crude oil prices means higher inflation, as India imports 75 per cent of its crude oil requirement. It will also upset the Government’s plans to cut subsidy and narrow the fiscal deficit, but this is beyond India’s control or expectations.
Mr Modi is willing to bite the bullet and, therefore, he should concentrate on policy action to lessen the pain of the people. With a sluggish economy — only 4.7 per cent GDP growth, negative growth in the manufacturing sector, 4.7 per cent in agricultural output, 5.8 per cent in service sector — things are not looking rosy by any standards. Therefore, the bitter pill will have to be administered taking everyone on board, including the State Governments.
The Union Government recognises that, for two consecutive years, industry and manufacturing sectors have registered negative growth. One cannot expect a seven per cent GDP if these two sectors are not revived. Therefore, incentives should be given to revive these sectors as well as others. This may include some short-term as well as long-term measures. The industry has lost confidence as most policy decisions have been put on the backburner. Mr Modi’s task is not just to convince the foreign investors but also to encourage the domestic investors. While foreign investors may be looking at the FDI route, domestic investors will be enthused by incentives in construction and real estate sectors first.
The Goods and Services Tax is another issue. Earlier, the BJP was opposing it and now the Congress-ruled States might oppose it on political grounds. Mr Modi has this unenviable task of bringing all the States on board on the GST.
But some of these measures need the approval of Parliament. While the NDA has a majority in the lok Sabha, it is a minority in the Rajya Sabha. Perhaps this was the reason Mr Modi sought the cooperation of the Opposition in his maiden speech in Parliament.
Mr Modi has a window of opportunity now to set right the economy if he takes bold decisions. He has the chance to do things now as he has the mandate and goodwill. How far he will go is to be seen.