With most exit polls suggesting a thumping victory for the BJP in the general elections to the Lok Sabha, there are talks of Narendra Modi returning to power for a second term as Prime Minister. Under this situation, here’s a look at the hurdles that the current government faced during its 5-year stint and the areas which it should focus on in the next term.
After winning a clear mandate in 2014, the Narendra Modi-led NDA government had taken a lot of dynamic steps like demonetisation, implementation of Goods and Services Tax (GST), financial inclusion and direct benefit transfer, and tackling bad debts through the Insolvency and Bankruptcy Code. These have had a positive impact on the economy, bringing most of the population under the banking ambit and plugging leakages.
The current government also made tremendous efforts to keep inflation under control. Record food production over last few years helped keep prices at bay.
However, the government has been criticised on issues of fresh creation of employment and tackling farm distress. The strong infrastructure pick-up and capital expenditure growth witnessed in the first two years of the Modi regime lost its momentum during the second half. The government has taken a lot of measures to boost growth and employment through flagship programs like MUDRA loans, MGNREGA, Pradhan Mantri Kaushal Vikas Yojana, but their implementation and reach have been questioned. When the current government came to power, it promised to modify labour reforms but failed to do so. However, measures like ‘ease of doing business’ and making states competitive have improved the business climate in India.
In the political manifesto before the general elections, most major parties announced populist measures which are likely to create more stress on the exchequer if implemented. The central government missing the FY 2019 tax revenue target by over 1 lakh crore and the fiscal deficit rising above 3.4 per cent of the GDP are major warning signs of fiscal stress.
Declining auto sales, reduced consumer goods consumption and major companies’ fears of recession in semi-urban and rural economies also call for urgent action.
With lessons learnt from the past five years, the new government may focus more on these key issues before taking bold steps.
Apart from farm loan waivers and implementation of MGNREGA, steps like providing irrigation and storage facility, promotion of agriculture exports, streamlining and implementation of MSP have to be taken by the new government for the betterment of rural economy and to increase GDP from agriculture.
Irrespective of which party forms the government at the Centre, the new government is expected to take proactive and strong steps to encourage private sector investment. However, to do that the new government would have to tackle the current liquidity crisis in the system and establish a stable credit creation regime.
The government may create a structure to allow free flow of capital and talent with low or no taxes. Even the regulatory compliance laws and policies are likely to be changed for the growth of start-ups and MSMEs. The new government may also take steps towards privatisation of banks, improving the rankings in case of ‘ease of doing business’, implementation of Land Acquisition Bill and labour reforms.
From an investment perspective, India is likely to retain the tag of the fastest growing long term economy in the world and therefore volatile moves in the markets should be used as an opportunity to accumulate long term wealth.
The author is CEO of Karvy Stock Broking