The return of the National Democratic Alliance (NDA) government to power does indicate a couple of things. First, there will be continuity in policy stance, which is good for the country. The second is that some of the economic issues that had taken centre-stage like employment, economic stagnation, falling consumption etc. did not matter in terms of affecting the decision of the electorate. It is not surprising that the Bharatiya janata Party (BJP) campaign this time was not talking about development or the Gujarat model, but other political issues and economic issues focused on the lowest common denominator which struck the right cord.
What does this mean for the economy going forward?
The government can take heart at the overwhelming verdict, as two of the rather brave reforms, which include demonetisation and implementation of the Goods and Services Tax (GST) that apparently had not gone down well with the lower income groups, had not changed their voting patterns. This is in a way a green signal to the government that it can go ahead with strategic reforms in the areas of land and labour without any significant fear of reprisal in terms of possible loss of votes. Ideally, such action in the first two years makes imminent sense as human memory is always short and the disruption caused here will be forgotten by 2024.
The Budget is unlikely to have any serious changes as the government had quite astutely highlighted the farmer scheme of Rs 75,000 crore without upsetting the arithmetic and can hence manage the main budget with minimum tweaking. The focus this time can be more on tax reforms where the direct taxes can be revisited especially for the corporates where so far a lower rate has been offered to smaller companies and not the rest.
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The second term for the government will be useful for introspection of policies that did not work as was envisaged earlier. Here, in particular, power sector reforms need to be revisited as this was one area that promised much, but did not deliver as it is always hard to get the states to fall in line when it comes to cutting transmission and distribution (T & D) losses and billing are concerned.
Second, the ‘Make in India’ campaign needs to be looked at closely to find out where things did not go right. The fact that industrial production (IIP) has stagnated in the last few years is compelling for some firm action. The government should consider choosing specific sectors that can make this theme work rather than focus on 25 odd sectors which makes it more of a text book prescription.
Third, it needs to be accepted that there is a problem on the employment front so that work can begin on creating more jobs. While it is true that there have been low income jobs created in construction or slightly higher level cosmopolitan jobs in e-commerce, the same has not happened in manufacturing or services. This should be addressed carefully especially if labour laws are going to be brought in as there is a major contradiction here.
Fourth, the financial sector has to be made robust and the fact that the banking sector’s non-performing asset (NPA) woes seem to be ending is a good starting point for the government in its second term.
Last, the farm policy approach needs to be made sharper. Here, too, like the ‘Make in India’ campaign, it should be focused on crops or regions sequentially so that it is manageable. This would make it feasible and provide some modicum of stability.
While these ideas are known to the policy makers, having a drop down of priorities for sequential implementation will make it more effective.
Madan Sabnavis is chief economist at CARE Ratings. Views are personal.
By arrangement with Business Standard.