His second term as Prime Minister has barely begun but Narendra Modi is already under pressure from the country’s top industrialists to hit the ground running to get the economy back on the rails.
Top corporate honchos attended the swearing-in of the new ministers of Team Modi. They were there not just to witness the pomp and splendor of the ceremonies but to know who will be heading important economic ministries. They could not have been pleased with the unexplained delay in the announcement of portfolios.
Captains of industry, some of whom were among the biggest corporate donors to the ruling party’s re-election campaign, are ready with a number of suggestions and demands to put the economy back on track without delay.
It is of critical interest to big business for the precious time lost due to the inordinately long election process to be made up as soon as possible. They expect Team Modi to accord top priority to rapid decision-making to ease the severe cash crunch and improve the investment climate. They are also seeking clear signals that this time there will be no back-pedaling on reforms relating to labour laws and land acquisition.
From the standpoint of the private sector all talk of job generation and GDP growth would be like whistling in the wind unless the shackles are removed and business and industry are allowed to spread their wings with easy access to capital. It still rankles Big Business that early in Modi’s first term there was a sudden ideological turn, away from the reforms agenda and towards half-baked welfare economic policies, probably prompted by the “suit-boot” accusations by the Opposition.
This time round India Inc. wants the Modi 2.0 regime to shed its reticence and pursue a consistent business friendly approach. From the word go, overriding priority should be given to ensuring adequate availability of affordable credit. There should be no foot-dragging on timely refund of GST and generous incentives like interest subsidy to merchant exporters.
While the private sector appreciates that the new government will have to address the distress in the agrarian sector and the rural economy, it expects a clear policy prescriptions to reverse the current slowdown in the economy as a whole. The symptoms are self-evident: fall in consumption demand and lack of new investments. These are the key concerns that need to be tackled first up by the new Finance Minister. He should move rapidly to end the liquidity crunch. Banking reforms, including recapitalization of public sector banks, is the need of hour.
The captains of industry, who have been impatiently waiting for the long-drawn-out seven-phase elections to be over, are armed with ready-made action plans prepared by leading economic think-tanks that the new economic ministers can act upon urgently without further ado. This they feel is the logical way to make for the time lost during the last three months of electioneering when economic governance had come to a standstill.
The studies and forecasts made by industry bodies indicate that GDP growth in the current financial year, 2019-20, is unlikely to be more than 7.1% at best. Unless steps are taken on a war footing to improve the investment climate, the prospects for the next year, 2020-21, would be no brighter.
Official growth numbers for the fourth quarter of 2018-19 may be released in a day or two – the delay having been caused by election campaign preoccupations. However, when they do become known it is not likely to bring much cheer. Private think-tank estimates are that GDP growth in the January-February-March period would probably be around 6.5%. This would mean that official figures for the whole of last year, 2018-19, might have to be revised downwards.
Private sector forecasts of Industrial Production for the current year are also on the low side. The IIP growth for 2019-20 is being calculated at just 4.4%. If the new government injects new dynamism in the economy, factory output could touch 5% but if the investments do not pick up fast enough, IIP could even touch a low of 3.5%.
To kick-start the economy, business and industry wants the government to hit the ground running from Day One. A comprehensive survey conducted just recently, in May 2019 itself, paints a somewhat grim picture. Even the most optimistic players from the industrial, banking and financial services sectors who took part in the survey foresee only 6.8% growth rate.
The median growth forecast for agriculture and allied activities has been put at 3.0% for 2019-20. The Services sector is the only one which is expected to grow by 8% during the year.
Depending on the Monsoon rains, the outlook of the participating economists regarding price levels and general inflation was largely cautious. Wholesale Price Index they felt would rise by about 3%. Consumer Price Index could go up by about 4%.
However, control over inflation could go awry if the United States takes a more rigid stand on not allowing oil imports from Iran by oil importing countries like India. As it is, international prices of crude oil have been on the rise.
The bigger worry remains areas like export growth prospects and current account deficit forecasts. Hope is not high for any significant rise in the export sector’s outlook in the current year. Escalation in trade war tensions has clouded the global trade growth outlook. This is having an impact on overall world economic growth as well.
Another concern is that from June onwards, the withdrawal of GSP benefits to India by the United States will come into effect. This is bound to have an impact on the export performance. Some economists however feel that since the total duty benefits amount to only 190 million dollars, the withdrawal should not be cause for undue pessimism or panic.
Trade bodies are urging the new Commerce Minister to adopt a proactive policy to identify new destinations for exports and assist exporters to seize whatever opportunities arise.
The key to survival and success they say is for the government to focus on diversifying the export basket and help private sector to capture a greater share in world exports. For this the Commerce and External Affairs Ministers should go all out to develop good relations with countries in South East Asia, Central Asia, Central America and Africa, where new markets are emerging and are up for grabs.
On the whole the corporate captains are urging the new Modi government to be more business friendly like in the first two years of the first tenure. With a massive majority in the Lok Sabha, they feel, there will be no political compulsions for Modi 2.0 to once again hesitate to adopt a bold pro-business policy approach.
The truth is that the economy is in a shambles. And it is Modi’s own making during his previous five years as Prime Minister. Only a clear stance in favour of boosting industry and trade can restore the confidence of investors, both foreign and domestic. The urgent need is to open the doors and loosen the purse strings.
But that would involve taking a clear ideological swing to right-wing neo-liberalism. It would also imply soft-pedaling on welfare economics and a degree of socialist policies.
On the one side Big Business, the election donor class, is breathing down its neck and demanding a free market. On the other side crores of cash-strapped farmers and jobless youth are waiting for succor from a government they evidently voted back to power. The Modi 2.0 government is clearly wavering on the horns of an ideological dilemma even before settling in office.