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An Inclusive Growth Trajectory

Increased rural incomes will be possible only when the farmers are provided with a level playing field in the markets. Strengthening the supply chain and promotion of food processing industries will help increase incomes and also generate employment

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The people of India have voted decisively for Narendra Modi and the BJP. Now, as they seek to fulfil their mandate, the Prime Minister and his cabinet will have to face up to a variety of serious challenges on the economic front. These issues may not have been the focus of the election campaign but they remain critical for achieving sustained progress, poverty reduction, and job creation for India’s burgeoning youth population. A record high unemployment, decrease in agricultural growth, stagnant rural wages, falling exports, a slowdown in manufacturing, expanding fiscal deficit, and poor revenue growth point towards the seriousness of the overall slowdown across the economy. To make matters worse, consumption, which had helped boost the economy in the last few years, is witnessing a broad-based slowdown that exacerbates economic difficulties.

The latest monthly Economic Report issued by Ministry of Finance lists “declining growth of private consumption, tepid increase in fixed investment, and muted exports” as the main causes for this slowdown.

The government must act and act fast to turn things around. The first step is to restore the credibility of India’s institutional infrastructure. It does not augur well when there is a widespread belief that the government is eroding the independence of monetary and regulatory institutions. Similarly, it is time to face the facts with respect to economic data. Steps must be taken to put doubts regarding GDP data and other statistics to rest. The government must commit to autonomy and professionalism of the proposed National Statistical Office. It must restart the collection of crucial data such as on employment and farmers’ suicides. The decline in agricultural income must be addressed at the earliest. Modi has spoken of doubling farmer income.

While that is likely impossible even over the next five years, it is imperative that the government takes concrete steps to reverse the slump in agricultural prices and incomes. In the short-term, the government must consider higher support prices. The inflation targeting regime and trade policies that hurt farmers have contributed to the fall in prices of agricultural commodities. In the long run, increased rural incomes will be possible only when the farmers are provided with a level playing field in the markets. The government must consider expanding the e-NAM and easing restrictive APMC regulations. Strengthening the supply chain and promotion of food processing industries will help increase incomes and also generate employment. The government must not shy away from using MGNREGA to address the stagnant rural wages issue.

Here the delay in releasing payments to states has the effect of discouraging the poorest citizens from seeking solace through MGNREGA. The most serious of the challenges will be in the financial sector. The NPA crisis is yet to be resolved. The situation unfolding in the NBFC sector is likely to compound existing problems. Transparency with respect to the NPAs in the financial sector is a necessary condition for fixing problems that have undermined business activity for several years. Indian banking faces an epochal challenge which will need radical solutions. If the financial sector crisis is not addressed, India must brace itself for an unprecedented slowdown that is likely to cause ripples across the economy. The best quality jobs in India are generated in the private sector.

The best quality jobs in India are generated in the private sector. The fall in private investment, which has its genesis in the banking crisis, has contributed to serious unemployment. A fragile banking sector comes in the way of increasing private investment. Post demonetisation and GST, MSMEs have witnessed a squeeze in credit which has led to falling exports from the sector. The next government must focus on MSMEs. The credit crunch must be reduced at the earliest. The Congress has put forward a transformative idea (already translated into action in Rajasthan) that would enable new MSMEs to operate without the burdens of the permission and inspection raj that hobble private enterprise in India. Another short-term measure is an incentive package for exporters, including MSMEs, that could help Indian exports get back on track. On GST, the government must consider having one moderate rate as is the norm worldwide (while keeping essential goods out of the ambit of GST so that poor and low-income families are protected).

The compliance burden and the ever-changing rules and regulations must be brought to a minimum. Tax buoyancy cannot improve when there is widespread confusion about compliance requirements.  GST revenue shortfalls have contributed to an increase in the fiscal deficit. The rise in crude oil prices could worsen the deficit and add to inflation. The government thus must tread on the fiscal front carefully as it puts India on the path to recovery. Jobs, jobs, jobs! If we don’t get our burgeoning youth cohort meaningful and productive jobs, we risk our demographic dividend turning into a demographic disaster. Jobs will be generated if we can ensure adequate private investment and a rise in aggregate demand. Towards that end, India will need structural changes and some radical solutions.

The next government will have to rethink its approach to human capital. Investment in education and healthcare is an investment in a better future. Any plan for long-term prosperity must take into account the challenges in education and healthcare. Learning and health outcomes should be our focus going forward. Disproportionate emphasis on inputs should be reduced.Without human capital development and without rethinking India’s economic structure, India cannot achieve high middle-income status or meet the aspirations of its teeming youth. Modi and the BJP have been entrusted with an impressive mandate. The Indian economy needs new solutions. There is also an unfinished reforms agenda that needs to be looked at again. We hope the next government will rise to the occasion and bring India back to an inclusive growth trajectory. Anything less will be a betrayal of the people’s mandate.

The authors are  Member of Parliament, Rajya Sabha, Convener, Congress Manifesto Committee, and Chairman of Congress’ Research Department & Congress Spokesperson and Regional Coordinator, North Zone of the All India Professionals’ Congress

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Rajeev Gowda

Gowda is a Congress Rajya Sabha MP

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