NaMo Must Bring Back The Economic Narrative Of 2014
The Prime Minister needs to address a few serious challenges that are stifling the economy
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In 2014, while the core voters of the Sangh Parivar had voted for Narendra Modi on his Hindutva agenda, a large proportion of India’s population then especially the young, the middle classes and both the urban and rural downtrodden masses had voted for the BJP on Narendra Modi’s agenda of vikas. After all, the successful planning and execution of the Gujarat model of development by Narendra Modi had inspired trust and confidence among people in the rest of the country that he would put India too on a high growth trajectory path just as he had transformed the state of Gujarat in little over a decade.
Undoubtedly, the Prime Minister Narendra Modi put his passion and power behind a slew of initiatives to promote economic growth and development for all. For instance, his far reaching and visionary idea of starting the Prime Minister Jan Dhan Yojna bank accounts in August 2014 meant covering a very large proportion of poor population of the nation in the banking net that had been hitherto neglected. This initiative is by far regarded by many as the largest financial inclusion programme of the world. As of now the Jan Dhan accounts have mobilized about Rs one lakh crores of savings and over 35 crore people or 27 percent of the total population of the nation(it must be underscored that these 35 crore people belong to the downtrodden class) hold Jan Dhan accounts. Not only do these accounts give a free accident cover upto Rs 2 lakh, they offer the Rupay card and overdraft facility of Rs 10,000 to the poor. That this Jan Dhan accounts were used by the NAMO government to deliver Direct Benefit Transfers(DBT) to the needy in the country must not be forgotten; the two instalments of Rs 2000 each under the Pradhan Mantri Kisan Samman Nidhi scheme announced in the interim budget earlier this year must have reached a large proportion of small and marginal farmers through this account yielding political spinoffs to the PM and his party too in the process!
The Prime Minister’s Swachh Bharat Abhiyan gave a big impetus to cleanliness, sanitation and hygiene adding to both growth and welfare of the masses. In the last 5 years, 9 crore new toilets were constructed and it is estimated that about 90 percent of household have toilets today. Likewise, the Pradhan Mantri Ujjwala Yojna launched in May 2016 for BPL families have provided 7 crore poor families with free LPG cylinders thereby providing smoke and drudgery free existence to poor women in the countryside. Similarly, under the Pradhan Mantri Sahaj Bijli Har Ghar Yojna or SAUBHAGYA scheme launched in September 2017, 4 crore households have been provided with free electricity connections.
Keeping inflation under tight control provided the much needed relief to the masses and undoubtedly, price stability was another feather in the first term of the PM. Likewise, providing a congenial climate to business and industry by easing bottlenecks was another important achievement. For instance, India moved up 22 ranks in the World Bank’s Ease of Doing Business Index in 2018. Last but not the least, clean and fair governance was another key success of the Modi government in its first term.
However, the Prime Minister needs to address a few serious challenges that are stifling the economy.
The immediate challenge is to reverse the current slowdown in the economy. The country’s growth rate slipped to 6.6 percent in the 3rd quarter of 2018-19 and is expected to slow down to 6.5 percent in the 4th quarter of 2018-19. How can this be done? Economic theory tells us that investment is the principal determinant of growth. An increase in investment pushes up aggregate demand in the economy thereby leading to higher GDP growth rates. In its first term, the Narendra Modi Government pinned its hope on public investment spending to step up economic growth. Given the huge political capital that he has got now, the Prime Minister must adopt a private business friendly attitude disregarding leftists and other critics; pro-private business policies would induce increase in both private investment and exports which in turn would lead to faster growth. The target must be to once again reach the 8 percent annual economic growth rates that once used to characterize the Indian economy in the past.
The second key challenge before the NAMO government now is to create jobs for the young. The failure to create 2 crore jobs annually and the leaked National sample Survey Organisation(NSSO) report that suggested that unemployment in India is at a 45 year high does reveal that joblessness is a grave crisis facing the economy. For job creation, revving up the Manufacturing sector is of utmost importance. This time around PM Modi must invest his energy and resources with greater seriousness and purpose in the Make In India programme. Economic theory does point out that the manufacturing sector has the greatest potential for absorbing labour; it creates abundant jobs for the unskilled, semi-skilled and skilled labour. India can become a manufacturing hub as it has a comparative advantage in labour-intensive industries such as apparel, footwear, furniture etc. In this context, the recent US-China trade war offers a golden opportunity to India to push their manufacturing program as the US is keen to push China out of the global supply chain and given that wages in India are lower than that prevailing in China, India could leverage this advantage if the government revitalizes its Make in India effort. Similarly the government will also have to use appropriate fiscal incentives to promote jobs. For example, both the real estate sector and cement industry are taxed at a 28 percent GST rate; easing these rates would go a long way in promoting the construction and housing sector which are also relatively labour intensive sectors.
The third challenge lies in alleviating the farm sector distress and converting the farming sector into a profitable one. Given its political importance, it is not surprising that the BJP has promised to double the farm sector income by 2022. The government will have to take a big picture view of the agriculture sector; mere palliatives like farm loan waivers and cash transfers to farmers will not turnaround the agriculture sector in India. Increasing market access to farmers for selling their produce, better warehousing and connectivity to farmers and decreasing their costs of production would improve farmers’ quality of lives and step up growth in the sector. It also needs to be underscored that a faster farm sector growth would lead to larger incomes for farmers which in turn would lead to greater purchasing power in their hands fuelling aggregate demand and this would in turn lead to faster GDP or economic growth in the country.
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