TEAM PLAY: (Left) Congress party President Sonia Gandhi and Prime Minister designate Manmohan Singh

In the euphoria that has followed UPA’s big win in the 15th Lok Sabha, one point is often missed. In its first innings, the UPA government, led by Singh, actually did nothing much for the economy. The Indian economy boomed in the initial four years of UPA’s first term largely because of the global conditions. Just as the current slowdown the country is experiencing is a byproduct of the global meltdown. Indeed, UPA’s big contribution to the economy was that it simply did not do anything to meddle or get in the way of the market forces — the economy was handed over to them by the National Democratic Alliance, or NDA, in not too bad a shape either.

But this time around, Singh cannot depend on sheer luck to put India’s economy back to the 9 per cent-plus growth rates. The government needs to fix a lot that has remained neglected over the years. Some of these are things that are social issues impacting the economy. These are also issues that require considerable debate, consensus building and hard decisions — such as reforming the education system, healthcare, internal security apparatus, judicial system and the labour laws. None of these have easy solutions. And these all fall in the realm of policy reforms.

On the other hand, there is also a lot that the government can do quickly to push the economy back to the high growth trajectory it was following before the global meltdown. In many of these, the policies are already in place. What needs to be done is proper detailing and execution. BW spoke to key bureaucrats, economists and corporate leaders to figure out what should be the new government’s agenda in the first 100 days. Based on those conversations, here are five concrete issues the government needs to tackle — urgently.

Fix The Fiscal Mess By Targeting Spending
UPA’s record on fiscal restraint was almost unblemished until the global financial crisis hit in the second half of 2008. In fact, in the budget for 2007-08, the fiscal deficit was lower than what was estimated (3.1 per cent against the budget estimate of 3.3 per cent). This was happenstance. The government was generating record revenues because of the booming economy even though it was spending quite freely.

However, 2008 threw all this out of gear. The fiscal deficit for FY2009 stood at 6 per cent and the current year’s deficit (Centre and states combined) is likely to be over 10 per cent — among the highest in the world — with severe consequences for industry as the government borrows more to cover its expenses. Part of the problem is that revenues have fallen sharply as the industrial and services sectors were hit by the global turmoil (revenues were Rs 40,000 crore below budget estimates). More importantly, the Indian government, like others around the world, is trying to get out of the slowdown by hiking government spending. So far, the stimulus packages that were announced just before the elections call for a whopping additional expenditure of Rs 1,75,000 crore.

There is already a buzz in the ministries that another stimulus package will be announced shortly after the government is formed. But there is a limit to how much the government can spend to revive the economy. As Parthasarathi Shome, a former advisor to the finance ministry, speaking in his individual capacity pointed out: “The Fiscal Responsibility and Budget Management Act targets should be maintained in the longer run even if a short detour may be needed because of the impact of global recession.”

To stay within the limits of fiscal prudence, economists point out that the government needs to improve the quality of its spending. Essentially, the spending has to deliver more bang for the buck. And this has been a recurring problem that successive governments — including the UPA in its first term — have ignored. The logic is simple: if more of the money spent reached where it is meant to, less would need to be spent every year. While a large portion of the total government spending in a year is inelastic — interest payments and defence spending — it is also true that there are lots of areas where better money management can deliver better gains. Most of these fall in the area of social sector and welfare programmes. According to Unesco, India’s literacy rate of 65 per cent is one of the worst in Asia despite its spending on education (4 per cent of GDP). It is higher than the regional median — 3.6 per cent of GDP. “Leakages have remained high by global standards and need to be dealt with fairly and squarely,” says Shome. Given the amount of money spent by the government on social welfare programmes, the need to fix this is particularly urgent.

REVENUE SOURCE: Disinvestment in PSUs such as NTPC and NHPC can bring in at least Rs 8,000 crore

Bihar Chief Minister Nitish Kumar — who recently calculated the extent of leakage in Bihar — has suggested a radical solution. Deposit Rs 10,000 in every Bihari bank account and abolish all the hundreds of porous welfare schemes. “Maybe it’s time to extend his thinking across the country,” says one official.

Disinvestment: Run The Country, Not Companies
At a time when even the US government is taking up ownership in many companies and banks, talking of disinvestment being an urgent task for the Indian government may seem funny. But economists across the world agree that becoming the owner of companies is not the solution to the current mess. What is important is a proper regulatory regime. Across the globe, government attempts to run businesses have generally failed. India’s track record of managing public sector units (PSUs) and nationalised banks is not good either. That is why UPA needs to get its act right on this front quickly.

Perhaps one of the biggest achievements of the NDA government was its drive to disinvest PSUs through the strategic sale route (as opposed to sale of shares), which does not lead to change in management.