The results of 2019 election has been quite overwhelming, and the formation of NDA 2.0 brings hope not only to the citizens, but also for investors and market players. The government has difficult challenges in the next five years. The past year’s report card has raised issues that require urgent attention, largely related to unemployment, trade relations, education, inflation, and deficits, to name a few.
This government has an opportunity to rectify the moral hazards such as demonetisation, that crippled the economy.As the GDP rate has slumped to a five-year low of 5.8 per cent in the last quarter against the World Bank forecast of 7.5 per cent, it becomes imperative not to overlook health, education, and rural sectors while simultaneously dealing with macroeconomic forces. Here are a few economic priorities government should look over next five years:
Unemployment
The official unemployment rate was 6.1 per cent for 2018-19, the highest in the last 45 years. Despite growing GDP rates and improving trade relations, why are there no jobs? With the highest FDI in the services sector ($6.5 billion) and 100 per cent FDI in private banking, e-commerce, media and broadcasting; the decreasing employment opportunities and college graduates failing to secure competitive jobs poses a grave threat to an unskilled economy.
GDP and monetary policy
GDP figures have been disturbing, contrary to World Bank and IMF estimates. Plausible reasons could be decelerating growth in FMCG and automobile sectors, that must be boosted by empowering people’s spending — the RBI’s cutting of the repo rate by 25 basis points may create liquidity in the market and buoy demand. This, in turn, will prompt companies to invest more, add capacities to meet growing demand and eventually, hire more people.
Trade relations
India is an emerging market, heavily impacted by trade relations between the US and China. The global economy is exposed to macroeconomic turbulence due to the US increasing tariffs on Chinese goods to 25 per cent. Indian exporters can exploit this opportunity to fill the gap. With preferential trade benefits with the US called off, India needs to try building export competitiveness to absorb the losses. Campaigns such as ‘Make In India’ offer holistic solutions in the long term, and need to be encouraged. There is, however, the aspect of getting the right skillsets for industrial projects to succeed, and this needs attention too.
The Modi government might have overlooked the problem sectors amidst the global pressure of digitisation, macroeconomic improvements, and issues requiring political and legal attention. Manufacturing and agriculture are the sectors that require immediate attention to dilute distress.
Let us study how reforms in these sectors are reflective of economy’s growth:
Manufacturing sector
Manufacturing, being the backbone of the country, has been facing hard times and needs a lef up from the government. It is a sector that makes a mammoth difference to a country’s GDP, exchange rates, aggregate demand-supply; and affects the performance across the secondary and tertiary sectors such as IT, infrastructure and banking.
For more than decade now India has witnessed lack of technology and innovation in uplifting core manufacturing companies. While the ‘Make in India’ campaign boosts indigenous products, very little government spending has gone into research, compounded by the shortage of skilled labour and lack of basic amenities for industry, both of which areas require grave attention.
Agriculture sector
Agrarian distress is a burning topic. Farmers holding small and fragmented lands, lack of capital, and the absence of quality inputs such as biochemicals and fertilisers to increase yields, combined with inadequate market infrastructure are largely responsible for the low GDP growth in the sector, despite more than 50 per cent of the workforce being employed in the farm sector. NDA 2.0 is expected to keep its promise, beyond just farm loan waivers.
India has a lot of international potential, yet it needs to resolve national issues first. Apart from the above, corruption, education and healthcare, infrastructure and income inequalities are important parameters to focus on for sustainable growth of the Indian economy.
(The author is a PGPM student at Great Lakes Institute of Management, Chennai)