"A society can be Pareto optimal and still perfectly disgusting."
— Amartya Sen
A host of economic challenges awaits the new government. Economic slowdown and an ailing financial sector are the immediate concerns the government should look into on a priority basis. The tag of world’s fastest growing economy at 7 per cent is in danger as consumption — which makes up 61 per cent of India’s GDP — has faltered sharply, with ripple effects on new investments. Forecasts aim at a low 6.5 per cent growth under existing conditions.
Some of the problem sectors for the new government which needs urgent attention could be:
Budget Deficit: The Budget deficit in a country occurs when expenses exceed revenue. As an indicator of financial health, this was an important item on the poll agenda for both the NDA and its Opposition parties. Fulfilling this promise at a time when tax collections have undershot targets may come at the cost of India again defaulting on its fiscal deficit target of 3.4 per cent of GDP for this year. Global rating agencies are closely monitoring this and any shortfall would lead to the downgrading of the nation’s debt to junk category.
Generation of jobs: This has been the government’s Achilles’ heel. NDA 2.0 needs to find ways to effectively employ the one million people entering the workforce every month. A leaked report pegs the current unemployment rate at a 45-year high of 6.1 per cent. It is high time the current government looks seriously into the matter before it gets out of hand and India is plunged into mass unemployment.
Shadow banks and NPAs: A string of defaults by institutions such as IL&FS (Infrastructure Leasing and Financial Services), and multi-crore money laundering cases in public sector banks such as Punjab National Bank and SBI have plagued the financial sector. They have exposed crevasses among India’s non-bank lenders, which accounted for a third of all new loans over the previous three years.
Even though the Government took corrective action, fear has gripped loan disbursal and consumer spending. SBIand other PSBs reported a record number of bad and default loans amounting to billions. Shaky management at the top, lax regulations, less autonomy for the board of directors at PSBs, continuous neglect of the red flags raised by RBI, are some of the factors which need to be addressed by this Government to ensure stability among the PSBs and restore trust among general mass.
Manufacturing, trade and FDI: The last time India posted a monthly trade surplus was in March 2002. Rapid economic growth since then has resulted in India’s imports exceeding its exports by a huge margin, with oil being the nation’s biggest purchase. Import of oil pushed the current account deficit to more than 2 per cent of GDP last year making it a key roadblock for the Indian economy.
Although India is trying to balance its trade deficit by reducing its reliance on oil import by increasing exports, this could prove difficult in the new world of cut-throat trade wars and a rising trend of trade protectionism by West, notably by the US.
Apart from trade, serious attention needs to be diverted towards the manufacturing and infrastructure sectors. These much-neglected sectors have the potential to turn the winds in India’s favour. The previous term saw some sincere efforts. It is time the slogans of ‘Make in India’ and ‘Start-up India’ are converted into serious action. Sustained efforts, coupled with a boost in FDI, can usher in a new-economy driven India that the current Government is looking at.
(The writer is a student at IFMR-GSB, Krea University.)