As Prime Minister Narendra Modi prepares to start his second five-year term, what should his economic priorities be? In some ways, the challenge he is facing is perhaps bigger than when he took charge in his first term. In May 2014, the economy was slowly beginning to recover and there was hope a decisive government with full majority could bring in the kind of reforms that the past two coalition governments had failed to deliver.
The Prime Minister and his economic team did manage to bring most things under control in the first two years of the tenure, with some help from benign crude prices. Inflation and fiscal deficit were both tamed. Current account deficit started to narrow. Growth shot up as the government spent heavily on infrastructure.
However, despite reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), the second half of the term was plagued with multiple problems. Growth has once again started to slow down. That in itself is not worrisome because even now India is growing faster than all major economies. The problems that confront the new government are agricultural and rural distress, rising unemployment, the lack of appetite in the private sector for investing in new projects, and finally, both low consumption and low household savings rate. Then there are exports where India has never performed well and where the report of the past five years is mediocre.
On all these, the new economic team of Prime Minister Modi will have to come up with short-term as well as medium- and long-term plans that can be acted upon. In the following pages, we look at each of the issues in detail.
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