Prime Minister Narendra Modi had no doubts that he would win a second term. This was the reason he had asked his bureaucrats to start working on an agenda, for things to do in the major economic ministries, in the first 100 days after forming the new government. And there are plenty of things to do. Despite its high GDP growth - which even after slowing is still expected to clock 7 per cent this year - the number of worries about different segments is growing. Agricultural and rural distress is high across the country. For the Prime Minister, who has promised to double farm incomes by 2022, this is going to be one of the biggest challenges this year. One, because of the already existing distress; Two, because this year, the monsoon predictions are not particularly good and too much of Indian agriculture is still dependent on the monsoons. The issue with agriculture is that short term solutions will not work, and while a quick response to drought, like expanding coverage of PM Kisan could help, long term structural reforms need to be carried out before farmers see any increase in their incomes.
The other problem that the Prime Minister and his Finance Minister and Industries Minister need to try and tackle immediately is the lack of appetite for fresh project investment in the private sector. For the last five years, the government investments in infrastructure and spending on social sector schemes have been largely driving economic growth - along with private consumption. Trade and private sector investment have been laggards. Ideally, both these need to do well for the growth story to continue.
The problem facing the Prime Minister in the new term is that private consumption is also showing signs of a slowdown - and that can be seen in the sales of passenger cars, FMCG products and also discretionary spending. The government's ability to spend more on infrastructure and social projects also depends a lot on its ability to increase revenues - and that is tough if tax collections continue to remain less than what was set as the target.
But getting the private sector to start investing the way they used to in the pre-2008 days is a tough task given how bad sentiment is today. In multiple chats with senior corporate leaders, there were some common points that kept coming up. One, the RBI and the government's hard stance in the matter of NPAs had made most industrialists chary to taking on too much debt. Earlier, they could always cajole bankers to give extensions or to give fresh loans to evergreen the existing borrowings. But that was no longer an option anymore and no industrialist was willing to lose a project he or she had worked on if there was even a remote chance of that. Two, capacity utilisation was still at 75 per cent -- and there were a number of sectors where it was even lower because demand simply did not exist.
Finally, a big challenge most people pointed out was that there was a lot of uncertainty about policies. In the UPA2, the policy paralysis was a real problem. In the last five years, it was the reverse - the policies were often changed too frequently or tweaked and that played havoc with their long term project plans. This could be anything from policies regarding the import of solar panels from China to retail policies. If there is policy predictability, more investments could come for fresh projects and that would start its own virtuous cycle.
For the PM, his key task during the second term would be to boost sentiment - both for private sector investment and for private consumption. Those two could help sustain the high growth rates over the long term.