Power Of Continuity

The newly elected Indian government confronts a daunting array of economic challenges that demand immediate and strategic intervention. Chief among these is the persistent issue of unemployment, which has reached alarming levels, exacerbating socioeconomic inequalities. The labour market remains strained, necessitating robust job creation strategies to absorb the growing workforce and harness the demographic dividend.

Simultaneously, the government must grapple with the burgeoning national debt, which has soared to unprecedented levels. This fiscal burden is compounded by a substantial fiscal deficit that undermines macroeconomic stability. Effective fiscal consolidation measures are imperative to rein in public expenditure while optimising revenue generation without stifling economic activity.

In his message, Sanjiv Puri, President, Confederation of Indian Industry, the apex body of India Inc. said: “Building upon a strong growth rate of 8.2 per cent for 2023-24, the new Government under the visionary leadership of Narendra Modi can usher in the next phase of reforms to make the most of the global opportunities and build on the robust fundamentals of the Indian economy.” Echoing the sentiments, the President of the second-largest industry body, the Federation of Indian Chambers of Commerce and Industry, Anish Shah said the third consecutive term for the NDA paves way for continuity in the reform agenda. “We look forward to progressive policies and measures that will foster economic and social development and build a strong foundation for ‘Viksit Bharat’,” said Shah. 

For the new central government, now boosting the economic growth has to be a critical priority. Given that the post-pandemic recovery has been uneven, and sustaining a high growth trajectory requires comprehensive policy reforms, investment in infrastructure, the task at hand remains fostering a conducive environment for both domestic and foreign investments. Additionally, the government must address inflationary pressures that erode consumer purchasing power and destabilise the economy. The rising prices of essential commodities demand stringent monetary policies and supply chain improvements to ensure affordability and price stability.

Overall, the government faces an intricate balancing act: stimulating economic growth, creating employment, managing debt, and controlling inflation. Failure to address these interlinked issues could hinder India's economic prospects and exacerbate social unrest.

Nirmala Sitharaman – Back in the Driving Seat

For Nirmala Sitharaman, her new term as the finance minister under Modi 3.0 will be full of challenges. As a Rajya Sabha MP from Karnataka, Sitharaman has been praised for delivering a fiscally prudent budget just before the elections. She has effectively guided the Indian economy to achieve a growth rate exceeding 7 per cent for three consecutive years.

Navigating the economy in an uncertain world is paramount for the finance minister. The upcoming budget and the initial 100-days agenda will likely emphasise growth and private investment. Although India is set to grow over 7 per cent, reducing inflation to 4 per cent remains a challenge, according to RBI governor Shaktikanta Das. Ensuring the farm sector's resilience against weather shocks is essential to maintaining a stable supply chain. Investment, particularly from the private sector, is crucial. 

Sitharaman has highlighted new areas like global capability centres, space, and AI for investment. However, traditional manufacturing jobs are also vital amid rising unemployment concerns. Incentives for industry may be necessary. Job creation and skills development, especially in tourism and hospitality, are critical. Addressing two-paced growth post-Covid and ensuring production-linked incentives materialise without bureaucratic hurdles will be key responsibilities for the finance minister.

Challenges Before Gadkari 

Nitin Gadkari, a seasoned minister in Prime Minister Narendra Modi's cabinet, has been reappointed as the Road Transport and Highways Minister, alongside new appointees Ajay Tamta and Harsh Malhotra. Gadkari, with deep connections to the RSS and an impressive electoral record in Nagpur, has been lauded for his transformative work in road connectivity, crucial for India's economic growth amid global recession fears.

Under his leadership, India's national highways network expanded by 60 per cent from 2014 to 2023. Despite this, the Ministry of Road Transport and Highways and the National Highways Authority of India (NHAI) often missed their ambitious targets, failing to meet goals in seven of the past ten years. The budget for road construction has ballooned, with costs rising from Rs 6-8 crore per km in 2015 to about Rs 30 crore per km in 2023. This surge in costs and the subsequent borrowing spree from FY15 to FY22 have saddled NHAI with a significant debt, increasing from Rs 23,800 crore in 2014 to Rs 3.4 lakh crore in 2023.

While toll collection has surged, reaching Rs 40,000 crore in FY23, the NHAI’s repayment burden has also skyrocketed, with debt servicing costs jumping 2.5 times between FY19 and FY23. As Gadkari aims for toll collections to hit Rs 1.3 lakh crore by 2030, the road ahead appears fraught with financial and logistical challenges. With election years typically slowing project execution, the future pace of highway construction remains uncertain, underscoring the need for effective management and strategic planning in the sector.

Tasks before Piyush Goyal

Piyush Goyal has also retained his Cabinet portfolio as the Minister of Commerce and Industry in the third term of the BJP-led National Democratic Alliance government after winning the Mumbai North Lok Sabha seat. The Ministry, under the leadership of Goyal, is poised to finalise the pending Free Trade Agreements (FTAs) with the United Kingdom and the European Union. Additionally, it will initiate discussions with the Russia-led Eurasian Economic Union (EEU) in a strategic move aimed at revitalising the nation's declining labour-intensive export sector. 

Expanding access to larger international markets is crucial for India to achieve its ambitious target of $1 trillion in goods exports by 2030, up from $437 billion in the last fiscal year. However, the critical challenge remains ensuring that these FTAs operate to India's advantage. Historically, such agreements have exacerbated the trade deficit due to India's high tariff structure, while developed economies benefit from their competitive low tariff regimes.

Furthermore, the Ministry has yet to finalise the long-pending e-commerce policy and the Special Economic Zones policy. With foreign direct investment (FDI) showing a downward trend, the Ministry is anticipated to liberalise FDI norms to attract new investments. Additionally, there is a pressing need to revamp the production-linked incentive (PLI) schemes, which have been advancing at a sluggish pace. This comprehensive approach aims to create a more favourable business environment and stimulate economic growth.

Accelerating Reforms

Experts point out that the dynamics of running a coalition government hinges upon the power of discussion, persuasion, and prioritisation. For Modi 3.0, the continuity of key ministers at their respective ministries is a big plus despite hurdles and obstacles that may come in the way. 

Navigating economic uncertainties is the core challenge for Nirmala Sitharaman, returning as finance minister. While achieving over 7 per cent growth for three years, curbing inflation to 4 per cent will remain a critical test for her in next few quarters. Addressing unemployment through policy course correction remains a key challenge for the FM. 

Meanwhile, Nitin Gadkari, reappointed as Road Transport Minister, faces hurdles in managing the financial and logistical complexities of expanding national highways. Rising construction costs and NHAI debt require strategic management, particularly amidst election-year slowdowns in project execution. 
 

Piyush Goyal, continuing as Commerce Minister, grapples with finalising FTAs and revamping policies to bolster declining exports. Liberalising FDI norms and reinvigorating PLI schemes are imperative for a favourable business environment.

Both, critics as well as the opposition political parties will keep a close watch on the overall performance of Modi 3.0, which may be an altogether new feeling for this government. Will it silence its critics? Only time will tell!