Five economic challenges staring at Modi 2.02 min read . Updated: 23 May 2019, 01:18 PM IST
- If the investment slowdown was not worrying enough, the recent consumption slump will add to the policy challenges for the new government
- The government in its full Budget which is likely to be presented in July will be tempted to breach the fiscal discipline
With trends so far suggest that the Narendra Modi led National Democratic Alliance coming back to power at the centre, it needs to put its act together and address the following pressing concerns at the earliest possible:
India’s economic growth fell to its slowest pace in five quarters at 6.6% in December quarter, which prompted the Central Statistics Office to trim its 2018-19 forecast from the 7.2% estimated in January to 7% in February. The first set of macro data that the new government will face is on 31 May when the fourth quarter GDP data may show further deceleration to 6.4%. Though there are some signs of investment picking up, government needs to resolve the bad loan cases at a faster pace and banks have to increase lending for investments to pick up.
If the investment slowdown was not worrying enough, the recent consumption slump will add to the policy challenges for the new government. Sales of automobiles across segments in India have fallen by 16% in April to touch the lowest mark in eight years while the domestic air travel in April contracted 4.5% for the first time in nearly five years. The government in its full Budget which is likely to be presented in July will be tempted to breach the fiscal discipline and go for a demand stimulus.
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Though the rural distress seem to have not impacted BJP’s performance in this general election, the farmer distress is for real and the government has to devise a medium term plan to find a sustainable solution to this challenge. Chief economic adviser in the finance ministry Krishnamurthy Subramanian in an interview to Mint on Tuesday emphasized on extending markets to farmers including through further strengthening of the eNAM (electronic national agriculture market) initiative.
Whether one believes in the leaked employment report of the National Sample Survey Office or not which showed employment rate at 45 years high, the jobs crisis is for real as suggested by many other indicators including the regular data released by the Centre For Monitoring Indian Economy. Though there are no quick fixes, government may be forced to take steps such as to fill up the huge government vacancies at a faster pace once the government takes charge.
Rising Trade tensions
While the escalating US-China trade war throws both opportunities and challenges for India, the new government at the centre has to quickly seek to resolve the rising trade tension between India and the US. The US has postponed its decision to withdraw duty free benefits to India till a new government comes to power in New Delhi. While the demands put forward by the US are disproportional, it is better for both the strategic allies to sit across the table and resolve their differences.