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Business News/ Elections 2019 / Election Results 2019/  New  govt has its task cut out amid turbulence in economy

New  govt has its task cut out amid turbulence in economy

Govt needs to fix slowdown in consumer demand, falling investments and slowing exports amid global trade wars

 (Photo: PTI)Premium
(Photo: PTI)

MUMBAI : The National Democratic Alliance, having cruised to a historic victory in the general elections, has its task cut out. The new government will have to focus on reviving economic growth, which is facing headwinds on several fronts such as a slow down in consumer demand both in urban and rural areas, a liquidity crunch in the non-bank lending sector, falling investments in new projects and slow exports growth amid global trade wars.

Some of India’s top industrialists said the massive mandate for the BJP-led alliance underscores an aspiration for reviving economic growth, creating new jobs and boost farm incomes.

“The historic pro-incumbency vote reflects an overwhelming desire among the electorate for stability and development. I am confident that the government will pursue its reform agenda with renewed vigour and take decisive steps to fast-track India’s march to the 5-trillion dollar club," said Kumar Mangalam Birla, chairman, Aditya Birla Group.

N. Chandrasekaran, chairman, Tata Sons, said the resounding win of the NDA is an “endorsement of the reforms and huge changes underway that will bring growth, jobs and a better quality of life for all citizens. It also reflects wide support for the PM’s vision for a prosperous India," he said.

Adi Godrej, chairman, Godrej Group, expects rebounding of GDP growth to be an immediate priority for the second Modi government.

“The victory of the NDA in the elections will be very good for the Indian economy. I expect the government to take strong action for the revival of GDP growth as soon as it is sworn in. Revival of GDP growth will lead to solution of other problems such as low number of jobs, low agricultural growth, etc," he said.

“Moving into the next level of development requires focus on large scale infrastructure growth, reskilling of the workforce and deeper penetration of technology," said Gautam Adani, chairman, Adani Group.

Key to reviving GDP growth will be the resolution of the contagion that spread in the debt capital markets following defaults by Infrastructure Leasing and Financial Services (IL&FS) group.

Ensuring liquidity for non banking financial corporations (NBFCs) should be a major priority for the new government, said industry participants as a slowdown in loan disbursals by NBFCs has a direct impact on consumption growth.

“They should make the liquidity available for NBFC sector and bank as a wholesale funder should be encouraged to lend to NBFCs," said Umesh Revankar, managing director and chief executive officer, Shriram Transport Finance Co. Ltd.

Keki Mistry, vice-chairman and CEO, Housing Development Finance Corp., said the new government needs to address the fear that banks have of lending to NBFCs.

“For the NBFC sector, what the government would probably do is to have discussion with banks and tell them that every NBFC does not have issues. This fear of lending to NBFCs, that has set in, should be eased," he said.

Faltering consumption growth, as seen in the worst passenger vehicle sales growth performance in five years in fiscal 2019 and a fall in sales and volume growth for FMCG companies, will be a major challenge for the new government. India Inc. expects the government to take strong steps to stimulate rural and urban demand and bring consumption growth on the fast track again.

FMCG majors believe that with the election hangover behind and with the strong mandate received by the incumbent, consumer demand should witness a revival.

“During the pre-election and election phase, trade and consumer sentiment had moved to a cautious wait-and-watch mode. With the conclusion of the long election period and the resounding mandate, we are optimistic that business will return to normal and there will be an upswing in consumer demand," said a spokesperson for ITC Ltd.

HDFC’s Mistry believes the government will focus on reviving consumer demand through job creation in sectors like construction.

“The construction sector is a huge job creator. Job creation is maximum in the construction and the manufacturing sector. While, to my mind, manufacturing is a little more difficult to tackle, construction is relatively straight-forward. The real estate sector is one of the highest employment generators whether you look at construction workers, masons, carpenters, plumbers, engineers and others. Those jobs will lead to income, which, in turn will lead to more consumption in the economy and that will give a kick-start to sectors like consumer durables, dependent on spending," said Mistry.

Infrastructure is another sector that is expected to see a strong focus. In Modi’s first term, orders in the roads sector saw a pick-up under the hybrid annuity model, which saw several mid-tier developers bid and win national highway projects. The government also came out with new fundraising models such as the toll-operate-transfer model, with which capital can be recycled and ploughed back into new projects.

Sudhir Hoshing, Joint MD at IRB Infrastructure Developers Ltd said the NDA win will ensure policy continuity, making it easier for companies to plan for the long term.

Modi’s first term also witnessed the government bring key reforms for the power sector like the Ujwal DISCOM Assurance Yojana (UDAY) scheme and a push towards renewables. Power producers hope the second term will lead to more encouragement to private sector participation in power sector, especially for troubled assets, and amendments to the Electricity Act.

“We believe continuity in government would be a great thing. In terms of bids in renewables, they are very much on track. I hope they can do more for removing roadblocks to execution and improving the financing environment," said Nikhil Dhingra, CEO of Delhi-based Acme Solar.

India’s aviation sector, the third largest by passengers in the world, should also be a priority for the new government, feel experts. Modi’s second term could see the government reboot Air India privatisation. Tackling capacity constraints due to the collapse of Jet Airways and resulting higher fares need to be on the government’s to-do list too. The sector’s myriad troubles resulted in the number of domestic passengers carried falling to 10.9 million in April 2019, from 11.5 million in the previous year.

“We expect milestone reforms during the upcoming term starting with privatization of Air India," said Kapil Kaul, CEO, South Asia, CAPA, a global aviation consultancy.

India Inc believes that BJP’s win means reforms in the energy space would continue.

The government has been promoting the use of biofuel to bring down the energy import bill, said a senior executive at a state-owned energy enterprise. India’s demand for liquefied petroleum gas (LPG) is also seen rising in the next few years if the government continues promoting its Ujjwala scheme, he added. In FY19, India consumed a record 24.9 million tonnes of LPG, 53% more than five years ago, and 6.9% more than the previous year.

Industry experts expect the new government to decide on oil imports from Iran, which came under question after the US pulled back Iran sanction waivers for eight countries, including India. On 14 May, foreign minister Sushma Swaraj told Javad Zarif, her Iranian counterpart, that the government will decide on Iran oil imports post the general election.

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Published: 24 May 2019, 01:07 AM IST
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