Economic reforms may slow down as ruling BJP fails to get majority on its own
- However, given the record of the NDA government over the past 10 years, some of the next-generation structural reforms are expected to continue, and welfare economics may also receive undivided focus, experts said.
Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) on Tuesday failed to reach the half-way mark of a simple majority in the 543-seat Lok Sabha, although the National Democratic Alliance (NDA) that it leads is well placed to form the next government at the Centre, experts said.
Yet, the shocking election results that have greatly diminished the ruling coalition, and boosted the opposition alliance led by the Congress, are likely to slow down some of the ambitious reform measures of the new government, experts believe. But given the record of the NDA over the past 10 years, some of the next-generation structural reforms are expected to continue, and welfare economics may also receive undivided focus, they added.
Accordingly, the new government may take some major policy decisions such as opening gates for the next generation of structural reforms, increasing capex for the infrastructure sector, while taking further steps to raise the farmers’ income, including a major revamp of the minimum support price (MSP) for crops. Along with it, various new welfare initiatives and demand-side measures would likely be launched to maintain the growth momentum in the economy.
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“The talk of next generation reforms by the previous government may not be completely dropped if the same formation returns to power at the Centre, even with lower mandate. The new government would inherit a fairly stronger economy that would provide it enough room to go ahead with further reforms while pursuing welfare economics,” said a former government official on condition of anonymity.
In the 2019 Lok Sabha elections, the NDA secured a total of 353 seats, whereas the United Progressive Alliance (UPA) won 93. The BJP had won 303 Lok Sabha seats and the Congress secured only 52. At last count, the ruling BJP had won or leading in 240 seats, while the Congress was at 100 in the 2024 elections, counting for which took placed on Tuesday.
The latest gross domestic product (GDP) figures substantiate the health of the economy. Data released by the National Statistical Office (NSO) showed that India’s real GDP grew by 7.8% in January-March, taking the full-year growth rate to 8.2% in the 2023-24 financial year, the third consecutive year of 7%-plus growth. Government finances are also quite robust.
However, given the fractured mandate, the new government would likely pay more attention to issues like unemployment and rural distress, experts added.
“I think they will continue with the strategy of public spending, particularly in infrastructure and simultaneously try for fiscal consolidation with the RBI dividend. The tax collection etc. looks very robust. Now that the election is over, there are a few issues that need to be addressed, including unemployment and rural distress, and the government will perhaps put more focus on these,” said Abheek Barua, chief economist and executive vice-president at HDFC Bank.
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Outgoing finance minister Nirmala Sitharaman had said that the Modi government, if voted back to power, intends to usher in next-generation structural reforms in all factors of production, including land, labour, capital and digital public infrastructure to spur inclusive growth. This is the direction that the government would take in the first few months of its coming to power.
Carrying forward reforms
The measures, that missed out in previous terms, are likely to include legislations carrying forward land reforms, making the process of availability and acquisition of land for industry easier while ensuring a proper compensation mechanism for landowners. In labour, the already introduced labour codes would be implemented, allowing flexibility in movement of workforce and generating more employment opportunity. Capital reforms had been ongoing, and government would take further strides to move towards full convertibility of rupee while on DPIs, more projects would be implemented nationally to facilitate easier implementation of regulations.
“The policy focus of the new government should consider India’s medium to long term growth objectives in the light of global developments. As a first step, the medium-term growth of 7% plus should be ensured (both in urban and rural areas) which would require maintaining the savings ratio in the range of 31-32% of GDP. The causes of the recent fall in the nominal household sector financial savings relative to GDP to 5.1% in FY23 should be examined and addressed. This, in combination with net capital inflow of 1.5-2% of GDP, would ensure an investment ratio of 35-37% in real terms considering the relatively lower capital goods price deflator which provides a margin of 2-3% points while converting nominal investment ratio into real terms,” said DK Srivastava, chief policy advisor, EY India.
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The prime minister had earlier said that the development done in the last 10 years was just an appetizer and the main course would come in the third term. Some of these structural reforms would be main course serving by the new government to scale up the growth momentum.
Modi's ruling BJP had also vowed, if re-elected, to maintain its focus on infrastructure spending and keep in place popular subsidies including free rations for needy families and cash handouts for farmers. This is expected to continue going ahead with higher allocation for all infrastructure sector ministries while approving projects and programmes in first 100 days of the government aligned with goals of making the country Viksit (developed) by 2047. Not only allocations for these ministries would be further raised, but a blueprint for development over the next one-and-half decades will also be presented with shorter-term targets for each year.
Up to 70 key goals likely
The 100-day agenda, which may be rolled out promptly after 4 June to avoid any delays in decision-making, may include 50-70 important goals and recommendations to establish the tone and intent of the new government, including those that are on utmost priority and long-term targets with a rollout plan for the next 2-3 years.
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The BJP’s manifesto itself includes a lot of measures such as more bullet trains, a focus on solar energy, guarantee of service, good governance, welfare of the poor, free ration, water and gas connection and zero electricity bill from PM Suryaghar in the coming five years, permanent houses for middle class families, expansion of health services, lakhs of employment opportunities for the youth through infrastructure, investment, manufacturing, high value services, startups and tourism and sports, implementation of National Education Policy and Nari Vandan Act, setting up agricultural infrastructure and boat insurance for fishermen, fish processing units, continuation of Ayushman Bharat, expansion of 5G network technology and developing 6G.
The manifesto also remains in the line of the government’s focus on four pillars—women, the poor, farmers, and the youth. The immediate policy prescriptions will have a clear towards these segments that would be facilitated through various new schemes, all aimed to improve their quality of life and raise their ability to contribute towards nation building.
“As we transition into a greener energy ecosystem with biofuels and green hydrogen integration in our manufacturing processes, increased financial support until economies of scale are achieved will help accelerate the adoption,” said Prasad Panicker, executive chairman, Nayara Energy.
“We expect the government to harness the potential of manufacturing, create copious employment opportunities, and expand economic activity. By focusing on self-reliance and resilience in global value chains, India can accelerate its growth trajectory towards being a global hub for manufacturing and innovation. Additionally, we look forward to initiatives that will bolster the new energy landscape including green hydrogen, solar technologies, microgrids, and electric vehicles,” said Deepak Sharma, zone president greater India, and MD and CEO, Schneider Electric India.
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After the new government's formation, the Union cabinet is expected to approve an increase in the minimum support price (MSP) for all 14 kharif crops, a normal phenomenon that takes place every year in the second week of June as the agricultural sector prepares for the sowing season with the onset of monsoon. For the agriculture sector, it may also continue taking other policy initiatives to increase farmers’ income and sustainability by promoting policies that encourage the adoption of bio-stimulants and prioritize soil health.
Optimism retained
"As we prepare to welcome the new government, we are optimistic that it will build upon the positive momentum in the agriculture sector,” said Sanjiv Kanwar, managing director, Yara South Asia. “It is anticipated that the new government will continue and expand policies and schemes to increase agricultural credit, spread awareness about soil health, allocate fertilizer subsidies, and support value addition to boost farmers' incomes and modernize the industry. Additionally, I believe there's an opportunity to champion sustainability by promoting policies that encourage the adoption of bio-stimulants and prioritize soil health initiatives."
The government will also approve the Vision 2047 plan of infrastructure sector ministries while proposing a growth with inclusion agenda offering full ₹5 lakh cashless Heath insurance facility to all senior citizens above the age of 75 years under its existing Ayushman Bharat scheme.
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For women, the support will come in the form of various schemes to provide financing opportunities to women entrepreneurs and start up promoters from banks. Bringing more women under financial inclusion schemes including provision of banking facility at their doorsteps would be implemented.
The effort would also be to further reduce red tape for investors and streamline government processes and bring more transparency in decision making processes.
“We expect the government to introduce robust frameworks to address issues such as high capital and operational costs, through low-cost funding and risk-sharing facilities in the renewables sector,” said Mahesh Girdhar, managing director & CEO, EverEnviro Resource Management Pvt. Ltd.
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First Published:4 Jun 2024, 06:44 PM IST
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