After Modi government came to power in 2014, the primary focus, and immediate priority, was fixing the economy. The macroeconomic foundations of the state were in doldrums when the government took over and therefore its priority was to build strong macroeconomic fundamentals on which a near ‘double-digit growth’ could be delivered. Under the leadership of PM Modi, the government implemented some of most awaited reforms like Insolvency and Bankruptcy Code, GST, and institutionalization of inflation targeting. Undoubtedly, in the first term, the government has built the macroeconomic foundations on which India could aim to become ‘economic superpower’.
The people of the country trusted the Modi government and appreciated its efforts to reform the economy and gave an even bigger mandate for the second term. Now the responsibility of the government is to implement important reforms and deliver double-digit growth. Here we list 5 economic reforms which should be the priority of the government in the second term.
The first step of Modi government should be to create a separate Ministry for disinvestment to look after privatization of loss-making Public Sector Units like Air India. There are 331 Central Public Sector Units CPSEs with an investment of 12, 50, 373 crore rupees at the end of the fiscal year 2017. Bharat Sanchar Nigam Ltd, Air India Ltd and Mahanagar Telephone Nigam Ltd are among the worst performers in public sector companies. 82 CPSEs made losses of 25,045 crore rupees and the number of loss-making CPSEs has grown from 54 in 2007-08 to 82 in 2016-17. As per PM Modi’s vision of ‘Government has no business to do business’, these CPSEs should be privatized.
Piyush Goyal who is expected to bag finance ministry due to poor health conditions of Jaitley is a staunch supporter of privatization. He started biggest-ever privatization drive in Indian railway, largest publicly owned set up of Indian government. Therefore it is expected that Modi government will pursue privatization ‘aggressively’. The government exceeded the disinvestment target by 5,000 crore rupees with the total disinvestment of 85,000 crore rupees. Modi government had set the disinvestment target at 80,000 crore rupees for the fiscal year 2018-19. Modi government exceeded the disinvestment target in FY 18 too. The target for FY18 was 72,500 crore rupees while the disinvestment reached 1 lakh crore rupees. Department of Investment and Public Asset Management (DIPAM) has set the target of 90,000 crore rupees for FY 20.
With the implementation of GST, the hard work to create a single market has already been done. Now, the country’s indirect taxation structure is in tune with that of 140 countries around the world. From now on, the government needs to bring real estate, electricity, fuel and alcohol under the GST framework. The government also needs to bring down the number of slabs from 5 (nil, 5%, 12%, 18% and 28%) to at least three (nil, 5 and 12) slabs.
The other important sector where Modi government would need to invest a good amount of political capital is land and agriculture. The land acquisition laws of the country are very rigid and procurement of land by the government and the corporates is a tough task. The government also faces problems in procurement of land for important public works like building of highways, road construction and therefore Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013 needs to be amended. On the farmer’s side, the share of agriculture is 18 percent in India’s total GDP but more than half of the working population remains employed in the sector. It is necessary to increase the size of land holding and pull people out of agriculture to improve productivity and efficiency.
The fourth important reform which should be implemented by Modi government is labor laws. The country has 37 central laws and six amendments to regulate labor. The economic discourse in the country has been dominated by Marxist since the independence and therefore ‘labor’ is given priority over ‘capital’. The successive governments brought different labor laws for different sectors (separate regulatory laws for newspaper employees, journalists, cinema workers) to give a sense of entitlement to certain sectors. There are 1,200 minimum wages related to 429 types of scheduled employments. The government needs to unify the labor laws and compress them into safety financial remuneration aspects.
The government also needs to implement much-needed reforms in the financial sector for the availability of cheap capital to businesses. The ‘cost of capital’ across the world cheaper compared to India. Since Shaktikanta Das became governor of RBI, the central bank has become liberal on lending rates. Now the government needs to reforms the financial sector to provide consumer protection to people investing in different financial products (Mutual Funds, Insurance, Shares, and Bonds) so that the companies do not need to be dependent on banks for capital requirements. The efforts to convert saving into investment through diversion to financial markets in necessary for economic growth.
Therefore divestment, GST slabs rationalization, land, labor, and capital reforms should be the priority of Modi government in the second term. The government could achieve double-digit growth in the second term if these reforms are implemented in due course.