Narendra Modi's Economic Vision - Looking Ahead

We will now take a look at the various measures taken by Modi Government to uplift the Indian economy.

1. Narendra Modi has exhorted the world to Make in India. Some 25 sectors have been identified, including auto, food processing, defence, IT, textiles, pharmacy and electronics. India is predominantly a service sector economy (which contributes more than 50 per cent to GDP). While the sector is built on knowledge, it is also a success because of cost competitiveness. Cost can’t remain an advantage for ever. That's why the thrust on manufacturing like China where manufacturing accounts for 45 per cent of GDP.

2. The BJP Government has plans to set up 100 smart cities by 2019. Budget 2014-2015 has provisioned $1.2 billion for the same. Though this is much less compared to actual requirements, it’s a step in the right direction. This will prevent migration to metro cities and reduce pressure in their infrastructure.

3. The Government proposes to bring in various amendments to labour laws which is expected to ease the environment of doing business like allowing women to work in night shifts, liberalising laws governing overtime hours etc.

4. Modi Government has increased the FDI cap in insurance and defence sector from 26 per cent to 49 per cent. Additionally it has allowed up to 100 per cent FDI in railway infrastructure projects. This would help to attract foreign investment and improve our technological / technical knowhow in these sectors.

5. One of the main grievances of industry with the UPA II was that it was indecisive. It was not taking any decisions and Minsters were sitting on files for fear of backlash or scams. People appoint leaders to take decisions. The public understands that some decisions can go wrong. The Modi Government, to speed up clearances, has created online platforms to get environmental approvals. It plans to make an e-biz window a one-stop shop to get over 100 clearances by March 2015.

6. Infrastructure is one of the key focus areas of the Government RBI has provided incentives to banks to raise funds through infrastructure bonds. Govt. has provided funds in the budget for various projects. Japan has signed a MoU with India to invest up to $35 billion in the next five years on infrastructure projects in Modi’s recent visit to Japan.

7. The Government has introduced e-toll collection in some routes and plans to extend it to 350 toll plazas by the end of this year. This will reduce malpractice, increase transparency for funds collected and reduce traffic congestion on roads. The system is used in cities like Dubai and Singapore. An estimated Rs 6000 crore is collected from toll plazas on national highways. Once fully implemented, this is expected to increase collections.

8. The Government has announced deregulation of diesel prices, taking advantage of low crude prices. This would reduce the subsidy bill and fiscal deficit while also improving the health of oil marketing companies owned by the Government. Private players like Reliance and Essar would also come into the market and increase competition, which is always healthy for end consumers. However, it is worth watching how Government reacts if crude prices go up, consequently putting pressure on diesel prices which may have negative impact on inflation.

The Government is burning the midnight oil to get GST in place by the beginning of next year. The unified tariff will be a big boost for growth and fiscal consolidation.

The Government is also keen to tweak and improve some of the pet projects of UPA regime - NREGA and Land Acquisition Bill. BJP however needs to cautiously tread on this path. Despite the 'India Shining' campaign, the Vajpayee Government lost the 2004 Lok Sabha poll because though the seemingly middleclass and upper class were happy with the Government, the lower class wasn't, and this led to the downfall of the Government. The Government has to be very careful in dealing with pro-poor schemes.

Courtesy Niti Central

 

 

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