Agenda No 1

State of the economy was not a defining issue in the election. But Modi government can use its mandate to prioritise it

Even as some film professionals appeal to the public to oppose the BJP, other lesser-known non-state actors are using moving pictures to improve the chances of the ruling party.For any ruling party, the state of a $2.7 trillion economy, in one of the fastest growing nations in the world, which is staring at a slowdown with a collateral impact on revenues, growth and jobs, would have been the main issue it is judged by in a national election. That the NDA government led by Narendra Modi has managed to buck that trend flies in the face of conventional theories on the linkage between economics and politics. A resounding win, encouraging as it is from the point of view of the financial markets and political stability, may, however, recede from the mind of the voters as soon as the new government takes over. It must be warned that India’s fiscal health is worrying and must be addressed urgently.

With the combined deficit of the Centre and states now over 8 per cent, coupled with a widening current account deficit, a slump in exports and private investment, and the threat posed by the fresh tariff war unleashed by Donald Trump, the challenges are enormous. They are amplified by the state of the global economy and the limited leeway for a fiscal stimulus in India. All these point to the urgent need to put in place a good economic management team and to hit the ground running. The Modi-led NDA government’s economic agenda in its second term should be dominated by policy measures to boost private investment, a progressively cleaner GST regime with just two rates, a quick one-shot recapitalisation of PSU banks to ensure greater flow of credit and governance changes, tightening of the provisions in the new insolvency law to make sure that timelines are met, flexibility on labour laws to enhance competitiveness, privatisation of bleeding state-owned firms in competitive sectors and addressing of the crisis in the farm sector.

The Modi government has the comfort of numbers on its side again. But falling short on economic management this time around will resonate with both domestic and global investors. The economic costs or fallout will be severe.

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