Is economic revival round the corner?

Fri, 6 Jun Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

Prime Minister Narendra Modi has 1.3 bn people's hopes riding on him. It is these very people's expectations that have helped new government ensure a historical win in elections. Now is the time to deliver on the promises made. We reckon it will not be an easy task to break free the logjam that the Indian economy has been facing for the past few years. A dwindling economy, unemployment, and high inflation stare the government hard in the face.

The government, however, seems to be ready for the tough job and has its task cut out for the next five years. As per a feature in economic times; it plans to divide its growth trajectory into two phases. The first phase will focus on tackling immediate issues one after another; the next phase will concentrate on perseverance for growth in the following years. So, right now the immediate tasks at hand are reining fiscal deficit, current account deficit, taming inflation and creating enough employment opportunities by reviving manufacturing sector. The government has to tread this path cautiously and the fiscal deficit should be tamed without any increase in tax burden on people. Similarly, gradual phasing out of diesel subsidies as well as cooking gas can help in curbing the fiscal deficit. It should also concentrate on reviving various stagnant rural and employment schemes. Also if the factories are made cost competitive, the manufacturing sector can be revived. At the same side tackling supply side disruptions can lead to inflation control.

Another thing that warrants immediate attention is streamlining the project approval process. It is no news that projects worth of billions of Rupees have been stuck because of the requirement of innumerable regulatory and procedural approvals. Dealing with bureaucratic hassles can set the course for an ambitious growth. What is encouraging is that the government has hit the ground running by hiving off unnecessary ministries and departments.

All said and done, we have to accept that the government has no magic wand to set everything straight. The challenges and logjam that the economy is facing since years cannot be curbed very easily. First of all, many schemes and policies are under the state purview over which the centre might not have much control. Secondly, reining in inflation and fiscal consolidation will be difficult to achieve without cutting interest rates and compression of spending respectively. Nevertheless, by clearly communicating its growth strategy over the next five years; we believe this government indeed means business. Whether the economy revives in five years or not is a tough call to make. But the above steps have certainly set the tone for good things to come.

Do you think the Indian economy can be revived in five years? How many years shall it take India to achieve 9% plus growth? Share your views on the Equitymaster Club