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Modi's development dream & harsh ground realities

With Prime Minister Narendra Modi at the helm, people are expecting miracles on the economic front. Is it realistic to expect him and his team to bring about a turnaround when some of the key economic indicators have been stagnating for so long? He struck the right note at his inaugural speech by asking people to build a developed and inclusive India. But it is difficult to fulfil all the promises in the short term and will require enormous efforts to bring about inclusive growth. It would involve putting policies in place that would encourage investment and manufacturing growth and tame inflation.

It would mean revamping agriculture so that small and marginal farmers are more productive and get better returns. Laying down infrastructure conducive to foreign and domestic investment and advancement on the human development front would be important. Improving sanitation, affordable housing, clean water and quality of air in cities are also going to be essential for inclusive growth. The continuation of some of the important subsidies targeted at the poor is also likely. The Finance Minister would have to collect more revenue to spend on the tall order of these achievable, though difficult, targets. It would mean speeding up the GST for better revenue collection. Inflation control cannot be done by monetary policy alone or by manipulating interest rates. Fortunately, as the recent policy shows, the RBI is moving in that direction.

In India, the inflation of the past few years has been mainly due to structural problems and high input costs. All prices have been going up - of manufactured as well as agricultural goods. With higher productivity growth, which can only be achieved through higher efficiency in production, inflation can be reined. High interest rates are merely controlling liquidity in the economy and it is affecting investment demand adversely. But if the efficiency of the system, production costs and delivery improve, India will be competitive and exports would rise. The Prime Minister has to ensure that the whole economy runs smoothly and there is good governance in all the states. Only then the goal of inclusive growth can be fulfilled. Lack of access to easy credit is constraining the growth of medium and small-scale industries also. They are the backbone of industrial activity in the country. If industrial growth can be revived, then GDP growth can be higher at 6 per cent and more jobs could be created. The newly appointed Finance Minister has declared that fiscal consolidation will be a priority. The forthcoming budget will reveal how it is going to be done and where the expenditure cuts will be directed. It is essential that social sectors are revamped and higher percentage of the GDP goes towards expenditure on health and education. Already a lot of promises are being made by the new cabinet ministers in the social sector. The health sector needs a thorough revamp. Indians have the highest "out-of-pocket expenditure" on health in the world. It means that the private sector charges exorbitant amounts for healthcare which the poor, who do not have health insurance, have to pay from their savings or borrowings. Indebtedness often reduces people who are above the poverty line to below poverty line.

Higher education and skills training would be important in the agenda of new reforms. Hopefully, there would be some dramatic changes introduced to make the youth more employable. The youth are waiting for an economic revival that would increase the number of jobs. Around 10 million job seekers would need to find jobs every year. Regarding corruption and black money stashed abroad, very slow progress can be expected. If Modi is successful, it would be a great coup and the money could go towards development projects. But it is not an easy task for even the US to come out with a list of people who have got black money abroad.

With Modi's style of functioning, it is entirely possible that he would get a stranglehold on corruption and people would realise that it is not easy to conduct deals in a non-transparent manner because, if caught, the punishment would be severe. He could address the problem of crony capitalism which is now entrenched in the Indian system. He will be making history if he could eradicate corruption from welfare programmes.

He has also appointed a Cabinet Minister to clean up the Ganga - an endeavour that has been ridden with corruption in the past. If he succeeds in this clean-up operation, he would win unprecedented kudos from all. His clean-up drive is laudable. Sanitation and provision of toilets may not seem an important item on the agenda for Big-Ticket reforms, but those who are suffering (especially women) from lack of toilets would greatly appreciate his move to build toilets for women in rural areas. All these are not achievable but do matter for the image of India, to which I think Modi attaches a lot of importance.

Jayshree Sengupta
19 June 2014
(The writer is a Senior Fellow at Observer Research Foundation, Delhi)

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