Mentors comment: Following the results of the Lok Sabha elections, Prime Minister Narendra Modi has begun his third term leading a coalition government. The continuity in government policy is anticipated, with top ministers like Nirmala Sitharaman and Piyush Goyal retaining their portfolios unchanged in key economic ministries such as finance commerce and industry. According to Jeremy Zook, director at Fitch Ratings, there is an expectation that India’s robust medium-term growth outlook will persist, supported by government capital expenditure initiatives and improvements in corporate and bank balance sheets. However, the potential for significant enhancements to medium-term growth prospects may be limited if reforms encounter greater challenges in implementation.

Let’s learn_ _

Why in the News?

The recent general election results reflect a dissatisfaction with economic conditions.

Sources of Discontent

• Governance Issues: Dissatisfaction is high due to unemployment and persistent inflation.
• Food-Price Inflation: Food-price inflation has been elevated for five years, particularly for cereals and pulses, which are staples. Households at the bottom of the income distribution spend nearly half their expenditure on food.
• High Expectations: Historical precedents, like the high food price inflation before the end of the A.B. Vajpayee-led government in 2004, show the impact of food prices on voting behaviour.
• Unemployment: The unemployment rate has been mostly higher since 2014, with the Periodic Labour Force Survey showing a decline in the real earnings of regular employees and the self-employed.
• Economic Shift: These factors have contributed to the economic discontent leading to the shift away from the BJP.

Promise for reforms

• Electoral Mandate: Prime Minister Narendra Modi must honour the electoral mandate by addressing the sources of discontent.
• Need for Change: A change from the economic approach of the past decade is required, but no indications of such a shift have been observed.
• Promised Reforms: The Finance Minister has promised ‘reforms,’ but these must translate into tangible economic improvements.

Aspersions over Reform and Growth

• Growth Rates: Despite Mr Modi’s reforming zeal, the average growth rate has not increased post-2014.
• Impact of Reforms: Effective reforms should impact demand or supply forces, which has not happened strongly enough.
• Unmet Aspirations: Growth since 2014 has not met the aspirations of Indians, particularly in terms of affordable food, healthcare, and education.

Economic Policy of the Past Decade

• Policy Focus: The past decade’s focus has been on attracting foreign investment, digital payment, manufacturing through subsidies, and highway construction.
• Cash Transfers: Cash transfers to farmers and housewives, and free rations for the poorest, have not been enough to secure a majority for the BJP.
• Policy Re-evaluation: Continued emphasis on these policies would ignore the people’s verdict. More significant interventions at current pressure points are necessary.

Key Pressure Points

• Food Prices: Rising food prices indicate an underdeveloped economy. There is a need for mission-mode initiatives to make India self-sufficient in pulses. Improvement in cold storage facilities and transportation for fruits and vegetables is crucial.
• Indian Railways: Long-distance migration for work has overwhelmed the railway system. Prioritizing high-end trains like ‘Vande Bharat’ and bullet trains over essential services is a misjudgment.
• Water Supply in Mega Cities: Cities like Bengaluru and Delhi face severe water shortages. A reliable water supply is critical for these agglomerations’ economic potential and social harmony.

Public Sector’s Role

• Infrastructure Needs: Infrastructure supporting everyday life and economic activity is essential.
• Private Sector Limitations: The private sector has not delivered necessary services like efficient transportation, steady electricity, sewerage, and waste disposal.
• Public Sector Capability: Only the public sector can supply these at scale. The government should pivot from relying on the private sector to address obvious pressure points.
• Vision for 2047: For India to become a developed economy by 2047, it must have the infrastructure to support life, which requires substantial public sector involvement.

Conclusion:

To honour the electoral mandate, a change in economic strategy is imperative. The focus must shift from merely attracting foreign investment and building infrastructure to addressing the immediate needs of the populace. Specific interventions in areas such as food prices, railway services, and water supply in megacities are crucial. Moreover, the public sector must play a central role in developing essential infrastructure to support both everyday life and economic activity.

https://www.thehindu.com/opinion/lead/a-mandate-for-a-new-economic-approach/article68317846.ece