Budget 2019: Good bye to gradualism; Why India needs some out-of-the-box reforms

The overwhelming mandate has raised expectations like never before. Unlike in 2019, when the voter endorsed Modi for his muscular nationalism and welfare economics pitch, going forward, the voter is unlikely to settle down for anything less than credible ‘Achhe Din.’

The good thing about the latest mandate is that it offers a unique opportunity to unleash reforms like never before. Post 1991, reforms have generally found virtue in gradualism and have at best been incremental in nature.

Here is a lifetime opportunity for the new finance minister and the prime minister to together undertake some out-of-the-box reforms to put India on the $5 trillion economy path (a promise made by BJP in its manifesto). The unrivalled political capital calls for some big-bang reforms and permanent goodbye to gradualism.

To get a sense of the challenge at hand, it is important to try and assess the extent of bad news. Here are a few pointers (presented not in any order of importance):

- It isn’t just the dropping macro numbers, the core sentiment on the ground is more than dismal.

- A decline in consumer demand, a slowdown in government spending and weak private investments are very much a reality.

- The unemployment rate in India in 2017-18 was a record 6.1 percent.

- Cost of capital is high and demand is low. Hence, asking businessmen to invest is trickier than pushing Indians to spend more.

-          India is already facing fiscal stress. The fiscal accounts are already under pressure because tax collections have been lower than expected.

- The slowdown isn’t cyclical bit there are fundamental structural challenges.

- That consumption heading southward is a grim reality: It isn’t just automobiles, other key frequencies are down and include rail freight, petroleum product consumption, domestic air traffic and imports (non-oil, non-gold, non-silver).

- The political urge to score some quick singles might be difficult to resist hence the need to open the Sarkari spending taps is a big possibility.

- The rural economy – especially the agrarian piece is under hemorrhage.

- Manufacturing sector's contribution to GDP has stagnated at 15 percent for the past five years. Bangladesh recently overtook India in this respect, according to World Bank data.

- The country's privately-owned lenders or non-banking financial companies are in deep freeze.

- There is charge of lack of credibility in assimilation of core economic data leading to needless controversy about policy formulation.

-  An overpowering mandate that grows and potentially sustains the sentiment (as is evident from the stock indices’ buoyancy).

-  As Finance Minister Nirmala Sitharaman brings with her a fresh perspective, given her academic credentials as also the confidence she enjoys of the prime minister. Her experience in the commerce ministry is an enabler.

-  The cabinet formulation has seen a very robust core economic ministerial team at the helm. The A-team for manning the economy is perhaps the strongest in decades. There is continuity too.

-  From a well-performing minister in Nitin Gadkari to Piyush Goyal in commerce ministry to the appointment of a career diplomat as India’s external affairs minister who is quite adept at economic diplomacy nuances, the team in many years has a 360-degree view of business and economy.

-  Entrepreneurship, under the MSME ministry, will definitely get a boost with a heavy weight minister in Gadkari, a positive change from tradition where it was seen more as a parking slot. The first cabinet meeting under Modi 2.0 introduced a pension plan for small traders.

-  Agrarian stress (as is evident from the mandate) might have been overstated. The cabinet has done well to up three core units – Agriculture Ministry, Rural Development and Panchayati Raj under one roof – to bring about a sharp focus on the rural economy. Among the first few decisions of the new government was the expansion of the scheme to give Rs 6,000 a year to all farmers.

-  Manufacturing PMI hits three-month high as per the latest numbers available.

-  Abki Baar Suit Boot Ki Sarkar – Modi 2.0 must unleash the power of the mandate to make some big bang reforms. These include a time bound adoption of policies relaxing land and labour rules for business. The cabinet committee approach should spur buoyancy.

- The government should focus on other options to raise funds such as going aggressively on PSU disinvestment and unleashing 5G spectrum auction.

- Bring in an investment and spending cheer in the upcoming Union Budget. The middle class too has eyes on tax sops.

- Address liquidity concerns ASAP: Demand slowdown and credit sluggishness have to be addressed by revitalising credit channels.

-Vastly improve the ‘Me’croeconomics. It is this piece of economy that played a big role in voters endorsing Modi. The science of economics as it affects ‘you’ and ‘me’ is all about last mile execution. All key welfare schemes of the government need to bring in more efficiency and most importantly host next round of ideation for building skill, speed and scale. This would first of all include reimagining the GST architecture.

-It needs to ensure that its capital is properly employed and not stuck in loss-making and barely profitmaking public sector enterprises. Privatise one PSU bank to set a game-changer idea in motion. Air India is an already stated priority.

-Reimagine Niti Aayog (key official economic policy think tank). Let it not have any operational role. It must forecast and be held accountable. The widening of the political cover is welcome.

-India needs a data scientist of global repute to man its core economic activity – from numbers on macro economy to jobs to plotting potential of untapped business verticals (like Make in India and Natural resources). Nandan Nilekani fits the bill imminently.

The finance minister is indeed riding her luck having taken the escalator. But she, PM and India need more and more of it. The weather Gods have to be benevolent as also crude has to stay calm. If India is able to tap fully into the opportunity, Modi and Sitharaman might well have scripted a new historic brave chapter to redeem India of many of its current ills.