A little over a month after declaring that it could not endorse Narendra Modi, the Bharatiya Janata Party’s (BJP) prime ministerial candidate for India’s most powerful position as he was “divisive”, The Economist magazine, in its latest editorial, has set out tasks for India’s new Prime Minister.
Referring to the past five years as “A lost half-decade”, the magazine has urged Modi to be “more strategic and ruthless” unlike the Manmohan Singh-led UPA Government which “dithered and was preoccupied with bolstering India’s welfare state''.
Incidentally, just before the elections in India in April, the magazine had written a critical editorial on Modi saying “He will probably become India’s next prime minister. That does not mean he should be,” inviting a lot of flak from the BJP and its supporters.
In the latest editorial, however, the magazine suggests three tasks to Modi to kick-start the economy – tackle rotten banks, break the destabilising cycle of stagflation and create more decent jobs.
“Bad debts have soared as the economy has slowed and infrastructure projects have got snared by red tape. Banks have chosen to “extend and pretend” loans to zombie firms. The cost of cleaning up banks’ balance sheets could be as high as 4 per cent of GDP — slightly larger, in relative terms, than Wall Street’s bail-out. But until the banks are fit enough to finance a new cycle of investment, no recovery will happen,” it says.
It urges the Modi government to deepen financial reforms and limit the pressure on banks, which are forced to buy government bonds, giving politicians a blank cheque to borrow.
Hitting out at subsidies, especially food and fuel, it says the new government must cut wasteful spending on subsidies of food and fuel. To repair public finances, it says the “main reason why India has not run a budget surplus since independence in 1947 is that its tax base is puny. So the government must bring more of the economy into the tax net.”
“To cut high food prices, it should abolish the state-run agricultural markets that are often in the hands of powerful locals who hoard farmers’ produce,” says the editorial.
Coming out in defence of Reserve Bank Governor Raghuram Rajan, whose job is said to be on the block, the editorial says the Modi government should back him and try to persuade him to stay in the job. “To cut high food prices, it should abolish the state-run agricultural markets that are often in the hands of powerful locals who hoard farmers’ produce.''
Blaming India’s taxation policies for foreign firms, the editorial says for firms wanting to invest, access to the ingredients of production — energy, labour and land — is uncertain and expensive. “The taxation of foreign companies is a lottery. As a result, firms such as Li & Fung, which sources textiles and toys for America’s supermarkets, say that factories are shifting to Bangladesh, South-East Asia and Africa, not India.”