Good fortune it may be in large measure, but ever since the Modi government took over, India’s macroeconomic indicators have shown dramatic improvement. Buoyed by a not-so-bad monsoon and a politically stable government, GDP growth in the first quarter of 2014-15 has improved to 5.7 per cent after languishing at 4.5-5 per cent for the preceding eight quarters. The World Bank has estimated that it will be up to 6.4 per cent in the next fiscal . An influx of foreign portfolio money has helped shore up foreign exchange reserves and the exchange rate. Falling global oil prices are likely to shrink this year’s current account deficit to a manageable 1.5 per cent of GDP, and put the fiscal deficit target of 4.1 per cent well within reach. Inflationary pressures seem to be abating too, with wholesale price inflation reading at a five-year low.
The conditions are right for the Modi government to deliver on its pre-electoral promise of big-bang reforms. So far, the Centre has adopted a somewhat tentative and incremental approach when it comes to economic policy. The July Budget prioritised fiscal discipline over attempts to step up public spending or stimulate growth. Subsequent announcements on ‘smart’ cities, the ‘Make in India’ initiative and labour reforms have been piecemeal and lacking in crucial operational details. Even the recent decision to decontrol diesel, the only concrete reform move till date, has been carefully timed so as to not ruffle any political feathers. But with the BJP’s recent win in the Haryana Assembly and its emergence as the single largest party in Maharashtra, the time for faintheartedness is over. The window of opportunity provided by a stable exchange rate, a benign global environment and supportive macro factors will not last forever. There is no time to be lost in taking steps to dramatically improve the ease of doing business in India and restart the virtuous cycle of industrial recovery, job creation and economic prosperity.
First and foremost, simplifying the land acquisition law, pushing through a uniform Goods and Services Tax and sorting out issues in the availability and pricing of fuel and power are imperative for the ‘Make in India’ campaign to draw an adequate response. Second, the Centre needs to embark on comprehensive judicial reforms to clear the thicket of the 2000-odd Central statutes that are a drag on investment. The drafting of a realistic bankruptcy law that allows lenders and investors to move on quickly from unviable enterprises, is badly needed as well. Third, opening up new non-bank funding sources for infrastructure and resolving contractual issues in public-private partnerships, is essential to rebuild the creaky transportation and urban infrastructure. Finally, the Centre should start the process of transitioning subsidies to direct benefit transfers, stop interfering in public sector banks and monoliths such as Coal India and push through the long pending Insurance Laws Amendment Bill. Diwali is long over; but we’re waiting for the Big Bang.