Creating jobs for a booming young population and addressing major agricultural distress are among the serious challenges facing India’s new government that was inaugurated on Thursday.
Prime Minister Narendra Modi of the Hindu nationalist Bharatiya Janata Party took the oath to begin his second term after winning a massive majority in India’s general elections, which were dominated by months of vitriolic and polarizing campaigns.
The political focus, according to analysts, will now shift from campaign mode to governance and tackling impending challenges, including the risk of a slowdown in growth of the world’s sixth largest economy due to the lack of major private sector investment and surging unemployment.
“All macroeconomic indicators have been trending downwards: you see that the investments-to-GDP ratio, savings-to-GDP ratio, taxes-to-GDP ratio, exports-to-GDP ratio have all fallen. Unless these start growing, how can you make investments?” renowned economist Mohan Guruswamy, a Harvard alumnus, told EFE.
Guruswamy, who has held senior government positions such as economic policy adviser, said that such data points needed continuous monitoring for regular improvisation besides measures to increase revenues and create more jobs.
The growth story of India, home to 1.3 billion people and the world's second-most populous country after China, has been one of the most inspiring in the world despite the fact that unlike most other Asian countries, the country’s economic growth has not created many jobs or fueled an exports boom.
Of late, consumption has also started tanking. This slump, according to researchers at rating agencies, is leading to a sharp decline in India’s gross domestic product growth rate – from 8.2 percent in April-June 2018 to 6.2 percent in the same period this year.
This poses a major challenge to the government as it indicates that people have not been able to spend as much as they had earlier.
As such, according to Guruswamy, the priority for the government needs to be a hike in its capital expenditure on infrastructure, particularly as the construction sector has the potential to absorb a large chunk of unemployed youth.
“Unemployment is at the highest level (in the last 45 years). There are around 400 million workers in India who don’t have any skills. You have to find jobs for them. You have an army of unskilled people,” he said, adding that the prime minister should be a "job creator for the overall economic development” of the country.
Another of the major challenges for the new government will be to attract private investment, which has also been sluggish despite India improving its ranking by 23 places up to the 77th position in the World Bank's ease of doing business 2018 report.
An analysis of official data indicates that in the last financial year, which ended March 31, the country saw new investment proposals worth just 9.5 lakh crore Indian rupees (over $136 billion) – the lowest in 14 years.
According to the Centre for Monitoring Indian Economy, a private monitor, private investment would usually account for two-thirds of total investment in the economy.
However, since 2014, its share has gone down to just 47 percent by 2018-19, which essentially indicates that the economic growth was propelled mainly by public expenditure, according to CMIE data.
Guruswamy said private players were reluctant to invest because profitability is low.
“Private sector profitability is just 2.7 percent. Why would the private sector invest when it doesn’t guarantee them more profit? Better to keep money in the bank,” he said.
To attract more private investment, he said, the government needed to undertake major reforms in the country’s labor laws and land acquisition laws.
“It is so difficult to acquire land (in India). Compensation rates should be fixed. Why should anyone pay more than the market rate?” he said.
However, he warned that Modi may not be able to bring in reforms because that would need a broader political consensus in both houses of parliament.
While the BJP-led National Democratic Alliance enjoys a comfortable majority in the lower house, the Lok Sabha, it lacks numbers in the upper house, or Rajya Sabha.
“To make these reforms happen, you have to build a broad consensus. You cannot keep abusing everybody and then call for consensus. How is it possible? I don’t have many expectations. I don’t think Modi has got any great nation-building vision. He is a good campaigner at the best,” Guruswamy said, adding that finding political consensus would prove more challenging for Modi than building up the economy.