Economic Challenges that Modi 2.0 will have to tackle

Economic Challenges that Modi 2.0 will have to tackle

Published: May 23, 2019 at 2:36 pm

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The people have spoken and how! The stock market may rejoice at the results of Lok Sabha 2019, but the new government has its work cut out. Modi 2.0 faces many economic challenges,  perhaps because of their own doing: demonetization.

Read about any sector, be it agriculture, auto, consumption, exports, banking, airlines etc, the one word that pops with worrying regularity is “slow down” and naturally this is evident in the GDP growth too.

One worrying doubt is, was the GDP growth in the last two decades driven by a segment of the then middle class whose income grew significantly thanks to liberalization?  And we are now a facing a saturation from this segment while waiting for next strata of society to earn more and consume more?

In other words, a chunk of the middle class has moved to the upper middle class, but the wheel is moving a lot more slowly now for the next batch to move up. If that is the case, then the manufacturing sector requires a huge push, in term of credit and employment and better infrastructure. This is the only way all sections of the society can continuously strive for regular employment, higher income and higher consumption.

The standard of living for a blue-collar Indian worker has improved in the last two decades but an economic slow down might seal off a generations ability to live better and also reduces chances of a better life for the next gen.

On the other hand, Indian agriculture has natural challenges like global warming and man-made challenges like infrastructural expansion. As we want the business that we invest in to beat inflation, we often do not recognize that they do so by destroying biodiversity and our own ability to feed the population.

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Stability and possible growth in the agricultural sector is a natural priority of any government. However, it also must balance this with manufacturing growth.  If this new government can trigger growth in both sectors in its first 2-3 years, we can get out of a slump. Can Modi 2.0 do this? I hope so.

Unless India becomes a manufacturing giant in the next 10 years or so, we can forget about dreams of making big returns from the equity market. All types of investors may be keen to add money and drive up stock prices today, but their patience will run out soon.

One the one hand we have the poor electorate who, more than subsidies or freebies, want a steady chance to improve their livelihood and on the other hand, have the big businessmen who have the money and influence to change legislation.

Politicians have conventionally used rhetoric for the former group and appeasement for the latter. It is time to do the opposite.

Reference: Centre for Monitoring Indian Economy

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M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Linkedin
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2 Comments

  1. Politicians may have done what you suggest in the last line, but not Modi. His approach is a mix of welfare measures plus employment boosts via measures like Skill India, Make in India etc (see growth in mobile assembly, and even defence local sourcing) and also boosting Infrastructure Spend (roads, rail, electricity, bridges, waterways) and reducing red-tapism (GST, Ease of Business rankings) to make manufacturing in India truly competitive. While by no means is it all + and many gaps remain, the scale of effort is breathtaking as is the effort in making a hitherto chalta hain bureaucracy perform. I fully expect he will deliver in the next 5 years, as the baseline for delivery has at least been established as versus beginning from a scorched earth environment which the previous Govt had set up. How the global economy and energy prices affect us, remains a tricky issue and no easy answers
    there.

    For those politically desparate individuals who seek to jump at me for the above claims, please understand that I can back up each of the above with personal verification not paper reports. I have employed people who came through skill India programs, and got loans from Modi led initiatives, met people who were destitute and overnight got Ayushman Bharat funding.. these spread through word of mouth and essentially led to his re-election. The man is a worker, and I fully expect he will drive his team even harder to deliver.

  2. I have 2 objections to this article.

    1. The claim that demonetization resulted in massive economic problem is not fact based but MSM propaganda.

    2. About your reliance on CMIE data: (src: twitter)
    “First of all CMIE Pvt Ltd. Is a company owned by Mahesh Vyas, having close proximity with @PChidambaram_IN .Vyas’s brother in law is the main accused in NSE data scam. How reliable is a report published by a private company. Also would love to know the research methodology! “

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