Quick, bold and decisive reforms on Indian industry’s wishlist to Modi

• Gross Domestic Product (GDP) growth fell below 6.5%, which is lower than the trend rate of 7%.
• BJP promised to turn India into the third largest economy by 2030
• BJP manifesto says that they intend to turn into a $5 trillion economy by 2025

Prime Minister Narendra Modi is yet to announce his new cabinet. But the Indian industry has already prepared a wishlist of requirements from the new government.

And few see any hurdles to bold reforms, thanks to the spectacular mandate.

Modi might have inherited a white elephant and has a lot of work to do, and there are a few years before Indian economy escapes its current cyclical downturn.

Added to that, Modi has to deliver on his big promises. His manifesto aspired to turn India into the third-largest economy by 2030, a $5 trillion economy by 2025, and to double farmers’ incomes by 2022.

Faster reforms

In the second half of the current financial year, Gross Domestic Produce (GDP) growth fell below 6.5%, as per CRISIL. This fell from the 7.7% growth that it has seen last year.

What is more worrying is that consumption demand, which was the bulwark of the economy, has weakened and private investment is yet to show signs of a pickup. According to A C Nielsen, the FMCG sector is expected to grow at 11-12%, two percent lower than expected, in the current year.

To make sure that the economy recovers quickly, the industry wants Modi to add quickly. They want the government to stimulate the manufacturing sector and improve the outlook on private investment.

“Bite the bullet in the first year itself to reap rewards later: take long-pending hard decisions in the first year itself. Create fiscal space for infra spending, privatisation, asset monetisation and generally unshackle funding in the economy,” said a report by Fitch Ratings.

Majority effect

“With the strength of this majority, the government can take bold and swift steps to further its promises of reducing corruption, increasing ease of business, and ensuring a simpler taxation regime," said G. Murlidhar, MD & CEO, Kotak Life Insurance.

The introduction of the goods and services tax (GST) and the new bankruptcy law gave Modi the bragging rights at the end of his first term. But those five years were not without their share of chinks.

“Even though, in my personal view, the GST introduction was far from smooth and the law is complicated. Still, the introduction of GST was a big and necessary step to turn into a single market,” Alastair Newton, Co-founder & Director, Alavan Business Advisory, told Business Insider.

With a second term and a bold majority at hand, the industry expects the government to work towards land and labour reform, and solve the power sector logjam.

“Another area of potential reforms is to enhance the efficiency and effectiveness of government administration, and the legal and judiciary system. This would allow the government to solidify reforms of its first term, for instance by further enlarging the tax base and improving the credit culture,” said Thomas Rookmaaker, Director at Fitch Ratings’ Asia-Pacific Sovereigns.

Burden of banks

The non-performing assets of banks or basically bad credit has amounted to as much as Rs 10.3 trillion at commercial banks.

Added to that, a large number of high profile debtors like Essar Steel, Bhushan Steel and Reliance Communications have been referred to National Company Law Tribunal (NCLT) by bankruptcy courts after they failed to repay their debts.

Estimates say that the IBC (Indian Bankruptcy Code) has addressed cases worth Rs 3 trillion since December 2016. However, the delay in solving these cases are not helping banks, which are losing money over delays.

The new government should help clear bottlenecks and empower the IBC to be able to ease bank’s problem.

Establishing tougher rules and easing credit inflow to newer enterprises is yet another challenge that Modi will have to face, to hasten and sustain the country’s economy.