Economists expect big bang reforms to continue under Modi 3.0

Narendra Modi, elected leader of the National Democratic Alliance (NDA) will take oath as India's prime minister for a historic third term on Sunday evening at 7:15 PM.

After a decade of full majority governance, Modi will now run a coalition government, with the Telugu Desam Party and Janata Dal (United) as key partners. Despite being in coalition, experts feel that there won't be much change in the new government's economic agenda.

Economists believe that Modi 3.0 will not slow down the reforms and to achieve the goal of Vikshit Bharat by 2047, economic reforms and policy reviews need to be continued across multiple sectors, including infrastructure, labour, and manufacturing. These reforms are deemed essential to drive economic growth and development in India.

"The oft-repeated target of becoming a developed country by 2047 requires far-reaching reforms in the factor market, opening up of the economy and infrastructure development and a thrust towards labour intensive manufacturing. In a coalition environment it may not be easy to carry out big bang reforms, but the thrust of incremental reforms should be in this direction," said M Govind Rao, Member, Fourteenth Finance Commission and former Director, National Institute of Public Finance and Policy.

Economists have noted that spending on populist measures will increase because of coalition politics, however, the government will continue with its focus on "Made In India" reforms. Sectors like infrastructure and manufacturing will remain the priority of the government.

"There's likely to be a swerve towards greater populist spending and some commitment of resources to states of alliance partners is also likely. But India's public finances are in relatively robust health and to be augmented by significant reserves from the RBI. India's infrastructure spending will continue apace but perhaps with greater private sector participation. Expenditure on defence modernisation and indigenisation will also undoubtedly continue" said Gautam Sen, retired political economist London School of Economics and author, Former member of the Indo-UK Roundtable and Senior Consultant UNDP.

The full budget expected to be announced in July, will reflect the economic agenda of Modi 3.0. Many economists expect the Budget will likely see a spurt in welfare and support schemes mainly for farmers and poor. The Budget will indicate the policy priorities for the new coalition government and decide the growth trajectory for the next five years,

On the economic front, economists have cautioned the government about the potential setbacks from a sluggish global economy and geopolitical crisis.

"One constraint remains the sluggish world economy, which could suffer worse setbacks next year, though Indian growth has risen despite it. The unknown is the impact of external shocks of intensifying wars and uncertainty over energy prices" added Sen.

Meanwhile, in a significant boost to the start of Modi 3.0, the Reserve Bank of India on June 7 revised upwards the GDP growth projection for the current fiscal to 7.2 per cent from 7 per cent on rising private consumption and revival of demand in rural areas.

RBI Governor Shaktikanta Das said estimates released by the National Statistical Office (NSO) placed India's real gross domestic product (GDP) growth at 8.2 per cent in 2023-24.