You need to only see how the Sensex behaved in the run-up to May 16 when the election results were declared to get an idea of the sky-high expectations that everyone has of the new government.
With no other factors propelling their rise — and, indeed, the economic fundamentals looking distressingly poor — the Sensex is up 15% and the rupee 4% since the elections were announced in early March. This on account of nothing else but a heightened sense of exuberance about what the markets think the new government can do.
Next week after his coronation-style swearing-in ceremony is over and key portfolios of his Cabinet have been allocated, when India’s new Prime Minister Narendra Modi gets down to the business of governing, the economy will doubtless be high up on his list of priorities. Will he be able to deliver what those who elected him expect him to?
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To be sure, there are some low-hanging fruit that Mr Modi and his government can pluck right away. One immediate way of building on the already upbeat sentiment is to start projects that are fairly easy to kick off — such as making roads.
This is a surefire way of generating jobs and having a multiplier effect on sectors such as iron and steel, construction material and even transport. Next, to tackle the stubborn inflation rate, which has in part at least voted out UPA 2, Mr Modi could use a temporary measure of a price stabilisation fund to subsidise prices of 6-10 essential items and also free up imports of some of them.
Both, road-building and the intervention to cool off prices can send quick signals that the new government is serious about delivering results, much like appetisers that arrive before the mains come to the table during a meal.
Mr Modi and his government could also talk up the sentiment, which is already high on hope, by ruling out retroactive taxation of the kind that led to the Vodafone dispute. That would reassure foreign direct investors who had become wary about India under the UPA 2 regime.
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The BJP’s manifesto talks about skill development for India’s burgeoning population of young people but that’s a long-term endeavour. In the short term through a combination of tax and labour law incentives, Mr Modi could give a fillip to sectors such as textiles, which don’t require highly skilled workers but do provide high employment. Such jobs may be more attractive than the handouts were under the UPA’s schemes such as NREGA.
The other booster, particularly for business, which has cried off investing and lost confidence in the economy, would be to quickly announce a deadline, say April 1, 2015, for reforming our archaic direct tax code and getting the states to agree to the long-pending goods and services tax system, which would free up trade across the country.
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These and a similar deadline for getting projects such as the Delhi-Mumbai Industrial Corridor ready would make business want to start investing again, especially if the government is seen to be trying to stick to its deadlines.
Few believe that tackling the Indian economy will be a piece of cake — last year’s growth rate is estimated to be 4.9% and when the real numbers come out in a few days, it could be even worse — but if Mr Modi, who has won a jumbo-sized mandate on a wave of hope and expectation, wants not to disappoint his voters, he’d have to show some quick results to make them keep their faith.
To many, when it came to tackling the economy, the previous regime often appeared to be in sleep mode — that blank-screen hibernation that computer screens get into when you do nothing for a long time. Read | All eyes on economy: expectations ride high on Modi government’s first budget
To make a real difference and not disappoint those who have whole-heartedly welcomed him, Mr Modi’s regime will have to go into fast-forward mode.