The big question on every one’s mind is will the 2014 elections bring back the mojo to India’s faltering growth? Of late, brokerages like Goldman Sachs, CLSA and Nomura have put out their bullish assessments that a Narendra Modi-led BJP coalition is expected to form the next government and revive the economy.
As Modi could get a lot done in Gujarat, it is felt that he can do the same at the national level, including addressing India’s slowdown. The scenario on the growth front is dismal as the pace of expansion is barely recovering from the low of 3.2% in 2012-13 to 2.4% (Q1) and 5.6% in (Q2) of 2013-14.
The India growth story is faltering because foreign and domestic investors remain wary of the business and investment environment and paralysis in decision-making. This is a defining feature of the UPA, especially in its second term.
The fact that the country has slipped by three places to 134 in World Bank’s global ranking of 189 nations on the ease of doing business is a problem that whichever government comes to power in 2014 needs to urgently fix. This, in turn, calls for economic reforms across a wide front.
The outcome of the 2014 elections, therefore, is crucial for the India story. Business and investors seek a return to political stability. The mood is more bullish for the BJP as the Congress has made a mess of the economy. Consumer price inflation rages at double-digit rates, thanks to sky-rocketing prices of vegetables like onions. Food inflation largely reflects supply-side rather than demand factors. The recent surge in onion prices thus was largely because of supply shortfalls due to untimely rains in a prolonged monsoon season.
Joblessness is on the rise. Can Modi wave a magic wand to make these problems go away? Corporates and the foreign brokerages appear to think so. “If Narendra Modi does storm home with a solid plurality, we could see reforms which are going to lift India’s growth not back to double-digits, but maybe back to 7-8%,” argued Nomura’s analyst, Alastair Newton. As if on cue, a variety of agencies including the OECD and IMF see a return to faster growth of 5.1% in 2014-15 and 5.7% in 2015-16. How much of this reflects the Modi-effect or is this just a business cycle recovery, thanks to a good monsoon, regardless of whoever comes to power in 2014?
Since much rides on the expectations, if not hopes, of a Modi victory for the economy it is necessary to soberly assess its likelihood. Expecting a reform blitz to boost growth from a party that opposed tooth and nail the reforms the UPA wanted to push is a tad unrealistic. Fifty one % FDI in multi-brand retail – allowed since last September – is unlikely to be supported by the BJP if it comes to power in 2014. Insurance sector reform and a Goods and Services Tax that would unify the domestic market could also be a casualty. The party so far hasn’t articulated what is to be done to promote manufacturing and reverse jobless growth. Can it over-ride its own trade unions if labour reforms are necessary for this purpose?
Reviving growth is also about institutions, strengthening the regulatory framework and the rule of law. All of this will take a while to put in place before growth can accelerate to an 8 to 9% trajectory over the medium term. The recent sharp deceleration should be a reminder that there are no overnight solutions to bring back the mojo to India’s growth.
N Chandra Mohan is an economics and business commentator based in New Delhi
The views expressed by the author are personal