Top 10 Economic Challenges for Modi's New Government

Narendra Modi is all set to be the next prime minister of India and the BJP is headed for the country's most resounding victory in 30 years. Mr Modi has promised to unblock stalled investments in power, road and rail projects to revive economic growth that has fallen to a decade low of below 5 per cent.

Here are 10 economic challenges that Mr Modi faces:

• Goods and Services Tax (GST): India's most ambitious indirect tax reform would replace existing state and central levies with a uniform tax, boosting revenue collection while cutting business transaction costs. GST, which could boost India's economy by up to two percentage points, has so far faced resistance from various states, including those governed by the BJP who fear a loss of their fiscal powers. The BJP aims to address state concerns and implement GST in an "appropriate timeframe". The Congress party would back the reform in opposition, a senior party member told Reuters earlier this month. The reform needs broad backing because it requires a change in the constitution.
• Central bank policies: A Reserve Bank of India panel in January proposed key changes including targeting consumer price inflation and making a committee responsible for monetary policy, and not the RBI Governor alone. This would require changes to the RBI Act. The BJP top brass has not spoken widely on the issue, but it will likely be a tough sell for RBI Governor Raghuram Rajan. He has the backing of some global agencies like the International Monetary Fund. Mr Modi's government may also look to eventually separate the debt management function from the RBI, on the grounds that debt management sometimes conflicts with the central bank's monetary policy stance.
• Privatisation: The new government is likely to focus on selling its holdings in state-run firms that could raise much-needed revenues to trim India's ballooning fiscal deficit and boost economic growth. The rising stock market helped New Delhi raise more than $3 billion (Rs. 18,000 crore at 60 rupees per dollar) via stake sales in the fiscal year to March 31 - but that was only a third of the government's original target. The outgoing government announced plans to raise Rs. 56,900 crore through asset sales in 2014-15. This could help achieve a lower fiscal deficit target of 4.1 per cent of GDP. These estimates may be revised by the next government.
• Subsidies: Mr Modi's government needs to examine how it subsidises basic commodities if it is to contain the fiscal deficit and avoid a ratings downgrade. Subsidies cost an estimated 2.2 per cent of India's GDP in 2013-14. The BJP in its manifesto said it will seek greater fiscal discipline without compromising on the availability of funds for development.
• Labour: The BJP wants to reform labour laws to boost job-intensive manufacturing and create as many as 1 crore jobs a year for young Indians entering the workforce. Changing the law would be politically tricky, though, and Mr Modi may seek to encourage competition between India's states to boost job creation.
• Defence: More foreign investment in defence would help India reduce imports, modernise weapons systems and speed up deliveries of hardware it needs for operations and training. India, the world's biggest arms importer, now allows 26 per cent foreign ownership in defence, and proposals to exceed that limit are considered only for state-of-the-art technology. The BJP has said it would allow some greater foreign investment in defence industries.
• Insurance: Attempts to raise the cap on foreign investment in India's $45 billion (Rs. 2.70 lakh crore) insurance sector, to 49 per cent from 26 per cent, have met resistance from employees at state-controlled insurers and their political backers. A BJP leader said in March the party had held talks with Congress to break the deadlock.
• Banking: The next government will need to help state-run lenders battling rising bad loans caused by the slowing economy, rising interest rates and project delays. Stressed loans in India - either bad or restructured - total $100 billion (Rs. 6 lakh crore), or about 10 per cent of all loans. Fitch Ratings expects that ratio to reach 14 per cent by March 2015. Rising bad loans threaten to choke the gradual recovery in Asia's third-largest economy, according to the OECD. The interim budget in February set aside Rs. 11,200 crore to help the sector meet key capital ratios, but analysts say more money is needed.
• Power: A BJP-led government may implement the so-called Gujarat model of distributing electricity that has been widely praised for delivering reliable 24-hour power supplies in the state. Mr Modi provided different power feeds to farmers, households, and companies instead of a uniform feed in his home state.
• Gas pricing: In January, India notified the new gas pricing formula that could double the prices of locally produced gas from April 1, but the poll regulator stopped the government from raising the prices until the elections are over. Reliance Industries and its partners BP and Niko Resources last week issued a notice of arbitration to the government seeking implementation of higher gas prices. The BJP-led government may review the formula on the lines suggested by a senior party leader last year and announce the date of implementation of new prices.

Varanasi welcomes Modi with open arms, makes him cult figure

BJP prime ministerial candidate Narendra Modi today literally created the Modi wave in the temple town of Varanasi as his supporters to the tune of thousands braved the hot sun since 8 am to 2.30 pm to walk along with him as he filed his nomination from the holy city this afternoon. In a massive gathering of supporters that was unprecedented and unmatched to that of his rivals, Modi succeeded in painting the city saffron as people from all walks of life flocked to cheer him.

The rejoicing for Modi it seemed, was natural, as the city offered a rousing welcome to the BJP prime ministerial candidate almost akin to a victory parade.

From the look of it, people in large numbers in Varanasi believed that Modi was someone who could change face of the city and consequently their living conditions. The atmosphere was electric and the energy infectious enough to beat even the wildest celebrations of India's World Cup triumphs in the cricketing world. Some even resorted to fanciful apparels invoking the divine -- Shiva, Hanuman, Bharat Mata and Maa Ganga.

When a lady journalist argued with some in the crowd that Modi was no magician who could turn dreams into reality, she got a quick rebuttal from one of them, "Indeed he is not a magician who would weave dreams but a magician who unleashes development."

Buoyed by the unprecedented response, BJP leaders called this mass surge as manifestation of an electoral tsunami as the chants of—Har Har Modi—reigned the air again whether his political opponents like it or not. The response that Modi got was no less than the Kumbh. As people take a dip in the Ganges hoping for some divine intervention, the BJP prime ministerial candidate triggered similar sentiments albeit politically.

Added to the euphoria present in the chock-a-block streets of Varanasi was the large electronic media presence that beamed live images across the country. During his road show, Modi stopped at four places to garland the statues of Madan Mohan Malaviya, Sardar Patel, Bhimrao Ambedkar and Swami Vivekanand.

Though the BJP’s organisational machinery under stewardship of Modi’s trusted aide Amit Shah had worked hard, it was in all likelihood, people with no affiliation to any political party that made the event big. This trend might worry AAP convener Arvind Kejriwal and Ajay Rai of the Congress as they are pitted against Modi from the seat. On Wednesday, Kejriwal had put up a good show but he was nowhere close to Modi.

Minutes before he filed his nomination, Modi spoke to the media and tried to establish an emotional connect with the city by invoking mother Ganga. It is true that Ganga is an emotive issue here but with years of neglect there is a great deal of cynicism among the people of tall talks made by leaders on its purification. Modi used to a different pitch to connect.

"When I was made a candidate I thought I was being sent there by the party. But today I realise that I have neither come, nor sent but have been drawn by mother Ganga. I feel like a child who feels elated in a mother’s lap. May the almighty give me strength to do for Ganga what I did for river Sabarmati and proudly put Ganga and Varanasi on world heritage map," he said. Modi also drew a Shaivite connection between his native place Vadnagar in Gujarat and Varanasi. The BJP prime ministerial aspirant also made a politically significant connection between Baroda and Dalit icon Bhimrao Ambedkar. He also said that like the Muslim kite makers in Gujarat, the condition of the silk weavers of Varanasi can be improved through branding and globalised marketing. A connect between Buddhist Sarnath and Vadnagar was also drawn.

Modi’s strategists chosen four individuals to propose his nomination so that they could display broader social spectrum of Kashi’s cultural tradition – first by the grandson of Pandit Madan Mohan Malaviya, founder of famed Banaras Hindu University Justice (Retd) Giridhar Malaviya; second by musician Dhanulal Mishra, third by a boatman community member Veerbhadra Nidhad and fourth by a weaver Ashok.

The choice of 24 April was guided more by strategic reasons than by astrological formations. It was last date of filing nominations for 12 May, the last phase of polling. By doing it today he will be accountable to Election Commission for his expenditure for less number of days and thus he would keep it to the minimum. Moreover, the date coincided with the sixth phase of polling for 117 candidates in 12 states including those in Uttar Pradesh, Bihar, Madhya Pradesh, Chhatisgarh, Mumbai, Rajasthan and other places.

Modi, India’s Reagan?

It is too early to compare the BJP's prime ministerial candidate, Narendra Modi, with former U.S. President Ronald Reagan, though the situation in India has parallels with the U.S. of the 1980s, in terms of low economic growth, high unemployment and high fiscal deficit. If the BJP forms a government under Mr. Modi’s leadership, it should propose a sound policy concentrating more on improving our economic status globally, increasing employment opportunities, improving levels of productivity, allowing FDI and investing more in developing technology. Ronald Reagan followed a free market policy and supply side economics, which made the U.S. a strong power in the global economy.

Nishanth Potharlanka,

Hyderabad

David B. Cohen’s unbiased picture of Mr. Modi (“Is India about to elect its Reagan?” April 21) is the first time I have read such an article in the mainstream media without the Modi-bashing. Opponents of Mr. Modi should now realise that they cannot continue to spew false propaganda against him. His elevation as Prime Minister, which is sure to happen in May, will take India to new heights.

Ashutosh Shukla,

Gurgaon

The article was a surprise, and was a correct assessment of the state of the nation.

Bellie Jayaprakash,

Coonoor, Nilgiris

The article represented a balanced western view on Indian politics with a particular focus on Mr. Modi. Mr. Cohen’s views on “secularism” and “religious extremism” as portrayed in Indian politics are definitely an eye-opener. In India, secularism, unfortunately, refers to an anti-Hindu stance and communalism to a pro-Hindu stance.

B. Vadhirajan,

Bangalore

Comparisons of Reagonomics and Modinomics — especially as an outsider’s perspective of the general election — with more positives on Mr. Modi instead of the usual rhetoric using the “communal” angle, are a breath of fresh air. The article shows that the international media need to focus more on the economic agenda and project India in a different light, than resort to the tired and old phraseology of communalism and secularism in circulation in the media.

Harshil Deepak Ayyadurai,

Chennai

Mr. Cohen’s view of “cultural elitism” being the reason for the opposition to Mr. Modi betrays his superficial understanding of the Indian polity and its nuances. Mr. Modi was at the helm of affairs in Gujarat in 2002.

Mr. Modi, the BJP and its allies including the VHP, the RSS and the Bajrang Dal, stand for a form of religious extremism that is an anathema to Hinduism. His past life in politics is of no consequence; it is what he did after coming to power that matters. Let me quote Abraham Lincoln: “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.” Does this strike a chord in Mr. Cohen?

Sikander Khan,

New Delhi

The writer needs to revisit the dictionary and look for the word “communal.” He is deluded if he thinks that not supporting Mr. Modi is a sign of cultural elitism rather than a simple distaste for extremism and hate politics. Also, since when has Mr. Modi been against cronyism? His becoming the Prime Minister will only bring in a new form of crony capitalism.

Divya Thomas,

Chennai

Mr. Cohen has branded all criticism of Mr. Modi as coming from political opponents, ignoring the huge cry of injustice from the Muslim community as well as many social and human rights organisations. He ignores Mr. Modi’s actions, statements and the conviction of his Ministers in riot cases, and, more importantly, the BJP’s open RSS ties and the Hindutva agendas. A lack of evidence in court proceedings does not change the truth which the world took note of, keeping in mind the inefficiencies and malpractices of the police and judicial system in India. Also, there was continuous growth in Gujarat even before Mr. Modi took over the reins of power.

Azhar S. Saiyed,

New Delhi

Mr. Modi, a right-wing Hindu nationalist leader, will not able to come to grips with ruling a country like India with a vast majority of its population being multi-religious, multilingual, multi-ethnic and multicultural. This has been proved by his failure as the Chief Minister of Gujarat in protecting the lives of thousands of innocent Muslims even though we have no proof to clearly state that the Gujarat government precipitated the violence against the minorities through its inaction.

The article by David Cohen once again proves that the forces behind globalisation consider Mr. Modi to be their champion whom they can use to mint profits through favourable policies, which they expect to be framed by him once he comes to power in Delhi.