Narendra Modi government has been elected for the second time in a row with a massive mandate. No government has enjoyed such a mandate since 1984. This lends the government the political capital to create a “New India” promised by Prime Minister Narendra Modi. In the next five years, however, the government needs to take several steps to realise the mission. Rajiv Singh, CEO - Stock Broking, Karvy, says the aim of the government should not only be to ensure growth over the coming years, but to lay the foundation for rapid sustainable growth for the next three decades. Singh shares with Zee Business Online how the government's New India mission can be realised:
Fixed capital formation
Singh says Niti Aayog has identified the first pillar for New India, which is increasing the gross fixed capital formation rate from 29% of GDP to 36% of GDP by FY2022-23 in order to raise GDP growth rate to 8%. To achieve this, savings rate needs to rise, and the Niti Aayog has identified, in Singh's view, improving public finances as the priority area, for which country needs to improve tax base, as well as acquire resources via disinvestment of PSU’s, including outright privatization.
The second growth driver is Agriculture, which employs close to 50% of India’s workforce. Singh says India has the world’s largest arable land and can take leadership by adopting agricultural technology, increase productivity, efficiency and crop diversification, increasing yields, development of food processing industry.
Boosting employment opportunities has also been identified as a driver of growth. Higher employment can boost savings rate, helping push up the rate of gross fixed capital formation, which further boosts employment, creating a “virtuous cycle”, says Singh while suggesting that higher capex spending and infrastructure boost can help move India's workforce from agriculture to manufacturing and service, but some constraints need attention.
Singh says that because of constraints like infrastructure and rigid labour and land laws growth of manufacturing has been held back. "With reforms in labour and land laws, as well as by cutting red tape i.e. improving the Ease of Doing Business, industrial growth can take off. The aim should be to raise industry contribution to GDP to 25%." This can transform India in many ways.
Infrastructure
The second pillar for a 'New India' is Infrastructure development, which is also a key enabler for growth of all sectors in the economy. "If Infrastructure improves, better connectivity can help industrialization of poor landlocked states, which will help address regional inequalities. India has a unique opportunity to address pollution by adopting renewable energy and accelerating adoption of electric vehicles," says Singh.