On Friday, while a cabinet meeting chaired by Prime Minister Narendra Modi was underway after winning the people's mandate twice, the rupee silently fell by 0.67 per cent inching closer to 70 against the US Dollar and crude oil prices rose by 0.7 per cent. The meeting, therefore, is likely to be centred around the selection of a new finance minister to put the economy back on track.
In the first five year tenure, the Modi government had initiated a number of large-scale economic programmes. Primary among these steps was a hike in government CapEx spend. It had initially helped the economy to support its GDP growth and can probably help again when growth had slowed to 6.6 per cent in the third quarter of 2018, from 7.5 per cent clocked earlier.
Experts, however, said that hiking government spend on large infrastructures may not be enough to tackle the real problem—the lack of consumer demand and savings hurting growth and investments.
"The government can only do much in terms of giving business to some private firms. Unfortunately, this alone cannot turn the tide and reverse the economic slowdown that has set in during the last one year," said Ashok Gulati, eminent economist and professor at Indian Council for Research in International Economic Relations.
"A key focus for the government now has to be about improving the manufacturing sector and taking policy decisions to generate more employment," said Gulati. He warned that any short term fixes could further derail the economy, given the adverse trade environment we are in right now.
"Any move to instill short term demand in the economy would only lead to a rise in inflation," he adds. On the policy front, Gulati sees the government to take up the issue of falling job numbers on priority and start addressing it with improving the business environment for manufacturing units.
The government, too, seems to be concerned over this. "A conducive environment would have to be provided for manufacturers. For this, a number of policies are being discussed and would be taken up one by one," said Subhash Chandra Garg, secretary, department of economic affairs.
According to Garg, the government is now focussed on improving the per capita GDP or the average income per person. The World Bank uses the per capita GDP measure to rank countries on their economic growth. "Efforts would be in the direction to better employment as well as business opportunities for companies in and out of India," Garg said. He said that these measures will be unveiled shortly after the new government takes charge.
Already the economic affairs department has been asked to set out a course of policies that can be introduced during the first 100-day of the new government. "We are consulting other ministries to know about their priorities and areas where their jurisdictions converge. They will all work towards achieving the same goal now," said Garg, indicating that the government could adopt a different approach for policy implementation this time.
The poll rhetoric to declare that the economy is in good health apart, there is a growing consensus among policy-makers, corporate leaders and economists that the economy is actually facing a slowdown and we may well be staring at a crisis. The government would be working overtime in the next few months to change that perception now.
With consumption hit across sectors, a twin balance sheet crisis (bad bank loans and indebted corporate entities) continues even as the Insolvency and Bankruptcy Code (IBC) process is taking its own time and course.
"One of the top priorities now would be to restart the Make in India campaign with a fresh outlook and energy," said a Commerce Ministry official, without wanting to be named. He informs that Suresh Prabhu, the outgoing commerce and industries minister, had delegated two of the ministry think tanks to reinvent the Make in India campaign.
Modi's much-publicised Make in India never took off and domestic manufacturing slowed to its lowest in five years, along with exports. A direct result of this has been that unemployment persists in the informal economy and even the formal organised employment has not picked up to meet expectations of India’s young demographic.
Another priority for the government would be to renew on Narendra Modi's previous term promise to double farmers' income by 2022. Last time the Modi administration tried a number of new measures like the launch of e-mandi (marketplaces) for farmers across many states, hiking MSP of key crops, and announcing a PM Kisan yojana to compensate landed farmers on their input costs.
"This time, the focus is likely to shift back on farmers and protecting their rights over inputs like seeds," said Durga Shakti Nagpal, officer on special duty to the agriculture minister Radha Mohan Singh, who joined the ministry in January this year. "Farm credit would also have to be streamlined and some proposals on this have already been shared with the finance ministry," said the young IAS officer from Uttar Pradesh.
This time, another unfinished business of streamlining tax revenues would also have to be taken up by the government. Still, there are issues with GST and many units have simply shut down, unable to cope with it. "The MSME sector had never fully recovered after demonetisation and GST. Now is the time for Prime Minister Narendra Modi to return the favour of bestowing our faith on him," said Anil Bhardwaj, secretary general, Federation of Indian Small and Medium Enterprise (FISME).
Meanwhile, Jet Airways employees have also petitioned that the new government do something to address the plight of more than 16,000 employees of the troubled airline very soon. A task that, finance ministry officials say, has been made the top priority for nationalised banks in the new term of the Modi government.