Now, back to business

Overwhelming mandate presents Modi with an opportunity to tackle bad debts in state-owned banks

Prime Minister Narendra Modi’s stunning performance in the recent Assembly elections puts him in the sweet spot to pursue economic and administrative reforms that can substantively boost investments and jobs, his core poll promise since 2014. Several of these reforms are low-hanging fruit, and others may be tougher and demand a longer term agenda. Both varieties are, however, within the realm of possibility in the afterglow of the Bharatiya Janata Party’s (BJP’s) huge popular mandate in India’s most populous state Uttar Pradesh and the fact that it now controls more than half the country’s state legislatures, on its own or through alliances. 

Among the critical agenda items in the first category is a policy that does away with the absurd distinctions between “single brand” and “multi-brand” retailing and the niggling conditions like local sourcing attached to foreign direct investment (FDI) in the sector. A 2015 Budget statement to allow FDI in food retailing is yet to take concrete policy shape. Over 2015 and 2016, the government made headway by setting out rules for e-commerce, allowing for 100 per cent FDI, but this, too, was hedged by restrictions that are unlikely to make this policy a game changer. The government’s cautious progress on retail was partly on account of its hesitation to alienate the trader and middleman communities, hitherto a large and powerful support base for the BJP. 

The election results have shown that the gamble with demonetisation has ensured that any diminution of support from this lobby has been balanced by approval from the poor, who absorbed Mr Modi’s message of a blow against the rich. The transformative nature of a liberalised, comprehensive retail policy can scarcely be overstated, not just in terms of the explosion of demand for supply chain infrastructure with all its concomitant efficiencies for consumers but also in the potential to enhance agricultural incomes by directly linking farm to fork. And it is in the countryside that the potential to create jobs is larger than in the manufacturing sector, where corporations increasingly turn to automation to maximise margins. 

The government has been working to improve India’s rankings in the World Bank’s “Doing Business” indicators. Mr Modi can go well beyond these limited metrics to tackle the critical issues that will offer domestic and international investors genuine confidence in the security and enforcement of contracts. This will involve addressing the vexed issue of reform in the police and judiciary, two institutions that scarcely inspire confidence in India, least of all in Uttar Pradesh. Granted, the pushback from these two power players will be formidable. But the power of a popular mandate suggests that even modest progress here will reap big gains for India. On agriculture-related reforms, the government will do well to revisit the Shanta Kumar Committee report on a range of issues relating to procurement, storage and distribution of grain. The committee also recommended the way to go for restructuring the Food Corporation of India, which is plagued by functional and cost inefficiencies. 

Mr Modi’s overwhelming mandate also presents him with an invaluable opportunity to tackle the deep-rooted problem of bad debts in state-owned banks by taking tough steps of write-downs and sell-offs, thus, kick-starting the lending cycle for industry. The job creation from this alone ought to nullify the “suit-boot ki sarkar” jibes.