Toughen up

Rather than incremental measures, structural reforms will have to be made

Faster deceleration in economic growth is staring in the face for the Narendra Modi government. Finance minister Arun Jaitley needs to brace up to report around seven per cent growth for this financial year.

These are the possibilities and concerns flagged by the economic survey’s second volume presented by him to the Parliament on Friday, the last day of monsoon session.

The survey authored by chief economic adviser Arvind Subramanian not only conceded that the 7.5 per cent growth projected in February 2017 was next to impossible but also cautioned the government to take course correction measures.

Without the structural reforms suggested in the survey, achieving the over seven per cent growth in the short term seems to be a Herculean task. For instance, the twin problem in bank balance sheets of non-performing assets and re-capitalisation to revive the space for credit off take has been prioritised.

A significant beginning was made in resolving the top 20 corporate credit defaults but this too seems to be losing steam. Cleaning up bank balance sheets may not be an easy task unless, if twists and turns in the default cases are any indication, the NCLT approved process gathers momentum. Moreover, government and the political leadership will have to take a firm call on the size of the haircut state-run banks can live with. Even if the RBI panel makes the recommendation, implementing the corporate loans waiver package, selling this decision to the electorate and facing the opposition would be a huge task for Modi government. Going forward, reviving the banks burdened with mountains of debt without disrupting the formal banking system would be a big challenge.

In parallel, the economic survey has rejected states decision to offer a similar loans waiver or haircut to farmers. Till date, Modi government has resisted the temptation of taking recourse to loan waivers for farmers and insisted that states will have to fend for themselves in case they were to provide succor to agriculture sector. On top of it, economic survey has put the scare into political class that 0.7 per cent GDP would be adversely impacted, if farm loan waivers worth Rs 2.92 lakh crore were to be implemented by states. Centre and states will have to evolve a consensus on both corporate loans and waivers for farmers, if the economy has to be put on á higher growth trajectory.

Yet another area flagged by the economic survey was perking up exports. Well, leveraging the $400 billion worth foreign exchange reserves to make our merchandise and services exports may have to be attempted. Especially in tight global market conditions, restrictive regimes in US, Europe and Great Britain, making a mark through an aggressive push may not be easy. Keeping the Indian rupee range bound and providing incentives to exports will be a way out. For that to happen, trade policy may have to be revisited with incentives thrown in to make a decisive push in identified markets for Indian products and services.

Third key reform flagged by the economic survey was privatising the cash-strapped Air India struggling to stay afloat. Several permutations and combinations are already on the drawing board to save Air India from the ignominy of a complete wash out in its net-worth. A decisive move will have to made to save the erstwhile ‘maharaja’ from extinction. Here again, Air India for long has signified state power, free rides for both babus and politicians, several goodies thrown in for the privileged class at the cost of taxpayer's money. This has to end.

Without limiting itself to some incremental measures, a big push for structural reforms will have to be rolled out if growth is to be resurrected and momentum maintained in medium term. Populism may well be the way Modi may take instead, as he makes his tryst with a second term.