There has been an economic turnaround, as the latest data from the Central Statistics Office suggest. The economy grew at 5.7 per cent in the first quarter of the fiscal in which Narendra Modi came to power. It is the first time in two years that the growth rate has crossed the five-per cent-mark. True, Modi cannot claim full credit for the achievement, as he came into the picture only in the middle of the quarter that began in April. Nonetheless, some of his decisions, like quickening the process of decision-making and raising the cap on foreign direct investment in sectors like defence and insurance, certainly played a major role.
The next quarter, beginning July, will reflect better the effect of Modi’s policies. The present upswing is attributed mainly to the improvement in the manufacturing sector, which expanded at 3.5 per cent, compared to a fall of 1.2 per cent in the same quarter last year. There is no place for complacency if the government has to push the growth rate to a double-digit level. The high rate of interest for consumers and investors and the delay in introducing labour reforms are worrisome. Curtailment of government expenditure is key to economic growth. This is one area that has not received Modi’s attention so far.
An economic growth-friendly prime minister like Modi knows only too well that his slogan of “minimum government, maximum governance” will come true only if the government is drastically downsized. Proposals for foreign and domestic investment that are held up at various stages need to be cleared, the sooner the better. Also, there is a strong case for further economic reforms to free the government from the bother of running loss-making public sector companies and providing services, for which the private sector is more competent. In other words, the role of the government should be that of a regulator and facilitator, rather than a service-provider. Once these basics are taken care of, economic prosperity won’t be unattainable for the people of the third largest economy in Asia.