The Economic Challenges before the Next Indian Government and Some Solutions

Setting the Stage for the Next Indian Government

Now that the elections are underway, it is time to review and reflect on the challenges for whoever forms the next government in India.

Of special note are the economy and the promise of perils of various problems such as joblessness, farm distress, and lacklustre exports.

Indeed, if not anything, there are huge and seemingly insurmountable challenges as far as unemployment is concerned that some economists warn that unless drastic measures are taken, there would be mass social unrest on a large scale.

While the INC or the Indian National Congress promised a minimum income guarantee or what is known as Universal Basic Income, the BJP or the Bharatiya Janata Party has vowed to accelerate the growth that it claims is now the case with the Indian Economy.

More pertinently, it needs to be mentioned that while the Official Growth Figures do present a rosy picture, the situation on the ground is different and hence, there needs to be more transparency as far as releasing statistics and growth figures for the economy are concerned.

In addition, measures such as Demonetization have to be avoided since they provide nothing but shock value. Apart from this, the GST or the Goods and Services Tax needs to be streamlined and made more effective and efficient.

Why Unemployment Needs Drastic Action

As many experts have pointed out, India’s Demographic Dividend can turn into a Demographic Nightmare is there is not enough job creation happening.

Indeed, the scale and magnitude of the problems of unemployment is such that there has to be drastic action taken to remedy the situation.

For instance, it is no longer enough if the next government accelerates job creation by filling up vacancies in the government and public sector institutions.

On the other hand, it is also not enough to point to loans and skill development for the entrepreneurs and small businesses.

Instead, what is needed is a massive exercise on a war footing that would include kick-starting the Manufacturing sector.

Policies such as Make in India go only that far without corresponding changes to the labour laws.

In other words, hiring and firing of workers has to be rationalized so that the private sector invests in new jobs with the belief that downsizing can happen when downturns occur. In other words, joblessness is so rampant that there is a need for Dramatic Action on this front.

India Cannot Leapfrog the Need for a Manufacturing Renaissance

Talking about the Manufacturing Sector, the Next Indian Government has to keep in mind the fact that India just cannot leapfrog into the Developed Economy Status without a Manufacturing Renaissance.

What this means is that despite the stellar contributions of the Services Sector, unless Manufacturing is revived, the Indian Economy would continue to be in a moribund stage.

Indeed, this is the reason for unemployment as well as the poor export and industrial indicators figures which reveal the extent of the slowdown.

For a country that has been so successful in attracting FDI or Foreign Direct Investment in the Stock Market and the Bond Market, it is surprising how little of that has been in the manufacturing sector.

Therefore, the Next Indian Government must make it a high priority item to attract more investment into the manufacturing sector and not the other sectors alone.

Moreover, there has to be a cautious and measured approach as far as Automation is concerned since it has the potential to disrupt the sector leading to layoffs and redundancies.

This is where the Basic Income Scheme that is being touted can make a difference. On the other hand, there are no substitutes to full speed acceleration of the Manufacturing Sector.

Farm Distress and the Banking Sector

A key aspect or challenge before the Next Indian Government is related to addressing the problems of farm distress that have now become so big that there is a need for systemic changes rather than piecemeal solutions.

At the same time, while it is tempting to revive the agriculture sector through loan waivers and bailouts, it needs to be remembered that unless land reforms and the problems faced by small and marginal farmers are addressed, the agriculture sector would continue to languish.

Moreover, in pursuit of low inflation, the MSP or the Minimum Support Prices have been kept low and this contributes to the crisis in the farm sector.

Talking about Inflation and Monetary Policy, the Next Indian Government should allow the Reserve Bank of India to pursue independent policies instead of arm twisting it and coercing it to raise or lower rates according to the government’s whim.

Moreover, there is an urgent need to address the catastrophic levels of debt that the Private Sector has racked up and the NPAs or the Non Performing Assets held by the Banks.

While the IBA or the Insolvency and Bankruptcy Code are a welcome measure, the execution must match the vision.


Lastly, the Elections are always a triumph of hope over experience, and hence, one has to be circumspect about the expectations from the new government.

Indeed, it is tempting to think that the next government would unleash miracles and at the same time, the euphoria of victory would make them more generous than usual.

Our contention is that the jobs crisis needs these promises of change and the other crises can be handled in a more measured manner.

To conclude, elections are the essence of a democracy and we hope that whoever wins the mandate or loses as well respects this fact.

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