Time to go full-tilt on reforms

Economists are both surprised and delighted at the clear mandate for the Congress-led ruling United Progressive Alliance (UPA) because it means the government can afford to ignore the Left parties and go ahead with economic reforms.

Economists said ‘stability’ and ‘continuity’ are the gains of this election because the Congress does not have to do much to rustle up a simple majority.

Rajiv Kumar, director and chief executive at Delhi-based Indian Council for Research on International Relations, said the fact that there will be stability and no fragmentation of seats will help push reforms.

“Also, this time the Congress won’t be haunted by the Left. There will be more reforms. I think the government needs to focus on structural reforms and investments at the ground level to improve the supply side, public goods and services,” he said.

The Left parties, which had the major say in the last Parliament because of their 59 elected members, have seen their seats halved this time.

Bibek Debroy, research professor at the Centre for Policy Research, said, with the Left out of the picture, the ball is in the Prime Minister’s court.

“Reforms have been held back for the last five years. But the government could argue that with economy chugging along at 8.5% growth why disrupt the growth, but now, with the growth down to 6%, it is important to revive growth,” he said.

On the macroeconomic front, economists say there is no need for more ‘stimulation’ but the government must concentrate on implementing the already-announced schemes well.
Dharmakirti Joshi, principal economist at Crisil, said a slowing economy, global turmoil and shrinking exports, together with job losses, pose challenges for the government.

“The Reserve Bank of India and the finance ministry have announced stimulus measures, but if you look at the recent IIP numbers, they do not seem to have made much of an impact. The government should focus on carrying out the plans already announced...,” he said.

Joshi wants the government to set a clear fiscal strategy for the next 3-4 years on how it will deal with the excess spending already announced.

However, though there is no need for more spending, economists say the government may be obliged to announce more schemes, or increase funds for existing ones, as a ‘thank you’ for the people.

“The Congress manifesto lays stress on physical and social infrastructure. The Planning Commission has also talked about further stimulus.. So there may be further spending planned, which will be pressure the fiscal situation in the short term,” said an economist from a private bank.

Anubhuti Sahay, associate economist at Standard Chartered, expects the government to increase allocation to its flagship National Rural Employment Guarantee Scheme (NREGS). “I expect financial sector reforms to pick up speed, especially in the insurance and pensions sector,” she said.

Though the new government will definitely do something on divestment, it is not likely to be in a hurry. It will wait for the market sentiment to improve for the right value, economists said.