The strong mandate in the recently held state elections has given further leeway to economic reform expectations, while aiding psychological advantage to the government. Hence, there's increasing anticipation from the Centre to pursue bold economic reform policies, including land and labour reforms, and the remaining work on goods and services tax (GST), as India's new monetary policy regime remains focused on controlling inflation and bolstering economic growth.

The Government is also actively pursuing reforms in the banking sector including bad loan resolution and privatisation of state-owned banks for accelerating growth. The government is anticipated to pursue policies that focus on employment generation and inclusive growth, including programmes related to the agriculture sector such as Jan-Dhan, Mudra Yojna, crop insurance schemes and others. The economic reforms are also expected in sectors like micro, small and medium enterprises (MSME) for 'Make in India' initiative, affordable housing for improving living standards, and MNREGS for rural infrastructure.

Land & Labour Reforms May See Daylight

The land and labour reform policies have been a subject of highly sensitive expanses, but substantially imperative for inclusive economic growth and development of the country. Making land available to industries and simplifying labour laws, particularly for companies and business, that bring in large capital to the country for setting up factories and shops is the highest priority of the government, as it sets the ball rolling for the 'Make in India' initiative.

The government is soon expected to move ahead with land reforms that involve contentious issues like sale of agricultural land to industry, compensation to land owners, rehabilitation of displaced people, and others. The government earlier had some reservations due to the hullabaloo surrounding land reforms; however, the government will be encouraged to fast-track reform policies after the recent mandate.

The Centre is also expected to move forward with long-pending labour reforms on wages and industrial relations. The Labour Ministry had earlier proposed boiling down 44 industrial laws into four codes, and simplify employment rules and raising social security benefits for workers. However, resistance from trade unions, and some unbending parties have stalled policy reforms; nevertheless, the centre is expected to stand its ground on labour reforms.

Banking Sector Gets a New Lease of Life!

The government is expected to clean up state-owned banks burdened with non-performing loans to enhance private sector investments. However, writing-off any non-performing loans may become an antagonistic policy decision, while the government is anticipated to take tough banking reform policies to tackle the rising problem of bad loans. The Centre may also consider expediting its action on strategic sale of public sector units (PSUs), including state-owned banks to make them more efficient.

The President, Pranab Mukherjee has recently approved the ordinance on non-performing assets (NPA); this will provide greater powers to the Reserve Bank of India (RBI) for tackling mounting bad loans. The union cabinet had earlier approved promulgation of an ordinance to amend the banking regulation act for resolution of the non-performing asset (NPA) crisis. The amendment is expected to reduce stressed assets in the banking system, which is currently estimated around Rs. 9.64 trillion, this will also release significant capital to productive sectors of the economy, including infrastructure.

Economic Reforms to Receive Impetus for Accelerated Growth

The government is weighing the option of allowing foreign retailers to open their stores for selling 'Made in India' products, as the Centre looks to relax norms for multi-brand retail for attracting investments and generating more jobs. However, the Foreign Direct Investment (FDI) policy also imposes several conditions for foreign players, such as mandatory sourcing of goods from MSMEs and a certain percentage of investment in back-end infrastructure. In addition, a proposal of allowing 100 percent FDI through automatic route in single brand retail is also under consideration, with a view of attracting more international players.

Foreign investments are considered crucial for India, which needs around $1 trillion for overhauling its infrastructure, including airports, highways, and ports to boost economic growth. A strong flow of foreign investments will help to improve the country's balance of payments situation and strengthen the rupee against other global currencies, especially the US dollar, thereby aiding the much needed stability to the economy.

Though, contrary to popular belief, the recent people's mandate diminishes the probabilities of the government becoming more populist in the immediate term. However, there would be further increase in rural and infrastructure spending in fiscal year 2018-19. In addition, the government is expected to focus on 'ease of doing business' which will create favourable conditions for more competition in the economy, with relaxed entry of new players.

Investors Finds New Confidence in Modi Government

Global investors are finding comfort in the government's conscious decision to remain committed to fiscal consolidation agenda, despite various opposing challenges, which has been very encouraging. India is currently considered as a relatively promising and rewarding investment destination, when compared to other emerging market economies. The recent people's mandate has been reassuring for global investors, as this bring along both political and policy certainty.

Indian economy is expected to achieve higher growth rate this year, than what it did during last fiscal year. The GDP in the current fiscal year should be more than what has been projected by Central Statistics Office (CSO) at 7.1 percent. This should prognosticate well for the Indian economy and investment climate going forward. The people's mandate was an endorsement for the government's bold initiative, which has been taken on the economic policy front, including demonetisation. One can expect big-bang reforms going forward, while long-term benefits of improved tax compliance, greater transparency, superior governance, deregulation, and digitisation, are expected to drive Indian economy to the next growth trajectory.


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