NEW DELHI, April 24 (Reuters): The biggest challenge for India’s next government, due to take charge after election results in May, will be to pull the economy out of its deepest slump in decades.
Thursday was the sixth round of voting, with one recent opinion poll showing that the opposition BJP and its allies may win an outright majority, ousting the Congress-led government.
Here are 10 economic reform challenges that will require urgent attention from the new government:
1) GOODS AND SERVICES TAX (GST):
India’s most ambitious indirect tax reform would replace existing state and central levies with a uniform tax, boosting revenue collection while cutting business transaction costs.
GST, which could boost India’s economy by up to two percentage points, has so far faced resistance from various states. The reforms need broad backing because they require a change in the constitution.
2) RESERVE BANK OF INDIA:
A Reserve Bank of India panel in January proposed key changes including targeting consumer price inflation and making a committee responsible for monetary policy, and not the RBI governor alone. This would require changes to the RBI Act.
3) PRIVATISATION:
A new government is likely to focus on selling its holdings in state-run firms that could raise much-needed revenues to trim India’s ballooning fiscal deficit and boost economic growth. The rising stock market has helped New Delhi raise more than $3 billion via stake sales in the fiscal year to March 31 - but that was only a third of the government’s original target. The government has announced plans to raise 569 billion rupees ($9.3 billion) through asset sales in 2014/15. This could help it achieve its lower fiscal deficit target of 4.1 percent of GDP.
4) SUBSIDIES:
India’s next government would need to examine how it subsidizes basic commodities if it is to contain the fiscal deficit and avoid a ratings downgrade. Total outlays on food, fertilizers and fuel subsidies are expected to reach 2.5 trillion rupees ($40.95 billion) this fiscal year. The Congress party states that it will back only necessary subsidies while the BJP seeks greater fiscal discipline without compromising on the availability of funds for development.
5) LABOUR:
Inflexible labour laws need an overhaul if India is to create the tens of millions of new jobs it needs to become a low-cost manufacturing centre. Companies are hiring more contract workers to circumvent these stringent laws, leading to pay disparities and a lack of job security for the unorganised workforce. The challenge will be to set measures acceptable to employers, workers and trade unions.
6) DEFENCE:
More foreign investment in defence would help India reduce imports, modernise weapons systems and speed up deliveries of hardware it needs for operations and training. India now allows 26 percent foreign ownership in defence, and proposals to exceed that limit are considered only for state-of-the-art technology.
7) INSURANCE:
Attempts to raise the cap on foreign investment in India’s $45 billion insurance sector, to 49 percent from 26 percent, have met resistance from employees at state-controlled insurers and their political backers. A BJP leader said last month the party had held talks with Congress to break the deadlock.
8) BANKING:
The next government will need to help state-run lenders battling rising bad loans caused by the slowing economy, rising interest rates and project delays. The interim budget in February set aside 112 billion Indian rupees ($1.83 billion) to help the sector meet key capital ratios, but analysts say more steps are needed.
9) COAL:
Reforming coal mining would help contain India’s trade deficit and aid the stretched power sector. India has to import the fuel as mining is hobbled by corruption and legal battles. The new government could lease coal blocks to private companies on a contract basis, which would ease legal problems and help boost production in the short-term.
10) POWER:
A BJP-led government may implement the so-called Gujarat model of distributing electricity that has been widely praised for delivering reliable 24-hour power supplies in the state. Narendra Modi, Gujarat’s chief minister and the BJP’s candidate for prime minister, provided different power feeds to farmers, households, and companies instead of a uniform feed.
Thursday was the sixth round of voting, with one recent opinion poll showing that the opposition BJP and its allies may win an outright majority, ousting the Congress-led government.
Here are 10 economic reform challenges that will require urgent attention from the new government:
1) GOODS AND SERVICES TAX (GST):
India’s most ambitious indirect tax reform would replace existing state and central levies with a uniform tax, boosting revenue collection while cutting business transaction costs.
GST, which could boost India’s economy by up to two percentage points, has so far faced resistance from various states. The reforms need broad backing because they require a change in the constitution.
2) RESERVE BANK OF INDIA:
A Reserve Bank of India panel in January proposed key changes including targeting consumer price inflation and making a committee responsible for monetary policy, and not the RBI governor alone. This would require changes to the RBI Act.
3) PRIVATISATION:
A new government is likely to focus on selling its holdings in state-run firms that could raise much-needed revenues to trim India’s ballooning fiscal deficit and boost economic growth. The rising stock market has helped New Delhi raise more than $3 billion via stake sales in the fiscal year to March 31 - but that was only a third of the government’s original target. The government has announced plans to raise 569 billion rupees ($9.3 billion) through asset sales in 2014/15. This could help it achieve its lower fiscal deficit target of 4.1 percent of GDP.
4) SUBSIDIES:
India’s next government would need to examine how it subsidizes basic commodities if it is to contain the fiscal deficit and avoid a ratings downgrade. Total outlays on food, fertilizers and fuel subsidies are expected to reach 2.5 trillion rupees ($40.95 billion) this fiscal year. The Congress party states that it will back only necessary subsidies while the BJP seeks greater fiscal discipline without compromising on the availability of funds for development.
5) LABOUR:
Inflexible labour laws need an overhaul if India is to create the tens of millions of new jobs it needs to become a low-cost manufacturing centre. Companies are hiring more contract workers to circumvent these stringent laws, leading to pay disparities and a lack of job security for the unorganised workforce. The challenge will be to set measures acceptable to employers, workers and trade unions.
6) DEFENCE:
More foreign investment in defence would help India reduce imports, modernise weapons systems and speed up deliveries of hardware it needs for operations and training. India now allows 26 percent foreign ownership in defence, and proposals to exceed that limit are considered only for state-of-the-art technology.
7) INSURANCE:
Attempts to raise the cap on foreign investment in India’s $45 billion insurance sector, to 49 percent from 26 percent, have met resistance from employees at state-controlled insurers and their political backers. A BJP leader said last month the party had held talks with Congress to break the deadlock.
8) BANKING:
The next government will need to help state-run lenders battling rising bad loans caused by the slowing economy, rising interest rates and project delays. The interim budget in February set aside 112 billion Indian rupees ($1.83 billion) to help the sector meet key capital ratios, but analysts say more steps are needed.
9) COAL:
Reforming coal mining would help contain India’s trade deficit and aid the stretched power sector. India has to import the fuel as mining is hobbled by corruption and legal battles. The new government could lease coal blocks to private companies on a contract basis, which would ease legal problems and help boost production in the short-term.
10) POWER:
A BJP-led government may implement the so-called Gujarat model of distributing electricity that has been widely praised for delivering reliable 24-hour power supplies in the state. Narendra Modi, Gujarat’s chief minister and the BJP’s candidate for prime minister, provided different power feeds to farmers, households, and companies instead of a uniform feed.
