As Modi gets battle ready, here are some of the major challenges ahead

By: Pathikrit
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The challenges before PM Narendra Modi
With a decisive mandate firmly beside him and a hard earned as well as unquestioned authority over the affairs of the new Government, India's new Prime Minister Narendra Modi now embarks on a challenging journey to resurrect a moribund economy and a nation besieged with several security issues.

As stated emphatically during his extremely moving and emotional speech at the Central Hall of the Parliament, Modi made it clear that it is time to keep aside the pessimism of the past and move forward with optimism. He emphasised that the mandate that the people of India has given to NDA is one of hope and thus the responsibility of the party and the government thus goes up manifold.

While Modi embarks on the new journey, the decisive mandate in his favour would surely give him enough leverage to take some extremely tough but necessary decisions, some of which might not be popular with the people in the short run. Yet, given the predicament of the economy vis-a-vis the huge expectation of people riding on the Modi wave, priorities are now cut out for the new Prime Minister of India.

Resurrect the Economy- Increase growth rate and reduce inflation

Modi's biggest challenge in the immediate future and the one on which most of the people would have an eye on, would be the economy reeling under severe stagflation, a situation where the problems of a stagnating economy with extremely low rate of economic growth is compounded further with the presence of extremely high rate of inflation.

In case of India, the inflation that the economy is witnessing is primarily because of two reasons. In the first place, the inflation is predominantly food inflation due to severe distortions and inefficiencies present in the supply chain of India's agriculture sector plagued with a huge number of middlemen in between. On one hand while agricultural reforms is a must, it is also imperative that the entire food grain procurement policy is given a makeover.

It simply does not make any sense to have millions of tons of food grain rotting in the Food Corporation of India godowns while prices of food grain keep soaring. Modi had already during election made it clear to restructure the Food Corporation of India to reduce the high level of wastage of food grain in India.

India's agriculture needs massive investment and more participation from the private sector for which a new wave of policy initiatives is needed. Modi had also in the past mentioned about creating a real time database of agricultural commodities, an initiative that may help in better commodity management and decision making on issues of what agricultural commodity to export and what not to export.

Manage fuel prices more judiciously

Further, checking inflation would also require managing the fuel price as well as the price of LPG cylinders, a very sensitive issue for the middle class of India. With the middle class in huge numbers having voted for NDA, a popular expectation would surely be reduction in the price of petrol, diesel as well as LPG cylinders, an expectation which would not be too easy to fulfil given the unpredictable nature of the international oil price and India's huge import bill.

Subsidising fuel price has reached unsustainable levels and some strong decisions are needed to contain it even while not increasing the price, something that can only be done if the tax constituent in the fuel price is brought down without reducing the revenue part of the oil companies.

India has one of the highest levels of taxes on fuel in the world, which can only be brought down if the government's overall expenditure is brought down. Modi's already mentioned about his intention to have less of government and more of governance, which ideally should also include in its realms pruning of India's gigantic bureaucracy and merging several ministries into one. For example, Steel and as well as ministries like Textile Ministry should all be merged into Ministry of Industry.

Increase FDI flow and Investor Confidence

While the news of NDA victory have already soared the level of investor optimism and have resulted in the appreciation of the rupee, it has to be ably complimented with institutionalised and systematic policy initiatives for creating a seamless and conducive investment climate which would not only result in more investments, inflow of FDI, more appreciation of rupee but would also result in more job creations.

An appreciating rupee is expected to ease the price of fuel and also that of the cost of India's import basket considerably, thereby reducing the overall level of inflation in all the sectors including manufacturing where imported components are a critical constituent. Likewise, there is also a need to reduce the interest rate and make borrowing by the investors more conducive. High levels of interest rates essentially hamper investments and without investments neither jobs can be created nor can supply side issues of inflation be contained.

Contain Fiscal Deficit

Further, there is also a need to take critical steps to cut down India's burgeoning fiscal deficit which is now reaching unsustainable levels. Without containing fiscal deficit, interest rates will not come down. Containing fiscal deficit may require pruning or calibrating some of the populist policies whose end benefit continues to be questionable but have continued to be a major drag on government finances.

Rescue the Power Sector and India's electricity woes

Apart from the issues related to inflation and price of fuel, among other major challenges would be to resurrect India's power sector reeling under issues of high price of coal, unavailability of the same and resultant idle capacity running into more than 20,000 MW.

India's economic future would depend to a great extent on the manner in which issues of power sector of India solved which would have to start with reforms in India's coal sector and doing away with the monopoly of Coal India which has failed horribly in supplying coal in spite of the huge repository of coal that India is endowed with.

India's power sector woes are also related to the contentious gas price issue which this government would have to solve. Much akin to impressive reforms that Modi brought in Gujarat's power sector, there would be much expectation from Modi to bring in the much needed restructuring in India's power sector which not only includes managing the price of coal and other fuel but also reducing the heavy subsidy burden as well as containing the unsustainably high level of transmission and distribution losses in the power sector.

Price rise and terror threats will be among the top challenges for PM Modi

Reforming India's power sector, making every user irrespective of what purpose it is used for, is crucial to making India's power sector vibrant again, which is reeling under issues of huge debt and unpaid bills. A vibrant power sector with modest price of power would be the first key step to jump start the manufacturing sector in India. If India's has to play the catching game with China in manufacturing, it has to start with reforms in the power sector. Seamless supply of power to rural India is also the key to bringing in downstream social development.

Tackle terrorism ruthlessly

Finally, the common man in India would expect Modi to make his life a little more secure. This common man need not be only in major metropolitan cities but may also be from far flung rural places of India's hinterland where the rampage of Maoists continue unabated.

There is a very high level of expectation from Modi Government to take ruthless pre-emptive action against the terror modules of radical extremist and terror groups who have hit India time and again. There is similar expectation from the new Government to take decisive action against Maoists as well as organised crime syndicates.

Such actions would invariably have to happen along with fundamental restructuring of India's internal security architecture which is the need of the day. Police reforms have now become indispensable coupled with the urgent need to integrate central law enforcement agencies for better coordination and integrated action against terror groups. There is also a strong need to work on India's anti-terror laws and bring in a more robust set of laws to increase the rate of convictions.

Modi has both the mandate and the will by his side

While the challenges are manifold, given the huge majority that Modi has in the Lok Sabha and the kind of authority he now commands, it is only perhaps Modi Government who can bring the much needed and much desired changes in the overall level of the economy and security of the nation.

Modi is well aware of challenges and expectations that people large have from him and given his vast experience, expertise and the level of conviction he has, one can expect him to take decisive and bold actions soon enough. Some of those actions may cause heartburn for some in the short term, but in the long run, they would surely act as the much need bitter but indispensable pills needed for the rescue act of the nation's health. While challenges are galore, perhaps no one is better placed than Modi to tackle them. After all, it is for this that he has been given the mandate by people of India.

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