|Article by Kumar Mangalam Birla
Times of India
20 May 2014
Job creation, fiscal consolidation, sustainable development among top challenges for Modi government
Narendra Modi has received an unprecedented mandate for stability, development and good governance. His government backed by a strong majority, must now focus on speed and boldness in decision making. There are great expectations from Modi. The country is impatient to get back to high economic growth and rapid job creation, which in turn needs a revival of investors' faith and optimism. I believe Modi can usher in such a conducive environment in which businesses and livelihoods flourish. Here are five challenges for the new government.
Generating large scale employment and bolstering manufacturing: India needs to create one million new jobs every month for the next ten years. Most of these jobs will be created by the private sector, and by small and medium enterprises. The government needs to veer towards an environment that is conducive to ease of doing business. India must leverage the unique opportunity to become a global low-cost manufacturing hub, given that China's labour force is plateauing, and wages there are rising. Our share of global export of goods and services can be considerably enhanced. India's thrust must be on large scale skill building, through training, vocational schools and on the job apprenticeship. This is an ask.
Fiscal consolidation: More than one third of the government's revenues go toward interest payments alone. The large deficit and borrowing puts upward pressure on interest rates and on inflation as well. So reducing the deficit is a challenge. I believe this can be tackled through a combination of revenue and expenditure measures. The former requires the nationwide rollout of Goods and Services Tax (GST), which will add 1% to the GDP growth rate, and also increase tax collection. The large fuel and fertilizer subsidies should be trimmed, and an alternative method used to directly target and compensate the intended beneficiaries.
Deepening the financial sector: India has a high savings rate but a relatively low financial savings rate. Further, a large section of households and small firms are still financially excluded. Hence, through innovative means using technology and appropriate business models, the reach of financial services like banking, credit, insurance can be vastly expanded. Long-term contractual savings like pensions require a boost. These should also be linked to the capital markets and infrastructure funding.
Boosting productivity in agriculture: High food inflation and stagnant farm yields indicate that we need huge productivity gains in agriculture. This requires technology and knowledge inputs, better water management, crop diversification, rationalizing fertilizer subsidies, removing market distortions, enabling direct contact between farmers and buyers, and reducing supply chain inefficiencies between farm and fork. Not a small task!
Sustainable development: We need to make our GDP growth less intensive in fossil fuels, and more efficient in the use of water. Our energy mix needs an increasing share of renewable energy, like solar and wind. We also need to encourage recycling, conservation and reduction in the use of resources. Our economic development should be such that it does not deteriorate the quality of air, water and forests, and does not deplete the environmental quality. Green development itself has the potential to create thousands of jobs. Building and transportation codes can encourage more "green" practices and jobs.
I believe the government under the leadership of Modi will be equal to the task of meeting these formidable challenges proactively. He and his team have the mandate and they must deliver.
The writer is Chairman, Aditya Birla Group.