– Arun Puri
Prime Minister Narendra Modi has started working with the new 72-member cabinet in his own unique style. Nine out of the 24 allies of the National Democratic Alliance (NDA) have got a place in it. Even though he did not get the expected mandate, Modi showed his political strength by keeping all the important departments for his party.
The message was clear: majority or no majority, he would run the government his way. The selection of key ministers signalled continuity. There has been a lull in policymaking since the model code of conduct came into effect on March 16, so there is a sense of urgency. Before the general election, Modi had drawn up a 125-day agenda, which may have to be revised in light of the reduced mandate.
Of course, in his last two terms, Modi aggressively tried to meet the basic needs of the majority of Indians—food, drinking water, sanitation, housing, cooking gas. And, if you exclude the Covid years, the economy grew at a reasonable rate.
He has other great achievements to his credit, such as fiscal prudence, cleaning up the banking system, popularising digital payments and investing heavily in infrastructure. But the new government will have to introspect on the key points that deprived it of an absolute majority. Along with this, it will have to take care of a much stronger opposition.
Soon all eyes will be on the full Union Budget in July. Nirmala Sitharaman is back in charge as finance minister. She should focus on the two most important issues of the election campaign: jobs and inflation. Linked to this is the severe rural crisis. So it is not surprising that the BJP’s rural seats have fallen by 25 per cent. This is a systemic problem.
Agriculture contributes less than 15 percent of GDP, but is estimated to employ 44 percent of the working population and support about 70 percent of rural households. Manufacturing, which should provide many of the jobs in the future,
It still accounts for only 17 per cent of GDP and employs 12 per cent of the population. No government has been able to shift the agricultural labourers, whose productive capacities are rarely utilised, to other gainful employment for decades. Statistics have been done on the unemployment rate, but the magic of statistics cannot hide the desperation of the youth seeking jobs.
A recent study, co-authored by the International Labour Organisation, may serve as a marker: it puts unemployment at 29.1 per cent among graduates and, even more worryingly, one-third of young Indians are neither in a job nor in education or training!
Professor Arvind Panagariya, who was recently appointed as the chairman of the Finance Commission, described the problem of India very well in one of his lectures. He says that the problem is of smallness. Our agricultural holdings are very small. Holdings smaller than 2 hectares account for 86 percent of all holdings. These are not suitable for expanding themselves through mechanization and are extremely unproductive. This is where the agricultural laws that went off track could have helped.
The new agriculture minister, Shivraj Singh Chouhan, has led Madhya Pradesh to agricultural growth rates twice the national average over the past decade. He may formulate a new policy. Prof Panagariya also points out that more than 76 per cent of people live in settlements with a population of less than 5,000. This makes the delivery of basic amenities far more complex. India must urbanise more, but it must also fix crumbling cities with better urban planning.
Another area of smallness is business enterprises. About 72 per cent of the workforce in industry and services is employed in enterprises with fewer than 10 employees, while only 18 per cent are employed in enterprises with 20 or more employees. Medium and large enterprises in China employ 75 per cent of the manufacturing workforce, while India employs only 16 per cent.
There should be a rescue plan for our 6.3 crore MSMEs so that they can provide productive jobs. A sector-specific thrust can move things forward on many fronts: for example, textiles, pharma and food processing can provide employment.
The services sector is the best news for the Indian economy. It is the fastest recovering sector after the pandemic and is growing at a rate of over 8 per cent, with its exports increasing from $325.3 billion in FY23 to $339.6 billion in FY24.
The biggest failure in services is inbound foreign tourism. For comparison, last year before the pandemic, India had less than 18 million international tourists, while Thailand (less than a sixth of our size) had nearly 40 million. We earned $30.06 billion from foreign tourists, Thailand $64.37 billion. With our natural heritage, the potential is enormous. This sector must be emphasized.
But boosting manufacturing will be essential. Here, despite the government’s efforts on the ease of doing business front, foreign direct investment (FDI) has been on a downward slide. In 2022-23, FDI inflows fell to $71.4 billion from $84.8 billion in the previous year, a drop of 16 per cent. In 2023-24, it remained stable at $70.9 billion. The fall in merchandise exports—from $451 billion in FY23 to $437 billion in FY24—reflects the crisis.
This week we laid out the full agenda for Modi 3.0, from box-ticking between ministries, tough decisions in areas such as labour reform, to the need to maintain its position in foreign policy and trade agreements, achieving education goals so that the youth can be ‘future ready’, revisiting Agniveer. Modi 3.0 will also have to continue his reform agenda, especially disinvesting from white elephants in the public sector, and continuing to build infrastructure.
Governing a democracy like India is the most challenging job in the world, reforming it is even more challenging. PM Modi loves challenges. Well, he has given himself a mighty challenge.
– Aroon Purie, Editor-in-Chief and Chairman (India Today Group)