Tackling the economic challenges before Modi government 2.0

Tackling the economic challenges before Modi government 2.0

Swaniti Initiative | June 10, 2019 | The Swaniti Blog

As a new government is voted back in power, there begins a transient shift in the Indian economy, growing in size, scale and inclusiveness for the next five years. In a time like it is imperative that the new government focuses its attention on some major themes with continued effort to strengthen the solutions at the grassroot level.

While the elections this year were not fought on economic issues, there is no dearth of advice on how to revive the economy and kick-start investments. To further enable advice givers, the government has its task cut out: Unemployment is at a 45-year high; acute agrarian distress is translating into high numbers of farmer suicides; India’s textile industry has already put out a list of demands for the government, even before its new term had started and a skyrocketing outstanding debt. Joining the flock, here I offer some focus points that the government can start working on immediately as it resumes office.

Create more inclusive and high paying jobs at the rural level

Irudayam | Flickr

As a trend, over the past decade, we have observed that while the government has initiated several employment generation programs, only certain kinds of jobs are created in the rural context and most often, they are low paying gigs. This clearly has to change if we want a solution to our employment problem. It is time the government help support job opportunities that are outside the purview of the traditional NREGA or PMEGP employment opportunities. So, here’s what can be done:  

  • Promote less contractual and more regular salaried jobs at the rural level by setting up less capital intensive and more skill-based opportunities.
  • Help in the creation of more number of jobs in agriculture and allied sectors, with emphasis to horticulture and dairy industry.
  • Establish more green-zone employment in the isolated zones of North Eastern Regions (NER) and hilly regions.
  • Provide opportunities for the rural workforce in the communication and telecom manufacturing industry while setting up more smartphone assembling units at the district level.
  • Modernise the existing postal infrastructure systems in India to create more opportunities at the village level. Set up modern parcel delivery system at the rural level to increase recruitment under D/o Post.

Initiate labour reforms

Wim Dussel | Flickr

The Indian workforce are growing in size and there are constant new editions to the working class as a greater number of aspirational youngsters join the labour market. In such a situation old archaic labour laws needs to be reformed immediately. The economy of the 21st century in India needs flexible and simpler labour laws that promotes greater number of people to join the labour market than drop out voluntarily. Some of the policy changes required are:

  • Fast track the process of consolidating the  44 labour laws into four codes – industrial relations, wages, social security, and occupational safety, health and working conditions.
  • Strengthen the programmes that focus on Social Security Protection for workers including informally engaged workers.  
  • Push for greater focus towards skilling, up-skilling and re-skilling.
  • Establish the National Social Protection Floor for each of the States.
  • Implement the Uniform Wages Code for the various States such that there is no discrepancy on wages.
  • Draft the National Occupational Safety Policy.
  • Implement stricter working and award of contracts for labours such that there is greater push towards formalisation. Establish e-courts and special fast track centres for Enforcements of contracts.

Resolve the existing Government Debt and Payables

The GoI has to take serious attention to the current outstanding debt that some of the Govt. owned PSUs and sectors face. If we look at the stalling rates of major infrastructure projects, it is observed that stalling rates have majorly affected the private sector more. If we look at a sector wise breakup, then projects with Ministry of Power and Manufacturing owe up the highest number of dues in private sector project. This trend has affected announcements of new projects in these sectors. Hence, some of the immediate steps can be taken are:

  • Identify the sectors that have the maximum debts and take steps immediately to resolve them.
  • Pay special attention on the Communications and Power Sector.
  • Resolve faith back with the private organisations.
  • Extend special loans to resolve some of these dues immediately like in the fertilizer, food and sugarcane industry.

Revive the Textile and cotton industries of India


The Textile and cotton yarns of India have been facing the hit of slow growth and job loss since the last couple of years. Even with the 2016- textile package boost, the industry is still not able to recover for the losses.  Additionally, countries like Vietnam and Bangladesh are now enjoying preferential duty rates and other benefits (FTA advantage) in major apparel import markets putting India at a loss. The loss of export competitiveness in the global trade market has also made the textile industry face the effects of reverse FDI, where major investors are shifting to the other competitive neighbours than investing in India. Among all the priorities that the government has, revamping the textile industry must be at the top of the list. The following steps can be undertaken :

  • Wage support for employment of new employees for specific duration on reimbursement basis. This can be a part of a stricter implementation on the terms of labour reforms under the Export Package given to the textile industry in 2016.
  • Relaxation of regulations to increase the coverage of credit to small borrowers and make them compete in the export market. Incentives in terms of power subsidies to looms and spinning mills that have registered workforce of more than 100 labours can help.
  • Remission or drawback of import charges in excess of those levied on imported inputs that are consumed in the production of the exported produce.
  • Developing more number of fabric processing facilities ( power loom) with advance training centres. Upgradation of power looms- tie up of MOUs with countries like Vietnam and Bangladesh can be undertaken.
  • Tapping for duty-free access for Indian apparel exporters to the EU zone like Vietnam and Bangladesh.
  • Mapping of sick textile units and then converging them into one headed by the Government. Newer bail out packages for the non-functional units by the State Government can be considered.  
  • Setting up a South Asia Textile Improvement Bank, specifically created to work with WTO and other international bodies to promote textile trade between within South Asian Countries

Provide smart credit options for MSMEs/SMEs and increase formalisation


As we know that the major bulk of MSMEs and SMEs in India remain unregistered and suffer from consequences of informalisation. In such a state these units are unable to receive government benefits and remain in a low productivity zone. Plus, with the advent of fierce competition, such units are unable to increase in value and volume and in many cases unable to repay existing loans.  Thus, to strengthen the backbone of MSMEs and SMEs the following steps should be taken:

  • Minimum credit guarantee to be given for new units who get registered
  • Government to bear the cost of modernisation (new technologies) for the registered units in the first 3 years of operation
  • Government to procure 50 % of all the goods at market rate- produced by the new SMEs, in the first two years of operation
  • Compulsory ZED licensing for all the operational units and rate the units on lean management score
  • Logistical/ Cargo support to the units for transportation of furnished goods
  • Setting up for fast track regulatory disbursal offices at every district to process regulatory concerns/ and give legal support in finances etc for the MSMEs, SMEs
  • Government to facilitate merger of smaller SMEs and create a consortium of operation following the Vietnam Model
  • SMART card for the manufacturers to avail easy loan like the KCC operations

Maintain the Fiscal Management Path

The government has been performing well on the targets of the fiscal management, but the States need to take better leads on fiscal prudence. Some of the steps that can be taken are:

  • Track public expenditure by introducing a fiscal management index for all the State Governments
  • Evaluate the performance of various Central Sector Schemes and Centrally Sponsored Schemes based on their fiscal readiness
  • Track the most fiscally non-prudent programmes- sector wise
  • Regulate the Fiscal Responsibility and Budget Management Act for better results
  • Maintain a minimum limit on the cash transfer programs of the Govt like the ones of PM Kisan etc