Fixing India’s Economy: Can BJP Break the Cycle?

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Macroeconomics, Public Policy

India’s new Prime Minister, Narendra Modi, and his BJP party conducted the most sophisticated and dynamic election campaign seen in India since independence, and many are hoping his tenure as prime minister will be equally impressive.

In reality, of course, it is one thing to fight for power it is another entirely to be able to use it. The new administration has arguably hit the ground running and although one recent blog commented that the new Finance Minister Arun Jaitley’s first budget, hastily coddled together in the first two months of power, could have been delivered in ten minutes rather than the two hours he rambled on for, the fact remains it contained many encouraging pointers for the future.

Govindraj Ethiraj founder and editor of data journalism site IndiaSpend.com and BoomNews succintly summarized the stated aims of the new government’s programs as follows:

  1. The problem of black money must be fully addressed.
  2. Bold steps are required to enhance economic activities & spur growth in the economy.
  3. A stable and predictable taxation regime, which will be investor friendly and spur growth.
  4. Setting up an expenditure management commission to look into expenditure reforms.
  5. Wage employment with more productive asset creation with a link to agriculture is required
  6. National program to tackle malnutrition to be put in place within six months.
  7. Simplification of norms to facilitate education loans for higher studies.
  8. Technology-driven second green revolution with focus on higher productivity. This will include “protein revolution.”
  9. Nationwide “District-level Incubation & Accelerator Program” for incubation of new ideas and necessary support for accelerating entrepreneurship.
  10. Roads and infrastructure need a huge amount of investment and the process of clearances need to be simplified.

If the job of government is to protect its citizens, or at least to create the circumstances where they can protect themselves, then the issue of malnutrition is nowhere more urgent than in India. Almost half of India’s children under 5 are malnourished according to Ethiraj. More depressingly he goes on to say, one in three of the world’s malnourished children are in India. The situation is improving, India is headed for a figure of 33% malnourished children by 2015, from its current 44%, but the target under the UN Millennium Development Goals (MDG) was 26%. It’s not just missing the target, but India fares very poorly when compared to the other BRICS nations (Brazil, Russia, China, South Africa). The corresponding figure for China is 3% and Brazil is 2%.

Arguably, India has the means to do so much more but has in the past squandered the resources to do so. Black money in India is a major problem. Aside from the probability some of exists because of backhanders and bribes, another source of it is earned in cash transactions where no tax is paid.

As Ethiraj points out, India has a very low tax base—less than 3% of the population files tax returns. Worse, filers don’t mean payers. Less than 43,000 individuals in India show an annual income of over Rs1 crore ($166,000), less than the price of a two-bedroom apartment in the distant suburbs of Mumbai. This has echoes of Greece about it. If the government were really able fix the problem of black money, then the economy would benefit immensely as would the average citizen, by way of services delivered and investment the government would have the funds to make.

So many challenges and, of course, the BJP isn’t the first to identify them and say they intend to do something about it, but more so than any government before them, their fellow countrymen and the wider global community is watching BJP and Modi closely. this government has the look of an administration that may actually make some progress.

Read more from Stuart Burns.

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