Weather uncertainties regarding El Nino may impact crop output, keeping inflation and interest rates under pressure – non-conducive for growth revival. The Rupee stabilized in the second half of FY2013-2014 on the back of record inflows from foreign portfolio investors.
But this money is fickle in nature and can move out if the realization of actual growth gets delayed beyond a few quarters. That might depreciate the Rupee, unless Modi can counter that in record-speed by bringing in foreign direct investments into projects to revive growth.
Managing the fiscal deficit and inflation are critical challenges. The current Finance Minister says the fiscal deficit is now under control, though the attributable reasons include cutting public expenditure, rolling over of subsidies to the next year and forced dividends from public sector companies.
However, social-welfare plans of all three candidates can put public finances and fiscal deficit under pressure in coming years. While the mega social-welfare plans like rural employment guarantee, food security etc are synonymous with Gandhi’s UPA, even Modi and Kejriwal have populist social plans in their manifestos.
All these three candidates promise access to electricity, sanitation, drinking water, education and affordable healthcare, as well assistance for low-cost ‘pucca’ housing for all citizens. Modi and Gandhi talk of education and entrepreneurship assistance for backward/minority communities and financial support to unorganized sector/destitute.
Interestingly, Modi also includes Madrasa modernization. One expects Gandhi to continue the UPA legacies like the rural employment scheme (which is around 1% of GDP), expand the food security schemes, apart from his plans to make healthcare expenses 3% of GDP and investments into science and technology 2% of GDP.
While critics argue such social plans are non-asset creating and a fiscal strain, the rural community and the low-income urban community has been left out of India’s skewed economic growth and there was a need to enhance their affordability for social services.
Reviving rural demand is where Gandhi’s candidature shines. The increase in the rural community’s purchasing power due to UPA’s schemes can also be credited as a reason of why rural-India is an attractive target market today for Corporate India across consumer sectors.
While Modi and Kejriwal stress the need to revive the actual rural economy, there is no clarity on how they propose to do so – through increasing economic opportunities or by doling out social benefit packages.
Modi has raised the topic of skill-creation time and again, and this might enhance opportunities for economic activity. Promises by Modi and Kejriwal also include paying 50% over the input cost for crops to farmers – a rather populist move, while Kejriwal proposes to stop contractual employment so that they get employment-related social benefits.
So, Gandhi alone may not be guilty of fiscal indiscipline, as many imagine it to be. But how do they propose to counter fiscal strain with sources of revenue?
Gandhi proposes soonest implementation of the Goods and Service Tax Bill and Direct Tax Code to improve tax revenues, Kejriwal to increase tax compliance and a progressive tax structure and Modi a rationalized tax regime.
But Modi has plans for countering inflation, which impacts affordability for basic goods/social services, thus reducing the need for social schemes in the first place.
Modi’s approach on inflation consists of measures to stop hoarding and black marketing, unbundle Food Corporation’s activities, evolve a single agriculture market and use technology for faster dissemination of actual prices.
Incidentally, nobody has raised the issue of disinvestment, except occasional mentions by Modi and Kejriwal that the government has no business to be in business.
Job creation and entrepreneurship are areas all of them have addressed. Gandhi promises creating 100 million new jobs, improving university and secondary education infrastructure, scholarships/jobs for backward communities, bringing in marginalized sections of youth and skill vouchers for unemployed graduates.