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How Narendra Modi Can Transform Economy in 6 Months

May 16, 2014 in Economics

By Swaminathan S. Anklesaria Aiyar

Swaminathan S. Anklesaria Aiyar

Landslide. Avalanche. Tsunami. The sheer magnitude of Narendra Modi’s election victory strains one’s vocabulary.

He kayoed Rahul Gandhi by winning more seats in Uttar Pradesh than Rahul did in the whole of India. The BJP has finally become an all-India party, winning seats all over the country and not just in a few states. Astonishingly, it has won as many seats as the Left Front in West Bengal, and left Mayawati seatless in UP.

Critics say the BJP has just got slightly more than the required 272 seats, so let’s not get too excited. Phooey! For the first time since 1984, a party has won an absolute majority in the Lok Sabha, and that’s a landmark. For the first time in 30 years, India will have a stable, decisive government.

Modi has broken the era of coalition politics. No longer is it necessary to create endless new ministries to accommodate endless more coalition allies. No longer is it necessary to induct criminals and crooks into the Cabinet in the name of “coalition dharma”. No longer is it necessary to constantly dither and sacrifice common sense for fear that an ally may defect. The Prime Minister can at last be consistent and decisive.

The stock markets have boomed, naturally, but sceptics already ask whether expectations are running too high. India faces deep structural problems for which there are no quick-fixes. Even with a strong Modi government, GDP growth this year is unlikely to exceed 5.5%.

But if Modi brings about the good management he has promised, growth could ramp up to 6.5% next year and stabilise around 7% subsequently. If so, Indian markets may be in for a sustained bull run. If not, the current euphoria will fade in a year or so.

Mould the Mood
The economy is currently mired in low growth, high inflation and bureaucratic paralysis. Modi has no magic wand. How can he transform the economy within six months?

Only by transforming the country’s mood. If he creates infectious optimism and enthusiasm, consumers will once again start consuming, investors once again start investing and bureaucrats once again start moving files.

The sheer size of his victory has already enthused the markets. He must now enthuse bureaucrats by promising them protection against wild allegations and vendettas. This means changing the current rule saying that if a decision has benefitted any private party, the bureaucrat concerned can be prosecuted for corruption even if he …read more

Source: OP-EDS

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