Few Challenges Before the New Indian Government
On May 16th, the country will come to know which combination will form the next government in Delhi. Whosoever forms it, the expectation of the people and the challenges to fulfill them will be the same. Some of these challenges and expectation are going to be as follows :
1. Control Inflation : Since many years now the inflation has been remaining very much on the higher side, even crossing into double digits. Sector wise inflation in food items has continuously remained high. Inflation eats into savings and it hurts the lower middle class and below sections of the population the most. It is eroding in nature. If UPA is voted back to power, not much change in policy can be expected. As is widely believed, Congress governments operate at high levels of inflation because of their subsidy policies. If NDA comes to power it will be a real challenge for them to lower inflation. One definition of inflation is too much money chasing too few goods. Will they reduce money supply by increasing interest rates or resort to larger imports to improve supply side. While the former is restrictive in nature the latter will deplete our foreign exchange reserves faster. Creation of assets to increase supply is a time consuming activity. It will therefore be very keenly watched what will the new government do tame inflation.
2. Reduce Prices : In most surveys, respondents have placed prevailing high prices especially of essential items like food items, petrol,diesel etc as the factor affecting the most their quality of life. In a free market economy, prices are determined by the gap between supply and demand of a commodity. The wider it is, the higher will the prices be and vice versa. Can the government dictate prices in a free economy. It normally cannot. So what steps will the new government take to ensure reduction in prices. It can take some administrative steps like freeing the farmers from having to compulsorily sell through the Agriculture Produce Market Centers (APMC) which can lead to increased competition for their produce and help lower prices. Governments have resorted to announcing increased Minimum Support Prices (MSP) to save farmers from exploitation by private purchasing cartels. It is simply not going to be easy to take official steps to effect reduction in prices, but that is the challenge, as some parties have made high prices a plank on which they have sought votes from people.
3. Women Safety : This has rightly become a highly debated issue, especially the considerably increased incidence of brutal rapes in many parts of the country. Political parties have raised it repeatedly to score brownie points. The example of Gujarat is often given by the chief representative of a particular party. It is true that during the festival of Navratri during October in Gujarat, it is a common sight to see young girls moving on two wheelers late in the night in a safe manner. But what role has the government in this. It is because people are observing high character without any official pressure which ensures the safety of women in Gujarat. It will be a challenge in front of the new government to announce and take steps which will increase women's safety across the country.
4. Current Account Deficit (CAD) : The CAD has always been negative in India's international trade. Imports have always been higher than exports, putting stress on the rupee and causing it to devalue against the dollar, to maintain competitiveness. The outgoing government has drastically reduced the import of gold and thereby brought CAD to lower levels than before. But if BJP, a party supported by traders comes to power. can they continue with such low gold imports. If rupee appreciates, then the IT companies earnings will go down. If rupee devalues further then imports will become costlier. If gold imports are allowed to the tune of 900 tons per year at a cost of $ 50-55 billion then CAD will go up ,putting pressure on the rupee value against the dollar. With the economies of Western countries not showing any improvement,exports are going to remain stuck at $ 310- 325 billion range. It will be a challenge for the new government on the international trade front. The widening negative balance of payment with China is another challenge waiting for concrete action.
5. Communal harmony : This election has seen lot of debate on secularism versus communalism. There have been both covert and overt attempts at voters polarization, which has succeeded at some places. This is not at all desirable. All attempts to divide society on religion, caste, creed or region basis needs to be severely dealt with. It will be expected from the new government to instill confidence in such sections of society who feel they have been unnecessarily targeted for sake of votes. Development has to be uniformly spread. The challenge on this front is a daunting one and will the new government take it seriously will be anxiously watched.
6. FDI in Retail : Although the UPA government has passed legislation to allow FDI in retail, but with concurrence of individual states, so far there has been no investment. The BJP has officially stated that it is against this type of FDI. India needs injection of capital for boosting growth and FDI in retail is one such measure. There will be tremendous pressure on BJP led government to review its stand. Equally If UPA comes to power, it will need all its skills to lure foreign retail chains to invest in India. Also FDI in Insurance and other sectors is needed to boost the flow of much needed capital. So the new government will have to implement reforms in this area.
7. GDP growth rate : The GDP growth rate has come down to 4.5 - 5% from a high of 8 - 9% couple of years back. This has resulted in the economy slowing down. This has also resulted in overall demand going down leading to poor industrial growth rates. Associated with it are host of other negative aspects like increased unemployment, lower rate of savings, limited fresh investments, etc which has led to a gloomy economic climate. The new government will have to come out with fiscal and industrial policies which will lead to a boost in economic growth. It is not going to be an easy task and that is going to be the challenge.
8. Relations with Neighbouring Countries : Our relations with Pakistan are going to come under stress once American troops depart from Afghanistan. The terrorists are going to divert their attention towards Kashmir and Pakistan as usual will deny but slyly support them. Our relations with Sri Lanka have taken a beating due to Tamil Nadu parties forcing GOI to take such steps which have gone against that country in world forums. With China our border dispute is still unresolved despite growing trade between the two. With Bangladesh also we have the problem of sharing of Teesta waters which could not be resolved because of stiff opposition by Mamata Bannerji. It is going to be watched with considerable interest how the new government moves to improve its ties with our neighobours.
The above are some areas which will require attention from the new government that will take shape any time after May 16,2014.
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