Abstract

The following paper is aimed at understanding the Economic Reforms that the recently sworn in Narendra Modi Government 3.0 should be targeting. While doing so, this paper shall delve into the current situation of the Indian economy, current account and fiscal deficits, key takeaways of the Budget 2024 presented in February by the Finance Minister Smt Nirmala Sitharaman. The paper also aims at economic-politico analysis of the current state of the Indian Economy. The paper analyses different sectors of the economy which were not met with a lot of robust economic reforms in Modi 1.0 and 2.0 respectively i.e., those sectors which lay dormant for a while. Subject matters of fiscal prudence, banking sector reforms, inflation targeting and the trade prospects of India are also enumerated in detail. While doing so, the paper shall delve into the nuances of each of the above mentioned subject matter in detail and try to understand the policy framework behind these issues as well. To conclude, policy recommendations for better economic reforms would also be enlisted so as to create a rather well informed condition of the Indian economy among the general public. 

Introduction

The results of the election to the 18th Lok Sabha were announced on 4th June 2024. To the surprise of many, the mandate of the BJP who also was the single largest party in the two prior Lok Sabha elections was not able to achieve majority on its own. The BJP who won 282 and 303 seats in the 2014 and 2019 Lok Sabha elections respectively were reduced to merely 240 seats thus not even crossing the majority mark of 272 seats. Experts point out that the main reason why BJP lost its mandate so drastically is because of the prominent narrative of the opposition that the Modi Government is on its way to privatise the entire country by selling major government businesses to business tycoons like Adani and Ambani. Along with this, the narrative that the BJP in its first term implemented the ‘Demonetisation’ of notes that led to rampant rise in poverty and its mishandling of economic woes during the pandemic when India’s economy experienced a negative growth rate -23.9%. Furthermore, even though statistics point out that the unemployment rate in India is decreasing, the opposition was successful in concocting a narrative that led to the uncommitted public who was facing economic hardship getting swayed more by the opposition’s critique than the ruling party’s spin. From an economic perspective, even though the unemployment and consumer price inflation have been steadily declining in India, as various reports indicate; the primary reason why this still failed to convert into votes for the BJP was the insignificant benefits that the government schemes offer to the beneficiaries. PM Fasal Bima Yojana for instance the insurance cover that this scheme provides is menial as compared to the market requirements as the payout is only 25% of the total sum insured. It is well known that farmers’ income in India is already in shackles and on such a minimal income, it is natural that the insurance cover would also barely be able to economically support the household. 

At a time when dates for the 18th Lok Sabha were declared by the Election Commission of India, unemployment was at 7.8% in August 2020 immediately due to the lockdown but rose to 4.5% in 2022-23 as per the data of the NSO’s Periodic Labour Survey Force, the agriculture sector’s contribution to India’s GDP has shrunk over time, from 35% in 1990-91, it dipped to 15% in FY23. India also faced a problem of private investment coupled with infrastructure deficit as private investment continued to decrease falling to record low of 19.6% of the GDP. Infrastructure deficit of India is considered to be at $1.4 trillion with transportation and energy being the key areas of bad infrastructure. Adding to these woes, export challenges surfaced amidst global geo-political tensions as the textile exports witnessed a significant decline and India’s pharmaceutical markets despite its aspirations, have failed to keep pace with demand, falling behind at 9 percent, despite the ambitions of becoming a global hub for vaccines, lay significantly short of competing with global demand. This is mainly because, during the Pandemic India’s heavy dependence on China for APIs (Active Pharmaceutical Ingredients) was exposed which resulted in the Central Government making the production linked incentive scheme with the intention of domestic manufacturing of medicinal raw materials. However, even after such ambitious schemes, figures from the Ministry of Chemicals and Fertilisers still indicate that dependence on China has increased as the the import of bulk drugs or APIs from China rose 20 per cent from FY21 to Rs 23,273 crore in FY22, which was 66 per cent of India’s total imports of medical products worth Rs 35,249 crore that fiscal. 

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