Five Things a Modi Government Should Do to Revive Economy

Indian stock markets are on a roll on hopes that a stable government post elections would lead to a revival in the Indian economy. Most of the exit polls predict a majority for the BJP-led NDA. To get the economy back on the rails would be by no means an easy task for BJP's prime ministerial candidate Narendra Modi. The just-concluded financial year may see the lowest growth rate in decades. Economic growth has eased to 4.6 per cent in the first three quarters of FY14, less than half of the pace of 9.3 per cent in FY12.

Saurabh Mukherjea, CEO of institutional equities of Ambit Capital, suggests five measures that the new government can take to revive the Indian economy which is struggling with low growth and high level of inflation. More importantly, some of these measures do not need parliamentary approval. (Watch full interview)

Banking Recapitalisation

Mr Mukherjea said that the PSU banks need to be recapitalised immediately. Reducing government's stake in PSU banks to below 50 per cent will help to raise capital, he adds.

A RBI panel on Tuesday has also suggested that the government should cut its stakes in state run banks to below 50 per cent and establish "fully empowered" bank boards.

He also suggested that PSU banks should be given higher autonomy in terms of their functioning and the government should not appoint directors of these banks.

Lowering Food Inflation

Saurabh Mukherjea says the government can sell Food Corporation of India's surplus food grain in the open market to increase supply in the market. He also suggested a change in the way minimum support price is calculated. Rather than increasing the support price every year by a fixed 10 per cent, the new government can adopt some other measures like calculating it based on cost and profit margin, he says. The government should also reduce the middleman's influence in selling fruit and vegetables, Mr Mukherjea says. "70 per cent of the retail price of fruit and vegetable is taken by the middleman, so the farmer is not interested to produce vegetable," he says.

Infrastructure Development

Ambit's Saurabh Mukherjea suggested that coal production in India can be increased immediately by getting Coal India to increase output. Private players can also be involved on a profit-sharing basis to increase coal production, he adds.

Road development contracts should be awarded immediately and private companies should be given easier access to financing for these projects, Mr Mukherjea says.

Labour Reform

Saurabh Mukherjea said government should revisit the Trade Union Act and Industrial Dispute Act. However, this needs parliamentary approval and may take time.

Tax Reform and Land Acquisition

The new government should implement Direct Tax Code and Goods and Services Tax, Mr Mukherjea says. He also suggested a revision of the Land Acquisition Act to make the process easier for corporates. However, these processes also require parliamentary approval.

(With Agency Inputs)