Challenges for Modi’s Indian state

Comment on this story


IOL Narendra Modi

Bloomberg.

Incoming Indian prime minister and former Gujarat chief Narendra Modi. Photo: Bloomberg.

A landslide election victory for Narendra Modi’s Bharatiya Janata Party (BJP) has created euphoria in India’s financial markets, driving shares to life-time highs and the rupee to its strongest level against the US dollar in 11 months.

After a decade in opposition, the BJP has promised to repair an economy growing at its weakest rate since the 1980s and tackle stubbornly high inflation.

However, the most urgent challenges facing the government, from a large budget deficit to concerns that El Niño could devastate agricultural output, have no easy solutions.

Here are five of the biggest tasks:

1. DELIVERING A BUDGET THAT LIMITS THE DEFICIT

Modi’s government will face its first credibility test with markets when it delivers a budget by July. It will need to convince investors that India can realistically contain its fiscal deficit.

To meet a deficit target of 4.6 percent of gross domestic product (GDP) for the year to March, the outgoing government cut spending by $13 billion (R134bn) and pushed about $16bn in subsidy costs into the new year.

That austerity could prove hard to sustain. Spending accounts for 11 percent of GDP, offering a critical growth lever.

Continuing to defer payments to state-run companies that would compensate them for selling fuel, fertiliser and food below market prices can create havoc with their finances and make them rely on borrowing to fund operations.

Meanwhile, tax revenues are unlikely to recover immediately in a weak economy. The government’s tax-to-GDP ratio has slipped to 10.2 percent from a peak of 12.5 percent in 2007/08.

The interim budget of the outgoing government in February was greeted with widespread scepticism.

It sought, for example, to contain the fiscal deficit at 4.1 percent of GDP in 2014/15, the lowest in seven years, while keeping spending growth at just 10.9 percent compared with a recent average of about 15 percent.

Standard & Poor’s has a negative outlook on its “BBB-minus” rating for India, and has said the new government’s policy agenda will determine whether India can avert a downgrade to “junk” status.

 

2. NARROWING THE CURRENT ACCOUNT DEFICIT

A sharp narrowing of the current account deficit, to under 2 percent of GDP in 2013/14 from a record high of 4.8 percent the previous year, was helped by steps to curb gold imports.

Higher duties and other restrictions almost halved gold imports, but the moves have been deeply unpopular. Gold smuggling surged after the measures, casting doubt on reported data.

The BJP promised to review gold import duties within three months of coming to power. That may please gold buyers, but not investors, as concerns about the current account deficit sent the rupee to a record low last August.

Fixing the structural challenges that keep the current account deficit wide, such as the weakness of manufacturing exports, could take years to reverse.

3. DEALING WITH RBI AND EL NINO

The new government may face a factor beyond its control: the El Niño weather pattern, typically associated with weak rains.

Analysts say El Niño could batter India’s farm output. Citigroup estimates that below-average rainfall in the June to September monsoon could shave 0.5 percentage points to 0.9 percentage points off its economic growth forecast and lead to a spike in inflation.

Surging prices could spark tension with the central bank, whose governor, Raghuram Rajan, has made containing inflation a priority. The Reserve Bank of India wants to bring down consumer price inflation to around 6 percent from the current 8.6 percent by January 2016, which would probably mean more interest rate increases. It has raised rates three times since September.

 

4. REVIVING PRIVATE INVESTMENT

Market expectations of Modi himself are based largely on perceptions of his track record as chief minister in Gujarat, where he is widely credited with attracting investment.

However, analysts say replicating that nationwide will be difficult, given that states wield much of the power in approving projects.

Credit Suisse estimates that only a quarter of pending projects depend on central government approval.

Capital investment contributes almost 35 percent to India’s economy, but it barely grew in the fiscal year that ended in March as delays in clearances and funding issues grounded many infrastructure projects.

That is particularly the case with state electricity boards, which remain hobbled by losses caused in part by the high cost of fuel and their inability to raise prices correspondingly.

Short of recapitalising state utilities, the central government has few choices in pushing for a restructuring.

 

5. RECAPITALISING STATE-RUN BANKS

India needs to address a $100bn pile of bad loans at its state-run lenders – about 10 percent of all loans. Fitch Ratings expects stressed assets to reach 14 percent of loans by March.

The bulk of these bad loans are related to infrastructure projects, which have made banks circumspect in lending.

The interim budget set aside 112 billion Indian rupees (R20bn) to help the sector meet the minimal capital ratios mandated by Basel III norms, but more will be needed. – Reuters


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

     

Join us on

IOL-Social networks IOL-Social networks IOL-Social networks IOL-Social networks
Lala8610
I'm a 28 year old woman looking to meet men between the ages of 27 and 32.
View Profile
PowerPrincess
I'm a 41 year old woman looking to meet men between the ages of 38 and 47.
View Profile
Dollie81
I'm a 33 year old woman looking to meet men between the ages of 25 and 49.
View Profile
Romantic_Gal
I'm a 40 year old woman looking to meet men between the ages of 35 and 45.
View Profile
Kelbels0201
I'm a 34 year old woman looking to meet men between the ages of 35 and 42.
View Profile
Hopeful_dreamer
I'm a 37 year old woman looking to meet men between the ages of 33 and 45.
View Profile
Minky3001
I'm a 30 year old woman looking to meet men between the ages of 32 and 40.
View Profile
Dee37
I'm a 38 year old woman looking to meet men between the ages of 38 and 45.
View Profile
Kay_722
I'm a 29 year old woman looking to meet men between the ages of 30 and 40.
View Profile
Angelwinz
I'm a 44 year old woman looking to meet men between the ages of 40 and 50.
View Profile
Lesel
I'm a 46 year old woman looking to meet men between the ages of 45 and 55.
View Profile
Bluelily77
I'm a 37 year old woman looking to meet men between the ages of 34 and 50.
View Profile
capenewbie
I'm a 33 year old woman looking to meet men between the ages of 25 and 45.
View Profile
MissMoneypenny_13
I'm a 28 year old woman looking to meet men between the ages of 30 and 42.
View Profile
siavolstrooi
I'm a 54 year old woman looking to meet men between the ages of 50 and 55.
View Profile
Persephone101
I'm a 31 year old woman looking to meet men between the ages of 25 and 45.
View Profile
Feisty_but_heartfelt
I'm a 39 year old woman looking to meet men between the ages of 39 and 50.
View Profile
Fire_and_Ice81
I'm a 33 year old woman looking to meet men between the ages of 25 and 45.
View Profile
Infin8
I'm a 36 year old woman looking to meet men between the ages of 35 and 42.
View Profile
Smurfette
I'm a 36 year old woman looking to meet men between the ages of 25 and 45.
View Profile
JanieL
I'm a 24 year old woman looking to meet men between the ages of 25 and 32.
View Profile
miesies
I'm a 29 year old woman looking to meet men between the ages of 29 and 40.
View Profile
Authenticity1425
I'm a 39 year old woman looking to meet men between the ages of 34 and 47.
View Profile
Pinky340
I'm a 41 year old woman looking to meet men between the ages of 38 and 47.
View Profile
Apple_853
I'm a 35 year old woman looking to meet men between the ages of 35 and 45.
View Profile
Biancs_79
I'm a 35 year old woman looking to meet men between the ages of 25 and 35.
View Profile
Bienkie01
I'm a 35 year old woman looking to meet men between the ages of 34 and 48.
View Profile
CTBLONDE
I'm a 38 year old woman looking to meet men and women between the ages of 40 and 50.
View Profile
nirina
I'm a 37 year old woman looking to meet men between the ages of 35 and 50.
View Profile
Rarefind
I'm a 54 year old woman looking to meet men between the ages of 52 and 63.
View Profile
your_wildest_dreams
I'm a 36 year old woman looking to meet men between the ages of 40 and 55.
View Profile
KW82
I'm a 32 year old woman looking to meet men between the ages of 29 and 40.
View Profile
HenrietteF
I'm a 32 year old woman looking to meet men between the ages of 30 and 42.
View Profile
ContagiousLaughter
I'm a 41 year old woman looking to meet men between the ages of 36 and 44.
View Profile
Leigh1979
I'm a 35 year old woman looking to meet men between the ages of 29 and 40.
View Profile
dragonfly86
I'm a 28 year old woman looking to meet men between the ages of 28 and 35.
View Profile
TuffLove
I'm a 34 year old woman looking to meet men between the ages of 35 and 45.
View Profile
optimistic_36
I'm a 37 year old woman looking to meet men between the ages of 32 and 46.
View Profile
sweets1987
I'm a 27 year old woman looking to meet men between the ages of 32 and 42.
View Profile
SA04
I'm a 47 year old woman looking to meet men between the ages of 40 and 60.
View Profile
elle_339
I'm a 31 year old woman looking to meet men between the ages of 30 and 50.
View Profile
mistika
I'm a 40 year old woman looking to meet men between the ages of 45 and 66.
View Profile
ShanJo
I'm a 35 year old woman looking to meet men between the ages of 30 and 42.
View Profile
Vuurvliegie1974
I'm a 40 year old woman looking to meet men between the ages of 39 and 47.
View Profile
Bebe1000
I'm a 53 year old woman looking to meet men between the ages of 49 and 57.
View Profile
Dandelion
I'm a 46 year old woman looking to meet men between the ages of 40 and 55.
View Profile
GypseyTraveller
I'm a 54 year old woman looking to meet men between the ages of 50 and 58.
View Profile
Warmsmilewarmheart
I'm a 47 year old woman looking to meet men between the ages of 45 and 55.
View Profile
Unicorn17
I'm a 21 year old woman looking to meet men between the ages of 23 and 26.
View Profile
Doeksa
I'm a 33 year old woman looking to meet men between the ages of 33 and 39.
View Profile
Lissa25
I'm a 25 year old woman looking to meet men between the ages of 25 and 31.
View Profile
esk123
I'm a 36 year old woman looking to meet men between the ages of 37 and 45.
View Profile
Vredelief
I'm a 26 year old woman looking to meet men between the ages of 25 and 34.
View Profile
LielaZ
I'm a 27 year old woman looking to meet men between the ages of 28 and 35.
View Profile
KittyCat_69
I'm a 46 year old woman looking to meet men between the ages of 35 and 50.
View Profile
Plattelandsenooi3
I'm a 32 year old woman looking to meet men between the ages of 33 and 45.
View Profile
Midcentury_girl
I'm a 32 year old woman looking to meet men between the ages of 30 and 40.
View Profile
0044MJM
I'm a 49 year old woman looking to meet men between the ages of 49 and 60.
View Profile
opsoek23
I'm a 23 year old woman looking to meet men between the ages of 25 and 34.
View Profile
Cathwhite
I'm a 29 year old woman looking to meet men between the ages of 25 and 45.
View Profile
FaiRy9
I'm a 26 year old woman looking to meet men between the ages of 27 and 36.
View Profile
Judith78
I'm a 36 year old woman looking to meet men between the ages of 38 and 48.
View Profile
FootballCrazy
I'm a 42 year old woman looking to meet men between the ages of 39 and 50.
View Profile
Mo1979
I'm a 35 year old woman looking to meet men between the ages of 29 and 43.
View Profile
JillieB
I'm a 61 year old woman looking to meet men between the ages of 55 and 70.
View Profile
sexyhair
I'm a 42 year old woman looking to meet men between the ages of 35 and 50.
View Profile
Sale_0084
I'm a 58 year old woman looking to meet men between the ages of 55 and 65.
View Profile
Angdt
I'm a 21 year old woman looking to meet men between the ages of 23 and 30.
View Profile
jamielief
I'm a 21 year old woman looking to meet men between the ages of 25 and 32.
View Profile
LimitlessSoul
I'm a 45 year old woman looking to meet men between the ages of 40 and 50.
View Profile
Lady_101
I'm a 31 year old woman looking to meet men between the ages of 28 and 38.
View Profile
AgentI
I'm a 39 year old woman looking to meet men between the ages of 35 and 45.
View Profile
EMT2014
I'm a 30 year old woman looking to meet men between the ages of 30 and 40.
View Profile
sonskyn27
I'm a 56 year old woman looking to meet men between the ages of 45 and 55.
View Profile
Chriz_1985
I'm a 29 year old woman looking to meet men between the ages of 18 and 100.
View Profile
Optimistic2014
I'm a 46 year old woman looking to meet men between the ages of 45 and 55.
View Profile
kosmoskatinka
I'm a 38 year old woman looking to meet men between the ages of 40 and 50.
View Profile
LJC777
I'm a 46 year old woman looking to meet men between the ages of 35 and 55.
View Profile
liefilyf
I'm a 42 year old woman looking to meet men between the ages of 38 and 48.
View Profile
Okidoki_63
I'm a 51 year old woman looking to meet men between the ages of 45 and 60.
View Profile
Maybe70
I'm a 44 year old woman looking to meet men between the ages of 40 and 50.
View Profile
Moze008
I'm a 57 year old woman looking to meet men between the ages of 55 and 70.
View Profile
FoXyLaDy444
I'm a 56 year old woman looking to meet men between the ages of 50 and 65.
View Profile
JanineB
I'm a 40 year old woman looking to meet men between the ages of 35 and 47.
View Profile
Denie_28
I'm a 50 year old woman looking to meet men between the ages of 45 and 53.
View Profile
jinxie_007
I'm a 32 year old woman looking to meet men between the ages of 28 and 38.
View Profile
Bluebell531
I'm a 46 year old woman looking to meet men between the ages of 40 and 60.
View Profile
Girlonabike
I'm a 37 year old woman looking to meet men between the ages of 35 and 45.
View Profile
Jenny84
I'm a 30 year old woman looking to meet men between the ages of 33 and 40.
View Profile
Ckay1011
I'm a 27 year old woman looking to meet men between the ages of 27 and 45.
View Profile
Artistixoxo
I'm a 23 year old woman looking to meet men between the ages of 23 and 28.
View Profile
Bastet_11
I'm a 43 year old woman looking to meet men between the ages of 45 and 48.
View Profile
Isabel_33
I'm a 34 year old woman looking to meet men between the ages of 33 and 42.
View Profile
MissCurious_M
I'm a 28 year old woman looking to meet men between the ages of 25 and 45.
View Profile
Bosnimf007
I'm a 25 year old woman looking to meet men between the ages of 27 and 35.
View Profile
Crispy990
I'm a 24 year old woman looking to meet men between the ages of 24 and 35.
View Profile
SheBear
I'm a 46 year old woman looking to meet men between the ages of 45 and 51.
View Profile
Is_jy_opreg
I'm a 49 year old woman looking to meet men between the ages of 50 and 55.
View Profile
plodof
I'm a 58 year old man looking to meet women between the ages of 35 and 55.
View Profile
LEANMAN
I'm a 39 year old man looking to meet women between the ages of 25 and 39.
View Profile
Propriety
I'm a 56 year old man looking to meet women between the ages of 35 and 45.
View Profile
funsunsea0007
I'm a 58 year old man looking to meet women between the ages of 45 and 58.
View Profile
Seriouslylooking1949
I'm a 65 year old man looking to meet women between the ages of 56 and 66.
View Profile
goldenhat
I'm a 52 year old man looking to meet women between the ages of 36 and 66.
View Profile
ClassicRocker
I'm a 52 year old man looking to meet women between the ages of 42 and 52.
View Profile
cornrlius205
I'm a 46 year old man looking to meet women between the ages of 25 and 50.
View Profile
Brend86
I'm a 28 year old man looking to meet women between the ages of 24 and 32.
View Profile
Kiwiana
I'm a 39 year old man looking to meet women between the ages of 25 and 39.
View Profile
Kitchenslave
I'm a 52 year old man looking to meet women between the ages of 35 and 50.
View Profile
reinor
I'm a 58 year old man looking to meet women between the ages of 45 and 61.
View Profile
BossMorne
I'm a 43 year old man looking to meet women between the ages of 25 and 45.
View Profile
ekke_706
I'm a 50 year old man looking to meet women between the ages of 40 and 55.
View Profile
brightday111
I'm a 55 year old man looking to meet women between the ages of 48 and 59.
View Profile
ScottRanger1987
I'm a 27 year old man looking to meet women between the ages of 18 and 30.
View Profile
LovingSerenity
I'm a 38 year old man looking to meet women between the ages of 24 and 45.
View Profile
Zest4Life021
I'm a 75 year old man looking to meet women between the ages of 48 and 60.
View Profile
Yvard
I'm a 46 year old man looking to meet women between the ages of 30 and 44.
View Profile
Lastgreatwhite
I'm a 56 year old man looking to meet women between the ages of 40 and 50.
View Profile
tommy351
I'm a 61 year old man looking to meet women between the ages of 48 and 59.
View Profile
5star
I'm a 57 year old man looking to meet women between the ages of 40 and 55.
View Profile
zachki
I'm a 47 year old man looking to meet women between the ages of 37 and 55.
View Profile
Gambino_Family
I'm a 59 year old man looking to meet women between the ages of 42 and 70.
View Profile
Wnd_112
I'm a 38 year old man looking to meet women between the ages of 28 and 37.
View Profile
SingleNSearching60
I'm a 60 year old man looking to meet women between the ages of 55 and 70.
View Profile
TLS11
I'm a 53 year old man looking to meet women between the ages of 40 and 60.
View Profile
Stand64
I'm a 50 year old man looking to meet women between the ages of 36 and 55.
View Profile
Guardian_24
I'm a 41 year old man looking to meet women between the ages of 37 and 43.
View Profile
Soulmindbody
I'm a 48 year old man looking to meet women between the ages of 38 and 45.
View Profile
cccdovy
I'm a 56 year old man looking to meet women between the ages of 48 and 56.
View Profile
TheRealMrRight
I'm a 43 year old man looking to meet women between the ages of 28 and 42.
View Profile
daniel101
I'm a 44 year old man looking to meet women between the ages of 32 and 38.
View Profile
karooboertjie15
I'm a 40 year old man looking to meet women between the ages of 25 and 40.
View Profile
Marius_P
I'm a 40 year old man looking to meet women between the ages of 30 and 55.
View Profile
lvebird53
I'm a 54 year old man looking to meet women between the ages of 50 and 65.
View Profile
OohCharles
I'm a 53 year old man looking to meet women between the ages of 25 and 45.
View Profile
CosmicHero
I'm a 54 year old man looking to meet women between the ages of 40 and 53.
View Profile
Andy_Leo
I'm a 46 year old man looking to meet women between the ages of 25 and 45.
View Profile
cloudhopper
I'm a 56 year old man looking to meet women between the ages of 45 and 55.
View Profile
Jericho2010
I'm a 41 year old man looking to meet women between the ages of 25 and 49.
View Profile
Firefox_771
I'm a 63 year old man looking to meet women between the ages of 42 and 56.
View Profile
breeze001
I'm a 49 year old man looking to meet women between the ages of 40 and 55.
View Profile
Stdave
I'm a 38 year old man looking to meet women between the ages of 28 and 42.
View Profile
gentlebutcrazy
I'm a 58 year old man looking to meet women between the ages of 35 and 55.
View Profile
matiekat
I'm a 66 year old man looking to meet women between the ages of 50 and 100.
View Profile
Dn212
I'm a 51 year old man looking to meet women between the ages of 45 and 60.
View Profile
Banker009
I'm a 56 year old man looking to meet women between the ages of 34 and 46.
View Profile
MLACOME0147
I'm a 55 year old man looking to meet women between the ages of 49 and 79.
View Profile
Fred58
I'm a 56 year old man looking to meet women between the ages of 18 and 100.
View Profile
Agent_K1
I'm a 46 year old man looking to meet women between the ages of 38 and 40.
View Profile
Alachison
I'm a 46 year old man looking to meet women between the ages of 30 and 45.
View Profile
DaveB_791
I'm a 49 year old man looking to meet women between the ages of 35 and 45.
View Profile
HappyEnding
I'm a 49 year old man looking to meet women between the ages of 36 and 45.
View Profile
dinnerfortwo
I'm a 54 year old man looking to meet women between the ages of 40 and 50.
View Profile
henisright
I'm a 50 year old man looking to meet women between the ages of 37 and 53.
View Profile
Ons2alleen
I'm a 30 year old man looking to meet women between the ages of 24 and 29.
View Profile
FamilyMan72
I'm a 42 year old man looking to meet women between the ages of 30 and 43.
View Profile
JPretoria
I'm a 38 year old man looking to meet women between the ages of 28 and 40.
View Profile
6s6s6s
I'm a 43 year old man looking to meet women between the ages of 25 and 45.
View Profile
freddic1
I'm a 52 year old man looking to meet women between the ages of 47 and 55.
View Profile
DutchDelight_
I'm a 45 year old man looking to meet women between the ages of 30 and 46.
View Profile
Frank79
I'm a 35 year old man looking to meet women between the ages of 28 and 36.
View Profile
Bruce_308
I'm a 47 year old man looking to meet women between the ages of 41 and 70.
View Profile
Denali
I'm a 45 year old man looking to meet women between the ages of 25 and 40.
View Profile
Chas008
I'm a 57 year old man looking to meet women between the ages of 40 and 50.
View Profile
kannieworrynie
I'm a 56 year old man looking to meet women between the ages of 45 and 55.
View Profile
Ironstein06
I'm a 36 year old man looking to meet women between the ages of 25 and 37.
View Profile
Pat321
I'm a 49 year old man looking to meet women between the ages of 38 and 48.
View Profile
Lonomor
I'm a 46 year old man looking to meet women between the ages of 25 and 35.
View Profile
TheDuke_99
I'm a 36 year old man looking to meet women between the ages of 28 and 42.
View Profile
pieterl
I'm a 59 year old man looking to meet women between the ages of 45 and 62.
View Profile
jacuwig
I'm a 25 year old man looking to meet women between the ages of 20 and 25.
View Profile
CL4ptp
I'm a 28 year old man looking to meet women between the ages of 22 and 28.
View Profile
JustCallMeBwana
I'm a 47 year old man looking to meet women between the ages of 28 and 45.
View Profile
koolstoof55
I'm a 59 year old man looking to meet women between the ages of 45 and 63.
View Profile
pinsnow
I'm a 55 year old man looking to meet women between the ages of 45 and 65.
View Profile
captainkid
I'm a 55 year old man looking to meet women between the ages of 47 and 56.
View Profile
richy10
I'm a 57 year old man looking to meet women between the ages of 49 and 70.
View Profile
gavinzn
I'm a 57 year old man looking to meet women between the ages of 50 and 57.
View Profile
wiedahunk
I'm a 57 year old man looking to meet women between the ages of 50 and 70.
View Profile
Coolfun
I'm a 52 year old man looking to meet men between the ages of 35 and 55.
View Profile
Suidwester27
I'm a 53 year old man looking to meet women between the ages of 35 and 50.
View Profile
Axiomate
I'm a 39 year old man looking to meet women between the ages of 28 and 41.
View Profile
willing_915
I'm a 54 year old man looking to meet women between the ages of 55 and 70.
View Profile
Natural123
I'm a 52 year old man looking to meet women between the ages of 35 and 45.
View Profile
stumpjumper
I'm a 54 year old man looking to meet women between the ages of 40 and 50.
View Profile
Lockstep
I'm a 50 year old man looking to meet women between the ages of 35 and 49.
View Profile
Smartboy_102
I'm a 60 year old man looking to meet women between the ages of 47 and 57.
View Profile
naughty_sporty
I'm a 41 year old man looking to meet women between the ages of 35 and 45.
View Profile
dddmelw
I'm a 56 year old man looking to meet women between the ages of 45 and 58.
View Profile
jsetrader
I'm a 58 year old man looking to meet women between the ages of 30 and 45.
View Profile
versl_550
I'm a 55 year old man looking to meet women between the ages of 45 and 60.
View Profile
rjscm
I'm a 48 year old man looking to meet women between the ages of 30 and 45.
View Profile
KTM1190A
I'm a 59 year old man looking to meet women between the ages of 50 and 58.
View Profile
Natureboykie
I'm a 60 year old man looking to meet women between the ages of 43 and 64.
View Profile
Officer_Gentleman
I'm a 46 year old man looking to meet women between the ages of 35 and 48.
View Profile
VirgoMan1970
I'm a 44 year old man looking to meet women between the ages of 30 and 50.
View Profile
cknneth111
I'm a 46 year old man looking to meet women between the ages of 41 and 70.
View Profile

Business Directory