If Modi wins, will bold economic reforms follow?

If Modi wins, will bold economic reforms follow?

While presenting the interim budget on February 1, Finance Minister Nirmala Sitharaman did not shy away from proclaiming that Modi 3.0 would be a reality. “In the full budget in July, our government will present a detailed roadmap for our pursuit of Viksit Bharat,” she said, her emphasis falling precisely on two words — “our government”. This is possibly the first time a finance minister has exuded such confidence in presenting a vote-on-account, saying on record that the same regime would present the full budget after the elections.

The question is, if the Narendra Modi government indeed gets installed for the third time in May, and with a resounding mandate, will it embark on bold and pathbreaking economic reforms? Will the new regime be able to navigate the complexities of pending reforms requiring widespread consensus? Will it unveil radical and unexpected economic overhauls in food, fertiliser and petroleum subsidies? Will it, perhaps, discard all income-tax exemptions?

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“The new government should work with state governments to forge a consensus on simplified GST (goods and services tax) rates. Ideally, it should be a three-rate system—merit, general and demerit,” says Sudhir Kapadia, partner in EY India’s tax and regulatory services. Any guesses on direct taxes? “We can surely expect a top-up tax mechanism to ensure that Indian MNCs pay a global minimum tax of 15% on their global operations,” he says, adding that such a measure will discourage the setting up of “shell” or “passive” overseas companies in low-tax jurisdictions. While outlining a plethora of potential reforms and add-ons, Bibek Debroy, chairman of the Economic Advisory Council to Prime Minister, says that the focus will likely be on refining and improving existing reforms. “There was continuity between Modi 1.0 and Modi 2.0. In a similar vein, there will be continuity between Modi 2.0 and Modi 3.0. No reforms will be a break from the past. Instead, there will be tweaking and improvements on what is already being done,” he says.

Economists and industry leaders are harbouring lofty expectations. Rumki Majumdar, an economist in Deloitte India, looks forward to an elevated spending on social infrastructure to build human capabilities. Meanwhile, FICCI Secretary General Shailesh Pathak bets big on the next regime prioritising the creation of business-friendly cities. “Cities in India need to be managed better so that business and young talent do not migrate to global cities,” he adds.

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