New govt needs to bring economy back on track: Economists

The biggest challenge before the new government would be to bring the economy back on track and push the growth which has slipped to 6.6% in the third quarter of 2018-19, said economists. Meanwhile, the next five years would be used by the government to create an export-oriented, investment-driven economy, government officials said.

"The economy is in some difficulty with growth slowing, private investment and exports down, and financial stress in banks. The government has to tackle all these challenges. The most important thing is to boost private investment, create jobs, and also improve exports, which have been stagnant for the past six years. For this, financing has to be made available and interest rates have to be brought down. And it can happen only if the fiscal deficit is brought down," said former chief economic advisor Shankar Acharya who is currently an honorary professor at ICRIER, a New Delhi-based think-tank.

The country's economy slowed down slightly in the financial year 2018-19 due to declining growth in private consumption, tepid increase in private investment and muted exports, as per finance ministry's monthly economic report for March.

Factory growth touched a 21-month low in March to signal a slowdown in consumption as well as investment.

"The biggest priority of the new government would be to bring growth back in the economy, followed by boosting household savings, ensuring fiscal consolidation and more employment," said Devendra Kumar Pant of India Ratings and Research.

In order to reverse the slowdown, "the economy has to be stimulated from monetary as well as the fiscal side. On the monetary side, two successive repo rate reductions have been introduced by the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI). But the investment sentiment has not improved. This effort has to be supplemented from the fiscal side," said D K Srivastava, chief policy advisor at EY.

The focus of the new government would now be to build on the achievements of the last five years such as cleaning up of banks, acting against corruption and providing last-mile delivery of services to the poor and creating frameworks of governance, many in the government said.

"Last five years were spent cleaning up banking system and ensuring macroeconomic stability and placing frameworks of governance like Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC). Next we will use that foundation to create export-oriented, investment-driven economy," said a senior finance ministry official.

"We have to emphasise on enhancing productivity going forward. Our focus has to be on three main factors of production – land, labour and capital. We have to make sure that the costs of those are brought down," Chief Economic Advisor (CEA) Krishnamurthy Subramanian told DNA Money earlier.

In its second term, "the government will need to focus on the labour law reforms to create conditions for employment," said Acharya.

Going forward, the government should focus on structural reforms and addressing the distress in agriculture and the rural economy as part of its medium-term goals, said experts. "The new government should also look at providing a better balance between the services sector and manufacturing since the service sector creates more output and jobs per unit of investment," said Srivastava.