A decade ago, Narendra Modi, then the dynamic Chief Minister of Gujarat, ascended to India's prime ministership with promises of transforming the nation's economic landscape. His 2014 campaign was marked by powerful statements like, “I believe government has no business to do business,” and the slogan “minimum government, maximum governance.” These slogans suggested a shift towards a more laissez-faire economic policy akin to Thatcherism.
However, Modi's tenure in Gujarat painted a more nuanced picture. His notable success in Gujarat included revitalizing state government enterprises, particularly in the energy sector. This focus carried over to his national agenda. In a recent interview, Modi highlighted his administration's success by pointing to the revival of public-sector companies' stock prices as a key indicator of market confidence.
Indeed, state-owned enterprises (SOEs) have outperformed India's benchmark Sensex index for three consecutive years, maintaining a premium over their private-sector counterparts. Officials attribute this success to strategic administrative reforms. The minister in charge of India's state petroleum companies described Modi's governance as ushering in a “new era of governance characterized by professionalism, strategic foresight, and unwavering commitment to national interests.” Analysts generally share this optimism, though they are more reserved in their praise.
These achievements underscore the resilience and potential of India's public-sector undertakings (PSUs). Despite operating in legacy sectors like fossil fuels, traditional transport, and capital goods, these companies have demonstrated robust performance. This has sparked a broader conversation about the role of SOEs in India's economy and their contribution to national growth.
However, this public-sector success raises questions about the overall health of India's economy. Private-sector investment has been lackluster, with new investment plans shrinking by over 15% in 2023-24. Manufacturing, in particular, saw a steep decline in fresh proposals, dropping by 40% in value.
Economists have offered various explanations for this trend. Some suggest that domestic demand is not yet strong enough to justify new private investments, while others highlight stagnating productivity in manufacturing. There is also a consensus that more business-friendly reforms are needed to invigorate the private sector.
Modi's economic strategy has leaned heavily on public-sector investment to drive growth. Government expenditure and debt have increased significantly, with public-sector capital expenditure expected to fuel growth rates of 7.1%-7.4% in the coming year, according to the finance ministry's think tank.
While this approach has yielded impressive results in the short term, it underscores the need for a balanced economic strategy that includes robust private-sector participation. A thriving private sector is essential for sustainable, long-term growth and modernization of the economy.
As Modi potentially enters another term, it is crucial for his administration to recalibrate its economic strategy. Empowering the private sector through comprehensive reforms and fostering a conducive environment for private investments will be key to building a modern, productive economy. The success of India's public-sector enterprises is a testament to effective governance, but the future lies in a harmonious blend of both public and private sector contributions.
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