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Modi 2.0: Sectors Demanding Immediate Attention Research Team | Posted On Friday, May 31,2019, 04:49 PM

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Modi 2.0: Sectors Demanding Immediate Attention



The immediate task of Prime Minister Narendra Modi is to revive the economy and make India more competitive. Structural to sectoral reforms are the agenda of Team Modi 2.0. As the government aims to create more jobs and get private investment flowing, these sectors are screaming for attention.

Prime Minister Narendra Modi must get aviation, power, banks and NBFCs, healthcare and real estate back on track. What can the Government do to power these sectors and speedily move towards progress?

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Modi 2.0: Sectors Demanding Immediate Attention

Aviation Sector:

Jet Airways has consistently been among the top 3 airlines in India, in the past decade. In recent times Jet Airways lost a lot of money and has over $1 Billion in debt.  Jet Airways defaulted on loans which were due by December 31st and subsequently delayed on payments to staff and the lessors. More than 18,000 jobs were on the line as Jet Airways was grounded. There’s no clear bidder for the debt-laden Jet Airways.

As the aviation sector totters, PM Narendra Modi has to step up and solve the problem. The Government will have to bring Aviation Turbine Fuel (ATF) under GST. In India, ATF has been priced 30-40% above International rates. This is because of the higher taxation in India. The Government must urgently set up MRO (Maintenance & Overhaul facilities) within India. Domestic airlines send aircraft overseas for Maintenance and Overhaul. Most airlines send planes to Dubai, Malaysia, Jordan, Sri Lanka, Singapore and Hong Kong for Maintenance and Overhaul. The Government will have to revive Jet Airways and divest stake from Air India.

See  Also: 5 Things Modi 2.0 Can Do To Boost The Economy

Power Sector:

The electricity distribution Companies in India or DISCOMs have been piling on the debt and suffering massive losses. In its first term, the Modi Government formulated UDAY (Ujwal DISCOM Assurance Yojana) to improve the financial health of the DISCOMs in India. UDAY aimed to bring DISCOM losses to below 15% by Financial Year 2019. Around 15 States managed to bring AT&C (Aggregate Technical and Commercial) losses under 15%.

Under Modi 2.0 more states need to bring AT&C losses below 15%. Under UDAY total debt of DISCOMS fell from Rs 2.7 Lakh Crore in September 2015 to Rs 1.5 Lakh Crore in Financial Year 2017. Sadly, it moved in the opposite direction and now sits at Rs 2.28 Lakh Crores in the Financial Year 2019. Modi 2.0 needs to look at AT&C losses on a war footing.

Banks and NBFCs:

The NBFC sector in India is going through a liquidity crunch. The NBFCs urgently need capital in excess of $8 Billion. Modi 2.0 will also have to recapitalize state-owned banks. These banks need capital to the tune of $30-35 Billion with nearly half of it, just to meet regulatory needs.  Modi 2.0 needs to look to the RBI to solve this problem. The excess reserves at the RBI could be transferred to the Government to capitalize the state-run banks.

Consumption Sector:

The consumption theme in India has taken a severe hit. Both the staple spends (spending on core needs) and discretionary spends have seen slowdowns. The credit squeeze in the NBFCs, stress in the rural sector, rising unemployment and lack of job creation have resulted in a slowdown in discretionary spends.

Household consumption has grown really fast outstripping disposable income. People are looking towards household savings to meet growing needs. Modi 2.0 will have to focus on income growth to boost household consumption. Expect a repo rate cut from the RBI in June. The Government must cut personal income tax in the Union Budget 2019 to put more money in the hands of the middle-class and boost discretionary spending in India.

Healthcare Sector

The Government wants to increase spending on healthcare to 2.5% of GDP by 2025. It wants to set up around 1.5 Lakh health and wellness centers by 2022.

Prime Minister Modi in the first term launched the ambitious Ayushman Bharat scheme which is universal healthcare in India. However, providing quality healthcare services to the poor in India is a challenge Modi 2.0 must face.  Ayushman Bharat scheme requires more funding and participation from the private sector in India.

Modi 2.0 needs to bring clarity on the promotion of generic drugs, the extent of price control on devices and drugs in India and also the legality of fixed drug combinations.

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