Modi’s reform agenda not yet done

With a landmark goods and services tax (GST) now rolling out across India, Prime Minister Narendra Modi is likely to turn his focus to job creation and other key economic reforms.

Further big structural steps, such as revamping India’s land acquisition and labor laws, are unlikely to occur before the next national election, scheduled for 2019, as Modi’s Bharatiya Janata Party still lacks a majority in the upper house of parliament.

Instead, analysts suggest the BJP is likely to focus on creating jobs while it pursues smaller reforms, including on administrative measures, anti-corruption policies and tax evasion. While India remains one of the fastest growing economies in Asia, employment creation was the slowest on record in 2015, with just 135,000 net new jobs in the formal sector of the economy against the 12 million estimated new entrants to the workforce, government data show.

At the same time, Modi’s administration will also have to dedicate considerable resources to ensure the success of the new, nation-wide GST, which took effect on July 1 after a midnight launch ceremony and has already caused some economic disruption.

More urgently, Modi’s party will need to make sure the GST implementation goes smoothly and does not lead to a spike in inflation or sustained economic chaos. Despite a relaxation of initial filing requirements, there are early signs that businesses remain confused and consumers might be putting off purchases.

“Politically selling the GST and ensuring there are no wrinkles will take the best part of the next six months, if not longer,” said Ashok Malik, a distinguished fellow with the New Delhi-based Observer Research Foundation think-tank.

“We are likely to continue seeing a preference for an incremental approach towards reforms, one that prioritizes administrative reforms over structural ones,” said Pratyush Rao, a Singapore-based senior analyst for South Asia at Control Risks, a consultancy. MDT/Bloomberg