New Delhi, March 11: The roaring mandate invests Prime Minister Narendra Modi with enough political capital to push ahead with "reforms".


The catch: what Modi means by "reforms" does not fall into the bracket of the usual definition that refers to deregulation, removal of distortions caused by regulation and minimise the presence of the government in business operations.

Modi's brand of "radical reforms" would include a cocktail of pro-poor programmes, a possible crackdown on tax dodgers and further curbs to discourage cash-based transactions now that the demonetisation demon has been laid to political rest.

Many had expected that the rage over the acute scarcity of cash over the past four months would boil over during the Assembly elections in Uttar Pradesh. It didn't. Modi had sold demonetisation as a "pro-poor" measure that left the rich sleepless.

The Modi government has already put on ice the conventional notion of "Big Bang" reforms. Two years ago, the economic survey had cautioned against unrealistic expectations of "Big Bang" reforms because of the absence of that impelling driver - a crisis. Instead, it argued in favour of a "persistent, creative and encompassing incrementalism" - arguing in favour of small steps towards a larger, not completely defined, goal.

Officials and economists are agreed that going ahead with the toughest reform - labour laws - will continue to take a back seat. "We don't see any party as yet taking up the really big reform step - labour reforms. This is the hard reality that all professional economists and bureaucrats recognise," said Biswajit Dhar of JNU and a director on the Exim Bank board.

Similarly, they do not expect any radical, strategic sales of PSUs. "A few sick, nearly sick or insignificant PSUs would be sold off to mark this government's intention and to send a message across to the market," Dhar added.

"Most of the big-ticket reforms are done. What the government can focus on are incremental reforms and any win gives space for such moves," agreed economist Pronab Sen, former chairman of the National Statistical Commission.

ALSO READ: Does UP victory make Modi's return in 2019 smooth?

There will be a push to raise the taxpayer base in the country. At present, India has just seven taxpayers per 100 voters, ranking the country at 13th among 18 of its G20 peers that have some form of a democratic process.

The big "reform" that looms is the goods and services tax (GST), which is on course for implementation by July 1. GST is important because it will enable the Modi government to level the field between imported items and those that are produced at home without running foul of its international trade obligations under the World Trade Organisation (WTO) and the stack of Free Trade Agreements (FTAs) that the country has signed over the years.

Indian tax policy has always been loaded against local manufacture. The cascade of central and state levies on domestic goods has never been fully neutralised by the countervailing duties imposed on imports.

GST will ensure that India will be able to promote domestic manufacture without becoming protectionist since the tax "will automatically be levied on imports to ensure neutrality of incentives", the Economic Survey of 2014-15 had noted.

Further moves are expected to rationalise and shift more subsidies to the digital mode, find a workable mechanism to deal with the Rs 9.5 lakh crore worth of bad loans that banks have been saddled with because of corporate defaults, consolidate and merge several state-owned banks to realise economies of scale, and divest the government's stake in several public sector undertakings.

"We have already effected the SBI merger. We will now consider the possibility of other PSU banks, for instance banks from the eastern region could be merged with those based in the north or the south," an official said.

A controversial move to set up a "bad bank" - to which state-run banks will transfer their bad loans - is also under consideration.

Officials expect continued focus on the "Make in India" initiative as the country has had to wrestle with the problem of jobless growth in the past decade, a phenomenon which could snowball into a big issue before the general election in 2019 unless the Modi government can find some solution pretty quickly.

Finance ministry officials said they expected the move to scrap the Foreign Investment Promotion Board (FIPB) to be completed in the next two months.

The FDI policy could also be tweaked to allow investment in non-food retailing along with incentives for electronics manufacturing.

-The Telegraph, Calcutta