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Narendra Modi’s Approach to the Private Sector in India


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In this Bloomberg Opinion piece by Mihir Sharma, the author discusses the approach of Indian Prime Minister Narendra Modi towards the private sector. The article highlights how Modi’s rhetoric of supporting the private sector during his election campaign in 2014 did not necessarily align with his actions as both the Chief Minister of Gujarat and as Prime Minister. The author questions the implications of the outperformance of state-owned enterprises in India’s economy and raises concerns about the lack of private sector investment.

Modi’s Approach to the Private Sector

Modi’s initial promises of a business-friendly environment and limited government intervention led many to believe that his tenure as Prime Minister would be supportive of the private sector. However, his focus on turning around state-owned companies, particularly in the energy sector, suggests a different approach. The author highlights that Modi has often cited the revival of stock prices of public-sector companies as an example of his success.

State-Owned Enterprises Outperforming

State-owned enterprises in India have consistently outperformed the benchmark Sensex index for three consecutive years. This outperformance has been attributed to administrative shifts within these companies and the introduction of a new era of governance characterized by professionalism and strategic foresight. While government officials and analysts are optimistic about this trend, the author questions the significance of this outperformance for India’s real economy.

Context and Concerns

The author provides two key points for context. Firstly, most state-owned enterprises in India are in legacy sectors such as fossil fuels and old-style transport. Secondly, private-sector investment in India remains weak. Considering these factors together, the author raises concerns about the state of India’s economy. If state-owned enterprises are performing well, does it imply that the private sector is underperforming in terms of growth and investment? Additionally, is it a positive sign if the best-performing companies in the economy are those with near-monopolies in sunset industries?

Challenges for State-Owned Enterprises and Private Sector

Analysts argue that continued reinvestment of cash flows by state-owned enterprises into their existing businesses, which are mostly in sunset industries, may hinder their ability to invest in more future-proof sectors. This poses a challenge to their long-term viability. On the other hand, private firms in India are facing struggles, with new investment plans shrinking and manufacturing being particularly affected.

Modi’s Economic Growth Strategy

The article highlights that Modi has prioritized government-led investment and has not relied on the private sector to lead economic growth. The government has increased expenditure, and the finance ministry’s think tank predicts optimistic growth in the coming year primarily due to public-sector capital expenditure. However, this strategy is seen as fiscally unsustainable and unlikely to modernize India’s economy or increase productivity.

Conclusion

The author concludes by suggesting that if Modi returns to power, his administration needs to adopt a different strategy. The reliance on state-owned companies cannot be the foundation of a modern and productive economy. The article emphasizes that these opinions are the author’s personal views.

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