Prime Minister Narendra Modi has a well-deserved reputation for throwing up catchy phrases and acronyms which is why his economic policies have often been loosely branded as ‘Modi-nomics’. And yet, now in his sixth year in power and as his government prepares for a seventh budget (including one interim budget), the question could well be asked: what really is Modinomics?
Recall how when the Prime Minister was first sworn in, his cheerleaders were quick to liken the rise of a right of centre government to the onset of a Thatcherite/Reagan like revolution with Modi being projected as a potential Indian equivalent to the 1980s icons of privatisation and free market economics. As it has turned out, the Modi brand of economic policy has often appeared more old style Nehruvian socialist in intent than conventional right wing economists would have imagined.
When he came to power, Prime Minister Modi did make all the right noises. ‘More governance, less government’ he promised with his ‘Make in India/Stand up India/Start Up India’ buzzwords promising to unleash the latent energies of Indian entrepreneurship. The reality though is far from any significant scaling back of government, Modi’s growth mantra has relied on a state spending-driven investment push, one where the public sector retains control over major sectors of the economy. Then be it the loss-making Air India or other bleeding standalone assets, the Modi government has been loathe to let go of any control. Instead of unleashing a massive programme of reform and disinvestment of state undertakings, the approach has been to merge existing PSUs to meet disinvestment targets.
In his first term, Modi was forced into a push back after he was attacked for being a ‘suit-boot ki sarkar’ by his political opponents after a failed bid at pushing through amendments in land acquisition laws that would have made it easier for corporates to acquire land. From late 2015 onwards, the Modi government embarked on a conscious policy shift to focus on large scale welfarist programmes that would imbue the leadership with a pro-poor image. The November 2016 demonetisation decision was the culmination of this image makeover where the Prime Minister sent out a message that he was engaged in a moral crusade to ‘purify’ the country by teaching the moneyed ‘dhana-seth’ class a lesson. Politically, it worked wonders with the BJP winning crucial elections in battleground states like Uttar Pradesh. But did it work in economic terms? An investment and growth slowdown, falling agricultural incomes, rising unemployment would suggest that Modi’s political victory has also sown the seeds of an economic loss of momentum.
Perhaps, in 2014-15, Modi was, as a first term prime minister, insecure about his immediate political future. As a consummate practitioner of real politik, he could see the benefits in focussing fiscal resources on better home delivery of basic necessities like LPG gas cylinders, sanitation and housing for low income groups. But worthy schemes like Ujwala, Swachh Bharat and Pradhan Mantri Aawas Yojana cannot be a substitute for the urgent structural reform solutions needed to push the country on a higher growth trajectory path even if they might bring in the votes. While, for example, reformist impulses like the successful targeting of cooking gas subsidies for middle classes and the major indirect tax reform through GST – however complicated it initially was – deserve to be applauded, the more politically challenging reforms in key areas like land and labour were deferred for a future date.
That time has come now. In his first term, Modi could get away by placing disruptionist politics above rational economics. From 2014 to 2017, benign crude prices gave the government an oil bonanza that allowed it to focus on macroeconomic stabilisation. But it also led to a missed opportunity to kick-start growth by initiating far-reaching reforms in critical haemorrhaging sectors like banking. Instead of going in for a drastic surgery of the bankrupted banks burdened with mounting NPAs, Modi preferred an incrementalist approach that tinkered around the edges of the grave balance sheet crisis. Maybe he saw no immediate political benefit in bank reform: yes, the insolvency and bankruptcy code is a step in the right direction but clearly is not enough to revive the banks and push the economy towards a high growth path.
In his first term, the global economic tailwinds were firmly with Modi and yet, at times he chose kneejerk adventurism like demonetisation over more considered and urgent reform. In Modi 2.0, it’s the domestic political winds that are firmly blowing in his favour. Not since Rajiv Gandhi in 1984 has a government enjoyed such an unassailable majority both within and outside parliament. Within a year even the Rajya Sabha will not be able to block long-pending economic legislation. Rather than invest his political capital in floating trial balloons like ‘one nation, one poll’, the Prime Minister needs to get down to biting the bullet on reviving the investment cycle. This won’t be easy: investors still look at the Modi government with suspicion, uncertain whether the Prime Minister will stay the course with consistency in policy making or invoke his brand of populist nationalism where immediate political calculations can lead to a certain ad-hocism in decision making at times. There are other unanswered troubling questions: for example, will the Reserve Bank of India be allowed to remain autonomous or merely be seen as subservient to government diktat?
That Modi is neither a Thatcher or Reagan style markets-driven policy maker is now well established. But could he become an economic visionary in atleast the Narasimha Rao mould? Rao as the leader of a minority government may have been forced into reform by the unprecedented financial crisis that confronted the Indian economy at the time; Modi as the Supreme Leader has no such compulsion apart from a burning desire to cement his place in history which is why it is time for a ‘new’ India to know what Modi-nomics really stands for.
Post-script: Which neta has had the most mercurial rise in Indian politics in the last decade? No, not PM Modi, not even Amit Shah, but arguably Nirmala Sitharaman, who from being a newly inducted BJP spokesperson ten years ago is now the Finance Minister. The question is: will the country’s economic revival match Sitharaman’s rapid political growth, or will North Block only be an appendage to an all-powerful PMO?