Modinomics: How Has Modi Govt Fared On The Economy? It's Time For An Audit

Has the Modi experience matched the promised Modi magic of 2014? Verifiably not. But has its patchwork quilt offered enough warmth to see it through 2019? We will know in a few months.

Modinomics: How Has Modi Govt Fared On The Economy? It's Time For An Audit

Effects are not always presented to us in manifest form. Sometimes they have to be inferred from what’s not there. A universal sense of well-being—what was called the ‘feelgood’ factor in 2004—is now not as perceptually salient among the middle class or other strata as it was then. What else is missing or present? And why this exercise? Because a new economic epoch for India was the central claim the Narendra Modi campaign had made in 2014—the presumed economic miracle of the ‘Gujarat model’ was to be extended all over. Fifty-four months later, it’s a good time to assess the results since the Modi regime’s pure policy phase is mostly done, and any big policy rollouts hereafter will likely be election-flavoured. So how does it stack up?

A performance audit of NaMonomics offers mixed evidence of both sorts. Of the manifest ones, the disasters were, of course, spectacular. Demonetisation was a train wreck. The rupee was like Newton’s apple. And the farm sector’s condition could be read visually too, in front-page photographs of mile-long marches converging on the cities. Things that became conspicuous by their absence? Well, Make in India made nothing. Smart cities did not mushroom. Jobs did not bloom. Bank NPAs did. Jan Dhan accounts ran on empty. GST, the other headline event, was a courageous but difficult reform, with some inevitable mess and pain (and verifiable gain). Then there were things invisible to the urban middle class—­because they happened far, far away from its universe. Long networks of rural roads, for instance, qualitatively changing life in India’s vast outback. The gifts of the Awas Yojana. The soft light of Ujjwala, where cooking gas connections touched many lives. And the deep effects of something like GST won’t be as visible as the trucks running on smooth new highways.

The last day of November, though, these saw spanking new highways inundated, ironically, with the other narrative. It was a significant day for India’s farmers. About 10,000 of them had congregated in the national capital to talk about what the Modi government had left unfulfilled in the past four-and-a-half years. Even in their ang­uish, they built a bridge—apologising to the city-dwellers for causing them inconvenience, and listing the astonishing difference between what the farmer makes and how much a Delhiite pays. The angst resonated also because the aam janata in cities, hit by ­ever-spiralling fuel prices and straitening home budgets, is taking a critical look at NaMonomics too.

The farmer’s rally offered harsh vignettes from rural India. For 70-year-old Ashwini Devi, homeless in Bijnor, western Uttar Pradesh, it’s a fight to retrieve her late husband’s small piece of land from moneylenders. For Birendra Saini, from Amroha, also in  western UP, life is at the crossroads because of the Rs 4 lakh he owes to the bank. Saini lambasts the government for not keeping its promise of loan waivers and better minimum support prices (MSP). “The MSP announced by the Modi government is a total failure. There’s a big difference between cost of production and MSP. The prices of inputs have gone up. We buy seeds for Rs 1,700 and sell for Rs 1,100,” he says. Siddharama, from the suicide-scarred farmscape of Andhra Pradesh, too juggles vicious debt traps, bad crops and land rights issues. The protest, organised by a coalition of over 200 farmer groups from across India, saw a huge turnout from Punjab, Haryana, Andhra Pradesh, Telangana, Madhya Pradesh, Rajasthan, Chhattisgarh, Tamil Nadu and West Bengal. The farmers call for a special session of Parliament, and two private members’ bills—one to address farm indebtedness, another for remunerative MSPs.


On farm unrest becoming commonplace, agro-economist Dr Panjab Singh says, “Things are not so bad, but there are many outstanding demands.” Singh, who is president of the National Academy of Agriculture Sciences, says production is growing and productivity too is improving in certain cases, but farm incomes have unfortunately stagnated over the past four-five years. This when input costs have gone up substantially—so the farmer is unable to harvest the benefits he should have got. Consumers too pay high prices, while middlemen and retails reap a rich bonanza.


CRISIL chief economist Dharma Kirti Joshi agrees farmers have reason to be upset as their price realisations have dipped despite higher MSPs ann­ounced by the government. “Unf­ortunately, it’s a trade-off—we need to improve productivity, that’s the route to sustainability, but when output inc­reases, prices fall and you have a bon­anza of low inflation,” he says. It’s a vicious cycle, marked by little long-term vision, that has been on for years. Earlier regimes are as culpable (rem­ember the suicide statistics from the UPA era). It’s the further deficiency of short-term support that’s exacerbating the situation, despite the Modi government’s crop insurance scheme.

Beyond the lack of attention to agriculture too, there’s more critique than cheer about the government’s performance on the economic front from exp­erts and economists across the board. They see a canvas largely of blanks, with some bright spots where the government has excelled and shown work on the ground. With less than six months left of its tenure, one could naturally expect some vote-garnering strategies—creation of employment conclaves, perhaps loan waivers. But experts do feel that, despite the measures it took to boost the economy, the Modi regime’s performance has not been stellar as compared to the UPA. They agree things could have been pulled down much further—the government managed to hold it and prevent a real slowdown—but we are much below the optimal rate of growth, by a few percentage points.


Things are on an improving track in some sectors. According to ICRA, a broad-based improvement is visible in October 2018, comparing year-on-year (YoY) growth performance, in as many as 14 of the 16 early economic indicators. This largely reflects the adjustment of production schedules related to the later start of the festive season, as well as factors such as base effects and the receding impact of floods in parts of the country. Accordingly, industrial growth is likely to display a healthy pickup in October 2018, from the level recorded in September 2018.

But the general feeling among exp­erts is that broad objectives kept changing over the years—no objective was really achieved as such. The oft-repeated joke is that DeMo was for climate change. This is, of course, one initiative that polarised opinions sharply—eulogised or thoroughly dismantled, often by the same economist (follow the Arvind Subramaniam trail here). Partly because the phenomenon, which came almost like a tsunami, a classic Black Swan event, had a complex effect too. Says economist Y.K. Alagh, chancellor of the Central University of Gujarat, “It was done in a clumsy way, but what it did was inc­rease the tax revenue base once and for all. But it did not at all decrease the process of creating black money as it has started again in great earnest.” The latest data shows a growth of 15-20 per cent in I-T returns. India’s tax-to-GDP ratio has also increased from 5.5 per cent to 5.8 per cent.

Photograph by Tribhuvan Tiwari

Prof N.R. Bhanumurthy of the National Institute of Public Finance and Policy too is critical. He says DeMo’s objectives were never fixed. “The government kept changing the goalposts. The positive outcome is rel­ated to the tax base, which has inc­reased significantly both in terms of direct and indirect tax, visible in the buoyancy of economy. But this is not entirely due to demonetisation. It should be looked at together with GST,” he adds. Many economists feel the message never went through. Says Ishwar Hegde, economist and founder-MD of Sun Fan Energy, “It was supposed to bring back currency. However, the narrative went wrong for the government. I agree it was badly planned and badly executed. We could have done much better.”

Prof Arun Kumar, economist and an authority on black money, however says DeMo damaged the economy enormously—affecting the unorganised sector disproportionately and red­ucing the rate of growth by one per cent. The unorganised sector is 40 per cent of the GDP. If that reduced by 10 per cent, even the measurable impact can only have been heavy. Kumar says it’s difficult to determine what is black money. When all the money comes back into the system, demarcating the black money component out of that is tough. “More than 100 per cent of the money came back into the system! Including counterfeit, which has got converted into white money, as has old black money. Demonetisation cannot stop black money generation as under-invoicing will continue with the new notes. This is because cash is only one per cent of black money, 99 per cent is held in real estate, gold and overseas, which has not been affected.”


Beyond the unorganised sector, DeMo also left the micro, small and medium enterprises (MSME) sector bruised and battered. The micro sector, which accounts for 97.5 per cent of MSME employment, got severely hit. The poor state of the MSMEs is ascribed by many partly also to the GST and the credit squeeze. We are at a juncture where the banks’ ability to lend is low, which pegs back the economy’s ability to grow fast. An anti-globalisation sentiment is also playing out around the world, so the scope of growing via exports too is limited. In this environment, CRISIL has projected an economic growth of 7-7.5 per cent, if we are able to sustain it.

Senior CPI(M) leader Tapan Sen, for one, registers a trenchant critique of both policies and outcomes. “I don’t find any achievement. Rather, I find they have oriented their policy regime towards destruction of the country’s indigenous manufacturing base. They are moving fast in that direction. This government has collectively contributed to the collapse of employment growth,” he says. The former MP stresses that employment growth has practically turned negative during the past four-and-a-half years. “To suppress this fact, they have stopped publishing employment and unemployment surveys by the labour ministry from 2016-17 onwards,” states Sen. The report published up to 2015-16 shows cumulative labour growth between 2014 and 2016, in the eight most labour-intensive sectors, was hardly 5.5 lakh. Taken together with job loss due to closures and shutdowns in industry, widely seen during these past few years, total employment generation has turned negative during the Modi regime. This is further confirmed by studies done by the CMIE and the Azim Premji University, Sen adds.


Indeed, job creation has lagged des­pite skill development being one of the government’s mantras—there’s no clear action on the ground. Says Abheek Barua, chief economist and exe­cutive vice-president at HDFC Bank, “There was an effort to understand the nature of the job problem, but it continues to be a dry area. Policy-makers are divided over whether we want to revive manufacturing or continue to depend on services.”

Hegde talks of a large unfinished agenda—areas where the government has either not done enough or failed. Primary among this is Make in India. A proper boost to manufacturing would have helped push other sectors—exports, for instance, where India’s basket remains restricted to traditional items and handicrafts. Even services cannot lead to high-value addition without proper support from manufacturing. “Manufacturing has to be developed. Without that, a country cannot dev­elop. This was initially conceived, but it did not fructify,” he says.

The other thing launched with a lot of fanfare but yet to take off is smart cities. Beyond the initial hype, progress beyond the planning stage has been tardy or absent, with very little or almost nothing to show on the ground. “It has remained a concept and has been lost,” says Hegde.

That brings us to the vital social sector. For those who comprehend only technology metaphors, this is where the ‘software’ part of India is developed: enriching human potential is crucial to its future. And it’s well-known that the Modi government act­ually reduced outlay to health and education throughout its tenure, and only started looking at this area in its last budget which, as the last full one before elections, was expected to be populist. Naturally, there has been little development on this front. On top of that, the sector is hobbled by duplication of authority as it’s a concurrent subject—so both the states and Centre are responsible for the attrition.

To give the government credit where it’s due, a lot of well-intended schemes were conceptualised and launched but, unfortunately, many of them just lagged in the arduous stage of handling the nitty-gritty of imp­lementation. The money based on Aadhaar, the Jan Aushadhi scheme and the much-publicised Jan Dhan Yojana have all been genuinely good schemes, but slow starters with little progress logged.

Virjesh Upadhyay, general secretary, Bharatiya Majdoor Sangh (BMS), an affiliate of the BJP, cites areas where the Modi government has taken verifiable steps forward. The employees’ annual bonus, for instance, was raised 2.5 times in 2015, he says, and minimum wages were raised after 11 years, that too by 3.5 times. He also lists ­social security schemes like Pradhan Mantri Bima Yojna­—insurance coverage for accident and death—or the health insurance scheme Ayushman Bharat as major initiatives.

Similarly, Pradhan Mantri Awas Yojana, though it existed earlier, got a major thrust during this government’s tenure. “There’s a manifold, measurable difference between the previous government and this government’s achievement, if you look at the data of work done,” Upadhyay says. The Ujjwala scheme too has seen lakhs of women coming into the clean cooking gas economy, bringing them out of the toxic drudgery of firewood and kerosene.

Schemes like Modicare and crop insurance are designed to bring in private investment to fill gaps on the social front—which many see as a route worth pursuing in straitened times when the State finds it difficult (or is unwilling) to step in. But, for that to work, these schemes have to be nurtured properly. Says Hegde, “The government has to create an environment for social sector spending by the private sector as the government cannot do it. But that environment is not being created. Social spending is not on the government’s radar either.”

Some experts believe the lack of focus on the social sector was because of attention being on other areas. Says Barua, “In every government, something gets priority and others do not. A lot of social sector issues are governance issues, but much more could have been done. The need to pay more attention to this side emerged in the middle of the NDA’s term. Also, the social sector is difficult to figure out because of Centre-state issues and it’s not clear who is res­ponsible for the sluggishness.”

Infrastructure is possibly the only area where the government has achieved a lot on the ground, especially in roads and highways, even ports. Says Barua, “The only cure for the balancesheet is for the government to invest actively. The government did it by investing in roads and infrastructure. There has been a coh­erent macro-economic strategy post the slowdown of 2012 and one can see the elements of a plan.”


Helmed by the proactive Nitin Gadkari, highways have seen a lot of visible expansion. Data released by the Union ministry of road transport and highways indicates the Modi government built 73 per cent more highways in its first four years as compared to the last four years of UPA-II. According to reports, 28,531 km national highways were constructed since FY 2014-15, contrasting with 16,505 km by the previous government up to FY 2013-14, a clear gain of an astounding 12,026 km.

On a macro level, though, the ­economic highway ahead may not be very smooth: a tough fiscal ride is ­predicted. Says ICRA principal economist Aditi Nayar, “Fears of a fiscal slippage may intensify following the sharp 23.5 per cent YoY rise in the fiscal deficit in April-October FY2019, which has crossed the budget estimate for the full year, despite the rel­ief offered by the recent correction in crude oil prices.” The extent of a pot­ential fiscal slippage in FY2019, Nayar says, would be shaped by factors like targets being met for GST, excise duty, dividends/profits and disinvestment, and the adequacy of outlays for rev­ised MSPs, the NHPS or Modicare, fuel and other subsidies.

Tax revenue growth continues to display mixed trends, with a healthy expansion in direct taxes juxtaposed with a contraction in indirect tax collections. The uptick in headline GST collections in October 2018 is likely to have been led by quarter-end ­adjustments. It remains to be seen whether GST collections continue to exceed Rs 1 trillion in the remainder of FY2019, particularly in the festive months, despite the recent GST rate cuts. Nayar expects a shortfall in indirect tax revenues in FY2019 relative to the budgeted level, driven by CGST and excise collections.

CRISIL’s Joshi ranks the Insolvency and Bankruptcy Code, which he calls a fundamental reform with a long-term effect, and GST as two major initiatives the Modi government has been able to push. “One can argue these were initiated earlier, but this government has managed to take it forward, so the implementation is associated with the present regime,” he says. GST, being structurally complex, did not offer a good narrative initially, but the government is learning on the job. Like with the Bankruptcy Code, the virtuous effects will play out over the next three to five years, he says. GST was also affected because the government kept on changing rates. Many other countries too have taken 10-15 years to stabilise GST, believe economists like Barua.


Much has been made by the government of India having risen to 100th place in World Bank rankings this year from the 130th rank in 2017. But many economists and academicians question the nature of the data on which the ranking is done. R. Nagaraj, professor at the Indira Gandhi Institute of Development Research in Mumbai, says the World Bank report is a very subjective index, and done in two cities—Mumbai and Delhi. “It bas­ically manipulates certain procedures. How they translate it to ground reality is open to question. More importantly, it’s a highly political index,” says the economist, wondering what has changed on the ground. “The question is how do you collect the data? Were employers consulted? Were workers spoken to? Or the actual people who apply for starting business? No!”

Jayan Jose Thomas of IIT Delhi also questions the yardstick, arguing that if it’s related to ease in getting clearances for starting a new enterprise, then it’s all for the good. But if it means overlooking the rights of the labour force, or environmental degradation, then it’s undesirable.

Photograph by Jitender Gupta

Ravinder, joint secretary, department of industrial policy and promotion (DIPP), disputes this and justifies the ranking as the outcome of four years of hard work. “The ­entire work of Ease of Doing Business started in 2014, keeping in mind the World Bank criteria. But the government decided to go beyond those ­criteria and took it to the states also,” he says. While the World Bank has a case study approach and looks at 10 areas for starting a business, the DIPP decided to include more areas.

“We found that labour is studied, but not covered by the World Bank. Similarly, environmental clearances and inspections are not covered by them. All these things were in the ­reforms plans we made for the states,” the official adds, saying the rising ­international confidence in India is showing in a concomitant rise in FDI inflows. The FDI inflow had peaked in 2011-12 at $46.6 billion, then waning till 2015-16, when it started a continuing graph of growth. Last year, the ­inflow was around $62 billion.

The economy is a mysterious com­pound, though. A lot of it is based on perception, experience and memory. People judge on the basis of tangible factors like remembered pain, or felt comfort. Has the Modi experience matched the promised Modi magic of 2014? Verifiably not. But has its patchwork quilt offered enough warmth to see it through 2019? We will know in a few months. The farmer will also vote, but not necessarily only as farmer. There are also things beyond the economy, stupid.


What Has Worked For Modi

  • Roads and highways Taken off after hiccups
  • Digitisation Move towards digital payments picking up
  • Tax net Widened by 15-20 per cent post GST and DeMo
  • GST Helped to ease business and ­improve tax administration
  • Health Insurance Higher health insurance through Ayushman Bharat


What Has Proved Dismal

  • Demonetisation Failed to achieve any goals, hit GDP
  • MSMEs Hit by DeMo and GST
  • Employment Job creation remains a question mark
  • Make In India Yet to make an impact
  • Farmers In crisis, with no real gains

With Preetha Nair

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