Review of Economic Policy of Modi’s Government

A large section of political and economic analysts in India are deriding the Modi Government for not doing enough to change the fortunes of our economy. “Where is the big bang” they ask. Any important measure undertaken by the Government is downgraded as incrementalism. But, none of the analysts craving for big bang reforms have been able to define it properly. They are hard-pressed to provide an answer as to what would actually constitute as big-bang reforms. A more productive exercise would be to dive deep into the analysis of our current situation and provide pragmatic solutions. Unfortunately, very few analysts have been able to study the nuances and go beyond the surface.

A sensible approach would be to temper our expectations and start dealing with reality as it is. Initially, there was hysteria surrounding the future performance of the Government. Later on, as things settled down, the hysteria transformed itself to enthusiastic hype and has now eventually petered down into circumspective hope. What one must realise is that when the Government took control, the coffers were nearly empty. Our fiscal situation did not look good. Inflation was raging and current account deficit was spiralling out of control. After eighteen months, we are in a far better environment.

Of course, it was quite fortuitous for India that oil prices plummeted substantially from its recent highs. But we have to give credit where it is due and recognize that the Government has also undertaken a slew of measures across the board to improve the situation. Most of the measures will take time to unravel and the benefit will only be witnessed in the long run. For example, Banking and Power reforms are much needed and will prove to be fundamental in developing our economy. The Government has also reduced unnecessary expenditure while ensuring efficient auctioning at the right prices for our natural resources like spectrum and coal. Also, there is a perceptible change with regards to corruption especially when compared to the previous regime. The Government needs to be extra-vigilant to ensure that corruption be minimized and eventually eliminated.

The previous NDA government headed by Atal Bihari Vajpayee had a natural affinity towards Infrastructure Development. Even today, the Golden Quadrilateral highway project is highlighted as Vajpayee’s pet project. Given the high gestation period and long term nature of the benefits accruing to common people, the progress in Infrastructure did not translate into electoral victory for NDA. Ironically, the ensuing UPA government greatly benefitted from the platform laid out by the previous Government. It also provided UPA substantial fiscal headroom in undertaking mass Government sponsored programs like NREGA and the highly populist Loan Waiver Scheme. The present Modi Government is taking a leaf out of the previous NDA regime and is wholesomely focusing on Infrastructure Development. It is even taking it a step forward by comprehensively attacking all areas of Infrastructure like Railways, Ports and Airways and not just limiting itself to Roads.

With such massive importance placed to Infrastructure, the Modi Government seems to be doubling down on a strategy which did not yield a positive electoral outcome and yet proved to be beneficial outcome for the economy. This aspect is core to the principle of Economic Reforms. Policy should be based on Economic outcomes and not on Electoral outcomes. Eventually, in the long-run, the twain does meet as effectively displayed by Modi’s Government in Gujarat. Infrastructural Development paved way to attracting investment from across the country thereby quickening the pace of growth and development. To cut a long story short, the development of Gujarat catapulted Modi as a national leader to reckon with. Eventually, Gujarat’s track record proved to be a major catalyst for Modi’s electoral victory in the general elections.

The current Government is applying the formula of the Gujarat model into the national context. Implementing this model across the nation will entail dealing with far more complexity than at state level. There are too many moving parts and variables and hence the policy should also evolve to meet the forthcoming challenges. Any well-thought out policy needs to be backed up with proper intention and implementation. There is enough evidence to show that the policy-makers at the helm are rising up to the challenge and are taking a comprehensive approach to develop the economy. But, since many measures are long term in nature, the detractors of the government and even well-intentioned analysts are taking this as an opportunity to portray that not enough is being done to improve the economic state of affairs.

My only submission is that we should go beyond labels like big-bang reforms or incremental reforms and focus on the nuances of the situation. There is no two word solution and there never was. Like all things in life, the devil lies in the details. Let us be patient and give development a chance.

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