Monday, 27 March, 2023
HomeOpinionModi's sweeping win tilts India's political economy against much-needed reforms

Modi’s sweeping win tilts India’s political economy against much-needed reforms

Modi will push for his version of state-driven capitalism led by a strong leader. But we know that can't work in a complex, private sector-driven economy like India.

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Over the last couple of years, in many conversations, Bharatiya Janata Party (BJP) supporters expressed concern that with the way things were going, prime minister Narendra Modi and the BJP would be lucky to hang on to 160-180 seats, making his continuation as PM unlikely. I disagreed, arguing I have more faith in Modi and BJP party president’s Amit Shah’s electoral magic.

While I consistently predicted a Modi return, even I am stunned by the scale of the victory. Let me also be clear: My opinion, that Modi would come back big, was not based on any statistical model or scientific polling, but simply a gut instinct. That instinct told me that, unlike the genteel Rahul Gandhi of the Congress, Modi and Shah always play to win, never to come an honourable second. For one thing, the stakes, were they to have lost, were too high to contemplate.

Also read: Modi reigns supreme. Now India’s economy awaits

There’s no question Gandhi had improved his game and managed to lead the Congress to some key victories in state assembly elections in the Hindi heartland last December. But the party was slow to get its electoral act in place, squandering the first two to three years and finally waking up after Gandhi was elevated to the post of party president. In the end, it was too little too late, with a diffused campaign focused on issues that failed to resonate, such as the Rafale controversy, which did not dent Modi’s personal appeal to many voters.

Whatever the reason, the fact is Modi won a handy re-election in the context of a struggling economy, controversy over fudged and suppressed data, clear evidence that all was not well in many sectors of the economy, to say nothing of the unresolved jobs crisis. To all of those, including me, who argued Modi urgently needed to address these issues, there is now an easy political answer: he did not have to. Modi supporters can now blithely dismiss such issues as irrelevant, or that they are “urban legends” propagated by an out of touch liberal elite. One Modi appointee even branded my comments on the economy as “vitriolic”.

The irony is this: The need for reform after yet another five years of wasted opportunities is more pressing than ever. Yet the sweeping magnitude of Modi’s win — campaigning on everything other than the economy — tilts the political economy heavily against any further reforms. And let us be clear. Rolling out a plethora of branded schemes and projects is no substitute for genuine structural reform even if we grant some people voted on that basis. Indeed, Modi is going to double down on his preferred model, a version of East Asian state-driven capitalism, presided over by a strong leader such as himself, his exemplars being Singapore and Malaysia.

But, we know such a model can’t work in a large, complex, and principally private sector-driven economy such as India. The truth is, after 1991, and through the late 1990s, the PV Narasimha Rao and Atal Bihari Vajpayee governments unshackled India’s private sector and laid the foundations for what we have today.

Also read: India’s new govt will get an economy riddled with problems

These reforms, now well in the past, are nowhere nearly enough to sustain growth, as the data themselves reveal. India can’t possibly even dream about double digit growth without further fundamental reform, especially of labour markets, financial markets, and greater privatisation of public sector undertakings — to say nothing of simplifying the Goods and Services Tax into a single rate with minimal exemptions. This was one of the Congress party’s more sensible manifesto ideas, and Modi would do well to stick true to form and pluck the best ideas of his defeated predecessors.

But, I wouldn’t hold your breath, as the people have spoken. It affirms to Modi that all of his choices in his first term were correct: Including whimsical policy measures such as demonetisation or fielding a terror-accused as a Lok Sabha candidate. This is going to be Modi’s New India.

Rupa Subramanya is a Mumbai economist. The views expressed are personal.

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  1. Most anti Modi economists are infected with “But the truth is …” virus as if they only know the truth and non in BJP know those truths.To propagate their line of thinking they hide the facts that no solution is without prones and cones. They dislike Modi but continue to suggest – what and how Modi should do. They forget that people have given mandate to Modi and not to them. There are multiple ways of doing the same thing with similar results. They should reconcile to the reality and contribute positively. For example if Modi government adopts an approach to solve a problem, these anti Modi economists should restrict their role to suggest improvement to the approach. If they rubbish the approach, Modi will any way apply it without improvements. I understand that Modi is smart enough to evaluate and accept the improvement suggested even by his haters. Modi has repeatedly said he looks for positive suggestions and not accusations. Modi knows well how to respond to criticism for political purposes. Therefore, instead of declaring that Modi has wasted first 5 years term or done nothing, they should stop churning half baked stories and start contributing positively.

  2. One import sentence in my comment is inadvertently mistyped. It should read : “But overall, it is an undeniable truth that crores of families have been benefitted.” Sorry for the error.

  3. Modi is a conservative Gujarati. He will not overspend. It can be reckoned from his first term that barring the failed gamble of demonetisation, he has been a cautious incrementalist. The idea of a single rate GST appears very attractive on paper but is not feasible in practice. The implementation was very cautious, as the government was apprehensive of the possible impact on direct tax collection. In addition there also commitment to states to make good deficit in tax collection. Now that the indirect tax revenue has stabilised at around Rs. one lakh crore per month, changes can be initiated. Other reforms include Insolvency and Bankruptcy Code and RERA. Consolidation in public sector banking is attempted. There is no wisdom in total privatisation of the banking industry. Modi will go step by step. However, in social sector economics, he is very aggressive. In the first term he introduced many schemes that had a strong bearing on the election results. I will just mention two (1) PM Awas Yojana – Urban & Rural. More than 39lakh families in the urban areas from the lower middle class have been benefitted. In the rural area the number is around one crore! (2) Encouraging self-employment through Mundra Yojana. The numbers are fascinating. In 2018-19 , total sanctions were to the tune of Rs.3 lakh crore to 5.41 crore borrowers. These are government numbers and could have some exaggerations. NPA generation is also reported. But overall it is an undeniable truth the crimes of families have been benefitted. These are just two examples which indicate why Modi was re-elected. The foremost reason for Modi’s re-election, however, is very low inflation. Inflation hits the poorest very hard and, therefore, is a destroyer of vote share. All other economic parameters are just statistical numbers; they don’t impact voters directly, but not inflation. Very high inflation is the single most important factor why UPA-2 lost in 2014.

  4. You jokers have this arrogance that only you know and rest all fools. The country was run by them only with out any negative impacts. You can’t digest this and write crap and also beg for sustaining .

  5. That would be the wrong conclusion to reach from the electoral sweep. Whether it is six thousand per annum under the PM Kisan Yojana, or six thousand per month under NYAY, these are cash doles, pocket money. The Congress would have struggled to find 3.6 trillion per annum for funding NYAY, amidst a slowing economy and loss of tax buoyancy. Mrs. Gandhi as a fantastic politician and a lousy economist. She had the mortification of seeing her stratospheric popularity melt from about 1973 onwards, almost entirely due to economic distress. 303 MPs in the Lok Sabha do not give the government a magic wand to remove poverty, true, but there is no option to deep structural reforms. A gifted Finance Minister and a team of world class economists need to start work on a patient who I reckon is in the ICU.

  6. “……lead the Congress to some key victories in state assembly elections in the Hindi heartland last December. ”

    Again and again the refrain from commentators the past few days (and past few months).

    Nowhere these wise pundits will tell their readers that the two of the three victories in Rajasthan and MP were razon thin (by a few seat or two more) and in MP and Chattisgarh the govt in power had already been there for several back to back terms…

    If against such background were the “handsome” victories — the naamdaar owas instrumental in these triumphs — then clearly the Cong was being set to fail.

    Wittingly or unwittingly the Cong (and the naamdaar) believed the hype — then too voters said for Lok sabha they would vote differently.

    But goaded by flatterers in the media Cong chose not to read the tea leaves.


    Is the author the same as the one who had coined the term BRICS with another economist from McKinsey??

    I think not coz’ the analysis is perfunctory.

    Had the author been observing….. the GST rates are basically two now… very few items remain in the highest slabs. GST when introduced had to be revenue neutral….so you could not have a single rate at once — the same rate for daily necessaries and a Mercedes car of course cannot be the same.

  7. Modi’s knowledge of economics is better than only mine. Growth of people only comes through jobs, jobs, and more jobs. Because that alone gives purchasing power, which in turn gives a sense of wellbeing, happiness, and also gives a fillip to economy as a whole. And this is the fundamental thing that Modi is chary about. HE DOES NOT WANT TO GIVE JOBS to people who do not measure up by certain Hindutva yardstick. Didn’t we hear about lakhs of jobs that remain vacant in schools, colleges, Government offices? Why weren’t those vacancies filled? Why was there no mention of job creation in BJP’s election manifesto? Didn’t we hear him say yesterday, something about the struggle of 1857, and that we should exert ourselves in the creation of…now I missed the exact word…did he say SURAJ or SWARAJ? The former only means good governance, the latter could mean some Hindu Raj or something like that!

    I am keeping my fingers crossed. He and his good friend Jaitley don’t know much economics, that we have seen. I really don’t know what Narendra Modi is really up to. He will need to be watched. Who knows, like a bagpiper he may take us all into the sea!

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