10 Modi Mantras That Have Set The Stage For India's Amrit Kaal
Modinomics has put India in a sweet spot.
The building blocks for India's Amrit Kaal are more or less in place.
After nearly 21 years in governance, both in Gujarat and at the Centre, the man still continues to astonish people both at home and abroad.
While winning elections and remaining politically popular is not something Narendra Modi alone can teach us, what separates him from other political leaders of stature is what he does after winning. He governs, and he does not flinch from taking temporarily unpopular decisions if they are in the country’s long-term interest. Nothing demonstrates this more than how his government handled the economy over the last eight-and-odd years, including the difficult Covid period.
Here are 10 things that separate him from other political leaders in terms of governance and performance.
First, Modi inherited an economy that was a shambles. To make matters worse, we got two years of back-to-back drought in 2014-15 and 2015-16. It would have been tempting for any leader to keep blaming the previous government for this, but Modi embraced the problems as his own and went about fixing them one by one.
Even though the fiscal deficit number he inherited from the UPA was grossly understated, he accepted the reality and focused on meeting his targets. Great leaders seek to solve problems, not apportion the blame.
Second, all leaders get their fair share of adversity and good fortune. In Modi’s case, by end-2014 he was presented with a falling crude price, which helped him to keep inflation low. But he did not blow this good fortune away by distributing freebies and revadis right and left to buy himself popularity. He used the low global crude prices to strengthen the fisc and keep government solvent.
Also, by imposing high carbon taxes on petro-fuels, India ensured that there would be no extraordinary spike in petroleum demand back home – important in a country which imports 85 percent of its crude. High carbon taxes also enabled renewable sources of power to become competitive.
Now consider how the UPA used its own fiscal bonanza. In 2010, the 3G auction delivered over Rs 1.06 lakh crore in revenues. But what did the Manmohan Singh government do with the money? It blew it all away in non-merit oil subsidies. And scams came tumbling out of the closet after this bonanza.
Modi could easily have burnished his populist credentials by passing on all the oil price cuts to petrol pumps and consumers, and later paid the price when crude started spiking. But he took the right decisions without courting popularity at the exchequer’s expense. Lesson: what you do with good luck is almost as important as what you do in adversity.
Third, never be afraid to take hard decisions, if they work in the country’s long-term interests. In 2016, he opted for demonetisation, and in 2017 Modi introduced the goods and services tax (GST). Both were economically disruptive, but were in the country’s longer-term interests. But did he flinch? No. Did he try to weasel out of a difficult situation? Absolutely no.
Consider where we would have been if Demo had not given digital payments a massive push? We are now world leaders in digital payments. Also consider what would have happened during Covid if physical payments were the only means to transact everyday purchases.
When we were telling people to wash hands regularly and maintain physical distance to avoid the virus, would the frequent need to exchange physical notes and coins for every small transaction have helped? Covid could have spiked through this contact.
Instead, Demo and GST helped the online grocery and delivery system to step in when physical contact was avoidable, and new jobs were created online that could not have been created offline during those days. And the massively critiqued GST is now delivering in spades – over Rs 1.4 lakh crore consistently every month for the last half year. Lesson: the difficult decisions you take when times are good help when times get tough.
Fourth, develop a long-term vision, but pay close attention to detail and plumbing.
Both Aadhaar and direct benefits transfers (DBT) were being contemplated during the UPA regime, but they were never implemented with commitment due to fears of upsetting vested interests.
Under Modi, the JAM trio – Jan Dhan, Aadhaar, Mobile - ensured direct delivery of subsidies for beneficiaries, from gas cylinder subsidies to MGNREGA wages.
During Covid, while the US was busy writing physical subsidy cheques to affected people and businesses, India transferred Rs 500 every month to women at one click of the button. This is first-world service delivery using relatively a poor country’s limited resources. This was possible not only because of the JAM vision, but because the plumbing for services delivery was fixed before Covid hit us in the solar plexus.
Fifth, plan for size and scale. No Modi scheme suffered from myopic vision. If it was Jan Dhan, it was about covering every household, not just households in electorally critical areas or states. If it was electricity, it was about ensuring that the last man living farthest from the grid got access to power. If it was about saving electricity, LED bulb sales were pushed by crashing prices and delivering huge demand. If it was pension for the poor or access to finance, everyone from the day labourer to the street vendor must be able to help themselves. In Modi, scale was key to execution and delivery.
Sixth, empowerment, not entitlement. In today’s revadi-based political culture, Modi stands out as someone who tries to enable the poor to help themselves, and not give them endless freebies at the cost of fiscal rectitude and common sense. Thus, pension schemes were partly subsidised, but not gifted away for free.
The Ujjwala scheme was to enable the poor to use gas and avoid smoke-belching firewood, but not free gas.
In the next two years, the plan is to provide nal se jal, tap water to all households. Consider what a relief this will be to millions of women who trudge from homes to fetch water from distant sources every day.
If water comes to the home for even half an hour every day, it will meet all requirements around the home. This will free women to focus on part-time jobs and gigs. Empowerment is the key, for it enables the poor to benefit by being partial contributors to their own economic upliftment.
Seventh, common sense economics, not grand fiscal rhetoric and action. When Covid impacted jobs and livelihoods, the consensus among both opposition politicians and global economists was to provide endless fiscal stimuli and free cash (a.k.a “helicopter money”) to the poor. But Modi’s economics team was more grounded and in tune with the Prime Minister’s own conservative fiscal instincts.
They ensured that no one went hungry by making free foodgrain available to the poor (over 80 crore people), but kept fiscal giveaways in check. Result: when the world is keeling over due to excess stimulation of the economy with borrowed money, India is the only fiscally prudent country of any size left standing.
Eighth, more formalisation of business and personal finance.
Between Demo, GST, Jan Dhan, and the unified payments interface (UPI), among other things, the Indian economy is being formalised as never before. While informal and family businesses are important, global competitiveness needs India to develop more competitive and technologically-strong middle-scale businesses, and businesses that pay their taxes.
We must have a middle sector playing a crucial economic role between very large businesses and more fragile micro and small businesses. In Germany, this sector is called the Mittelstand, and in India we are in the process of creating this segment which tends to create more jobs and better-quality ones at that.
Ninth, never run away from bad news or stop chipping away at structural problems, even if they take a long time to resolve.
When Modi took over in 2014, the banking system was in bad shape, even though this was not apparent from their reported results. In 2016, he enacted the Insolvency and Bankruptcy Code (IBC) and, together with the Reserve Bank of India, forced banks to reveal the true nature of their bad assets and start bringing them down - painfully.
For five years, banks bled profusely and the Modi government capitalised them repeatedly. The corporate sector was forced to deleverage and slim down.
In the past, big businesses could dump their bad assets with banks and keep their good ones; IBC forced them to do the opposite, and many businessmen were forced to sell their viable assets to settle with banks.
This is how, over five years, India solved its double-balance-sheet problem, where banks did not have the ability to lend, and borrowers the ability to repay. This problem is now behind us, and Indian banks are in a position to support growth once more.
Tenth, avoiding conventional wisdom when the need of the hour is consensus. In the West, the fight against inflation is being led largely by the monetary side, but in India, both monetary and fiscal policy have been coordinated to deliver a much better outcome. This is why our inflation is more in control than even the US, Britain or Europe (an unheard-of phenomenon in living memory), and China is trying to address a slowdown in infrastructure and a collapse in real estate.
Our real estate is reviving, and our infrastructure never lacked for investments during Modi’s tenure so far. Lesson: when your house is on fire, you don’t argue about whose job it is to put it out.
Thanks to eight years of consistent hard work, no matter what the permanent critics say, India is now close to Goldilocks territory, with inflation gradually easing up, growth still in the 6.8-7 percent range, a fiscal situation well in control, the rupee holding up better against the dollar than other currencies, and a phenomenal start-up culture that is throwing up unicorns every other month.
Modinomics has put India in a sweet spot. The building blocks for India's Amrit Kaal are more or less in place.
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