Part 1: Modi Raj’s 4 Economic Reforms in 5 Years is Unflattering

Perhaps the only “grey box” in Modi’s record is over the economy. People are truly divided here.

Modi’s economic reforms can be counted on less than the fingers of one hand.

(Photo: Shruti Mathur/The Quint)

Phew, Prime Minister Narendra Modi 1.0 is done. With the Model Code of Conduct for the general elections now in force, his first innings has effectively ended. As he pitches to get re-elected, we should call in his report card.

Since he was a high-voltage, forever-campaigning CEO who took all key decisions in a my-way-or-highway style, most of his achievements and failures can be docked in black and white boxes.

Prime Minister Narendra Modi’s report card.(Photo: Shruti Mathur/The Quint)

So, to paraphrase Prime Minister Modi himself:

<i>“Sava saw crore Hindustani yeh jan-na chahtey hain ki Modi nay arth vyavastha ko mazboot banaya ya ek bahumulya mauka gavadiya? (1.25 billion Indians want to know if Modi strengthened the economy or squandered a priceless opportunity?)”</i>

Modi’s Four Reforms in Descending Order of Importance

I will try and answer this question in two linked articles (Part 2 shall follow in a few days). In this one, I start with the positive bits – frankly, in my humble opinion, this is the shorter, easier part of the analysis. Because unfortunately, Modi’s economic reforms (not tweaks, not administrative actions, but reforms) can be counted on less than the fingers of one hand; to be precise, here are four achievements, in descending order of importance:

• Ujjwala: Under this scheme, over 60 million poor/rural women were given free LPG connections, to yank them away from harmful smoke chullahs. Wait, I can already see that many of you are up in arms. Why am I calling just another subsidy/freebie a “reform,” you will ask angrily? Because this is perhaps the only Modi scheme whose underlying economic principle is genuinely reformist, ie a move from generalised to sharply targeted subsidies. And even more critically, the prime minister donned a free marketer’s hat, launched a non-coercive campaign to persuade non-merit subsidy takers to voluntarily give up in favour of those who needed the handout. Just see the half a dozen words I have emphasised? Targeted, free-market, non-coercive, persuade, voluntary, need. These words should be at the core of any pedigreed economic reform. But alas, Ujjwala is the only Modi initiative that ticked all these touchstones. Which is why, in my book, Ujjwala is the sole idea that Modi can proclaim as his genuinely reformist move.

• Insolvency and Bankruptcy Code (IBC): Finally, badly run companies in India can be legally wrenched from corrupt (sometimes, incompetent) owners. India was often derided (and correctly so) as an economy thick with poor companies/shareholders but extremely wealthy founders (sub-text: those who had skimmed value from public to private assets). Mercifully, now the fat-cats/crooks can be brought to book. The only reason I’ve placed this fundamental change at the second place is because the legal architecture could have been tighter, with fewer loopholes – but heck, this is a big reform, no question about that.
• Direct Benefit Transfer (DBT): While this is another huge reform – nearly Rs 2.8 lakh crore ($40 billion) of sops were transferred directly into the bank accounts of authentic beneficiaries this year, thereby saving Rs 1.20 lakh crore ($18 billion) in leakages/fraud over the last four years, and eliminating almost 70 million fake accounts over several schemes – Modi will have to share credit here with his abhorred Congress/“family”. Because, whether he concedes it or not (he never will!), the foundation for this massive reform was laid by the political foes he endlessly vilifies, viz Dr Manmohan Singh and Sonia Gandhi, who created the Aadhaar digital identity superstructure for over a billion people (to complete this messy picture for Modi, he had vehemently opposed it under the earlier regime). So, this one cannot be game, set and match for Modi. At best, it’s a draw for him, with equal credits.

• Finally, the Goods and Services Tax (GST): This is truly one legged, but nonetheless a reform. It’s been made horribly complicated, the very anti-thesis of what a GST is supposed to be. Here’s one egregious example from just the last week – one fine day, the GST Council changed the design for real estate transactions from a 12 percent rate to 5 percent, but “without any input tax credits”! Now tell me, if there is no credit, can it even be called “GST”? Shouldn’t it be called just another plain indirect tax? But then, who bothers with these niceties in the Modi government. And wait – less than a week later, this change was changed again!! Now you could choose – ie, you could do 12 percent with input tax credits, or 5 percent without. This astounding illustration merely proves why the “Modi GST” is really a GST more in nomenclature, far less in substance. To cap it up, you’ve got more than half a dozen rates, cesses, exemption for alcohol/petroleum products etc etc. Net net, it’s hardly a GST, but given that it’s a generic, elemental change in our federal tax structure, let’s be charitable and cut Modi some slack. At least he’s taken the first (albeit faltering, stumbling) step on the road of this arduous tax reform.

So that’s it. Four economic reforms in five years of a full-majority government after 30 years!

What would you call it – good, bad, underwhelming, or ugly? But before you pronounce any judgment, let’s be fair and assess the rhetoric that Modi has been peddling at business summits (outside of “revolutionary pro-poor schemes”):

• Foreign capital: FDI inflows in the past four years have been almost equal to that in seven years before 2014 (so deft, right? But he makes no adjustment for either the time value of money, or shares within a sharply growing nominal GDP)
• Between FY12-14, average annual equity financing was Rs 14,000 crore vs Rs 40,000 crore over the past four years (cute! Compare two crisis years of UPA with four of his own when the world is in the pink of economic health)
• Average annual placement of bonds was $40 billion in 2011-14; it’s been $75 billion over the past four years (same cuteness repeated!)

This is vintage “Modi spin” on economic stats. But does it change the picture by very much? As promised, my accompanying sequel to this “positive” piece will capture all the economic negatives of the Modi Raj. Brace yourself for a tough ride.