The Modi Government, Four & A Half Years On: An Economic Analysis

Published on: October 25, 2018
Written by: Yash Johri

With election season upon us, in this piece, Johri highlights the structural challenges that the Indian economy faces and what work the Modi government has done to tackle the problems within the competitive political framework of a multi-party democracy


The news this week has been dominated to a large extent by the alleged Rafale scandal, the Kisan Kranti Andolan and the recent supersession of the erstwhile governing board of IL&FS, an Indian infrastructure corporation. These recent developments betray cronyism, financial mismanagement and frustrations resulting from prevailing economic inequality as well as the urban rural divide. While the socio-economic development model that resulted as a consequence of the opening of the economy in 1991 has so far benefited India to a very large extent, it hasn’t yet reached all citizens in equal measure. The early investment cycle leading up to the latter part of the last decade resulted in comparisons between India and China, with the world seeing India as being able to compete with the our eastern neighbor. Such comparisons were premature with the Chinese economy today more than four times the size of India’s. Unethical collusion between political and business elites, rampant graft and industry wide financial mismanagement have led to the present situation where the Indian economic story is in the throes of an industrial trough phase. While India still continues to grow at almost 8% per annum, with favorable growth fundamentals of a young demographic and increasing worker productivity, the growth model needs structural revamping to take further advantage of these fundamentals. And to revive and further bolster the role of the private sector and help more evenly distribute economic growth. An Indian version of the ‘new deal’ is required to move India beyond the present situation. James Crabtree, former Financial Times India correspondent in his recent book, The Billionaire Raj compares India at present to the Gilded Age (late 19th century to early 20th century) of the United States, where there existed high wage growth and the creation of a class of nouveau riche alongside vast and abject poverty. The Gilded Age, was a phrase coined by Mark Twain that satirized an era of serious social problems masked by a thin gold gilding. In 2014, India saw Prime Minister Modi and his government as most capable to guide India past the prevailing economic situation.


The prime minister campaigned on the platform of delivering ‘achhe din,’ to fight graft, deliver efficient governance and to restore the go-go years that India saw in the previous decade of year on year 9% growth. Jayant Sinha, a minister in the incumbent government even went as far as comparing Narendra Modi to the 26th President of the United States, Teddy Roosevelt – a president who’s remembered as a successful trust buster and anti-corruption campaigner. The early optimism and expectations of big-bang reforms by the Modi government were scuttled with their inability to implement reforms to the land acquisition process as well as to India’s labor laws. However, investor confidence in India continued to be bullish with a buoyant stock market that continues till today. This investor confidence has been buttressed by a slew of progressive legislation such as the Insolvency and Bankruptcy Act, the Goods and Services tax. In addition to the legislation, serious work in installing renewable energy capacity, road building and data access for all, due to Reliance Jio have acted as fundamental tailwinds to India’s march forward. At the same time, the Finance ministry and the Reserve Bank of India kick started the all-important process of seriously identifying and dealing with the twin balance sheet problem – which had resulted from gross maladministration on the part of lenders. While the government via a recapitalization of numerous banks has attempted to resolve the problem, there is certainly still a long way to go. In addition to the above, the passage of the Aadhar (Targeted Delivery of Financial and other Subsidies, benefits and services) Act, 2016, and the recent upholding by the Supreme Court of India of key provisions of the act bode well for efficient social welfare deliveries in the near future.

While there have been numerous positives its important to highlight the glaring misses as well. One of the Prime Minister’s major campaign promises was tackling the black money problem, however the government’s flagship policy initiative with regard to tackling black money turned out to be poorly planned and hastily implemented. While the move benefitted online payment companies tremendously, it did have a toll on the average Indian who struggles to earn even Rs. 10,000 a month. This experiment while touted as a surgical strike on all that ailed our economy was gradually seen as having a detrimental impact upon numerous small and medium enterprises upon which much of the informal part of the Indian economy is based. The much publicized and touted attempts to build up India’s industrial capacity and to create jobs for our young demographic have also not met with much success. Lack of achievement in this field has of course also been because of the dire state our lending authorities are in. All in all, on while the government hasn’t been able to deliver on their phantasmagorical promises of 2014, ample efforts have and are being made to provide Indian citizens with a ‘new deal’ albeit within the competitive political constraints of a democratic system.  


Accepting that graft at the highest levels has fallen almost entirely and that reasonable efforts are being made for national progress to outweigh the serious constraints imposed on it by electoral politics, there is always a fear of the reverse. This is given that electoral politics in India, a lower middle income are often replete with examples of populist policies such as loan waivers and giveaways like laptops and televisions, that in turn impose serious fiscal pressures. Micheal Walton, Professor at the Harvard Kennedy School – in a recent article in the Business Standard posed the question, “Can India Escape a Crony Populism Trap?” Walton states that while as above stated, high-level corruption has declined but the real plutocrats, India’s top billionaires, have continued to do fairly well over the past four years, with Mukesh Ambani’s wealth increasing 115% and Gautam Adani’s by 250%.  Walton goes on to state, that with regard to political finance and investment deals, while cronyism in the short term can survive it eventually becomes very inefficient leading to major rent extractions. At the same time the government’s problems are only compounded with its practice of the politics of exclusion. We’ve also seen a rise in civic and rural unrest on the planks of community reservations and preferential treatment. This socio-economic mix of challenges facing the India of today are serious and need to be dealt with if we even want to shadow the moderately prosperous society that China aspires to in the coming few years.  

A reading of James Crabtree’s latest work has been most helpful to give structure and to properly recognize not only the present juncture India is at but also the historical forces that have shaped our recent past. “The decades that followed America’s Gilded Age were known as the Progressive Era. This era had a lasting and positive effect, both at home and abroad. Anti-corruption campaigns cleaned up politics. Monopolies were broken up. The middle-class exerted control over government. Prosperity was shared more broadly. Today, India stands at the crossroads of what sort of superpower it will become. As democracy falters in the West, so its future in India has never been more critical [1].”

[1] James Crabtree, The Billionaire Raj: Page - XXV