Making sense of Modinomics

Taking stock of the economics ideology of Prime Minister Narendra Modi and how it has impacted India in the (almost) three years that NDA has been in power

In a little less than three weeks from now, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will complete three years in office. It is a good time if any, to take stock of its economics ideology; since Prime Minister Narendra Modi defines everything about this NDA government, it is only appropriate to dub it Modinomics (taking from Abenomics defining Japanese PM Shinzo Abe’s policy thrust).

A quick perusal of some of the big-ticket decisions undertaken by this government suggest that its economics playbook has logic, but not one defined by its right-wing predilections alone. Exactly why it is almost impossible to predict NDA’s actions; and probably why it ends up in the cross hairs of its critics on both sides of the ideological divide who are confounded by its lack of consistency.

While the right accuses it of abandoning the core principles of nudging India towards a truly market-based economy, the left wing critics argue that the NDA hasn’t done enough for the less privileged in the country (and there are about 400 million people living below the official poverty line).

The truth lies somewhere in between.

Modinomics seems to be inspired by results. Given that end, the means merely justify it. So if anything, it seems to be driven by pragmatism and an innate ability to embrace risks associated with out-of-the-box policy decisions (like demonetisation). As a result, its actions are an incredible summation of ideas loyal to the right, left and centre.

In terms of macro numbers, even the prime minister’s worst critics will concede that the worst is behind—though nobody knows when exactly the best will come. Particularly significant has been the battle against retail inflation, lowering it from double digit levels to about less than 5%—and in this the Reserve Bank of India with its singular focus needs as much if not a greater share of the credit.

The biggest worry, however, in the medium term continues to be reviving investments in the economy and generating enough jobs to absorb the 11-12 million joining the workforce every year—both of which will be overriding issues in the upcoming re-election in 2019.

What galls right of centre purists is that despite its predilections, the actions of this government speak otherwise. For instance, one of the promises it got elected to office was on ‘minimum government, maximum governance’; but the last three years has seen this government only expand its role.

Yet at the same time, it has been true to fiscal dharma. Besides sticking to its annual target, it appointed a high- level panel under N.K. Singh, a former revenue secretary and MP, to chart a new blueprint.

It is its pursuit of the anti-corruption agenda which has foxed most people. While most could grasp the logic of the NDA laying the framework of a rule-based regime through a tighter scrutiny of tax returns (especially its latest decision to link Aadhaar with PAN or personal account number for taxpayers), they were totally thrown by the decision to abruptly demonetize high value currency notes on 8 November.

Overnight, Modinomics came to be reviled, especially when the administration learnt that the corrupt were more innovative and the existing system more flawed than they had imagined. Its economic logic, however, got consigned to history as it turned out be a political masterstroke—with most voters seeing it as a bold example of a regime’s bid to walk the talk in the fight against corruption.

Similar confusion abounds in the battle for economic empowerment. The Congress-led United Progressive Alliance (UPA) defined it as a massive populist exercise, which cost the exchequer dear. Modinomics condemned this unequivocally and ridiculed the marque rural employment guarantee scheme; yet it did not cut back allocations and instead increased it to a record high (obviously recognizing the value of it as a short-term safety net to mitigate rural distress caused by poor monsoons).

At the same time though, it has pursued the idea of ‘one nation, one market’ for farmers to sell their products—integrating them into the market economy like never before—instead of getting locked into regional markets controlled by vested interests. The idea of a revamped crop insurance scheme is yet again the use of a market-based instrument to underwrite risk.

Its anti-poverty thrust (like the subsidized cooking gas, electricity for all and health policies for the poor) seems to be driven by the desire to economically empower, instead of purely raining the needy with freebies, and then nudge them to integrate into the formal economy.

It is clear then that Modinomics is bereft of orthodoxy. Eventually it will be judged by deliverables. And in this there is only one metric: jobs. Unfortunately, any official data on this government’s record will be available only after 2019. It will then boil down to managing perceptions. And that is pure politics.