Post-liberalization, gradualism has been the keyword to define reform measures. The socio-political situation is often used to justify the gradualism more than economic ones even by the mainstream economists. Within this context, two sets of political formation emerged in the late 90s – BJP led NDA and INC led UPA. Both groups, in principles and practice, have a different approach in running the economy. The divergence in approach is further accentuated under the Modi regime. Moving away from UPA era entitlement based higher budgetary allocations for food, health and education with severe leakages, the Modi government has focused on efficient delivery of public goods with increasing transparency and accountability.
Five years of the Modi government present a unique model, politically named ‘New India’. The slogan attempts to bridge the divide between Bharat and India to usher a new era of unlimited aspirations. Understanding the limited role of the state in fulfilling these aspirations, the Modi government has applied a curious mix of policies to facilitate and deepen the market system. The market reforms are complemented by empowering households especially at the bottom of the pyramid. Interestingly, the approach to strengthen economically weaker households upholds the cultural notion of identifying the family as a building block instead of individual-centric standard economic ideas. With a rapidly changing market environment, the family provides resilience by solving a coordination problem and internalizing the externality. Decisions related to work, migration, savings and investment etc. are important with far-reaching cumulative effect for the economy.
Taking forward the legacy of Atal Bihari Vajpayee’s government, the current regime has scaled up the volume and dimension of infrastructure projects. Executing highway projects in record time across the length and breadth of the country has become the hallmark of this regime. Connecting North-East with the mainland and extending that to South East Asia is a tremendous success both for strategic and economic reasons. Through mega infrastructure projects, the government is infusing capital to ratchet up transport connectivity and energy self-sufficiency. The growth of non-rail transport and a decline in peak energy demand is a testimonial of the same along with increasing freight traffic and energy output. High-speed rail (HSR) in collaboration with Japan and waterways in Ganga and Brahmaputra has the potential of redefining the trade ecosystem in the concerned area along with employment opportunities.
In terms of market reforms, this government has achieved two milestones. First, by bringing Insolvency and Bankruptcy Code (IBC) in May 2016, the current regime has salvaged the mounting pressure of debt afflicting both the banking and corporate sector. The burden of non-performing assets (NPA) is an outcome of UPA era profligacy, cronyism and irresponsible lending. No wonder, this problem has restricted the private sector investment and forced the government to fill the gap in spite of fiscal constraints. The lower oil price in the last five years has also helped in this direction. Second, the introduction of Goods and Services Tax (GST) in July 2017 is the single biggest contribution in unifying and formalizing the domestic market after 70 years of Independence. Given India’s federal structure and political manoeuvring required to bring states together, this reform pending for a decade could see daylight only in Modi regime. With initial technical hiccups and businesses facing difficulty in adapting to the new system, it has started yielding results with total GST collection going beyond one lakh crore in March 2019.
Prior to these reforms, Modi government launched the Mudra loan scheme in April 2015 to finance micro, small and medium enterprises (MSME). These units have historically faced troubles of inadequate infrastructure and availability of formal credit to their disadvantage in spite of being the backbone of the economy in terms of employment and output. Improvement in both along with ease of starting a new business has transformed and prepared MSMEs for challenges of an ever globalizing economy. The continuous gain of position in ‘Ease of Doing Business Ranking’ by the World Bank reflects the same. If we look at these reforms and measures together, it is again revealing that the Modi regime has performed well in enabling market.
On the other hand, a closer look at government schemes aimed at households reveals how Modi championed the cause of the people at the bottom of the pyramid. Through Jan Dhan, millions of unbanked population has been connected to the mainstream financial institution. Linking those accounts with Aadhar and Mobile (JAM trinity), direct benefit transfer (DBT) has checked leakage of funds and empowered the beneficiary to make informed choices. This exercise also restores the dwindling trust between state and people. Later, a slew of insurance schemes was launched at nominal costs furthering the safety net and insurance market. A pension scheme targeting unorganized sector workers is an exercise with a focus on the future. In a couple of decades, the demographic dividend will enter into a partial liability with the ageing population.
Building millions of houses and providing electricity connection for free brings families at the bottom of the pyramid into the mainstream. In the same direction, LED bulbs distributed at subsidized rates are a masterstroke in lighting homes and saving millions of units of electricity. This helps in introducing new technology to masses through government intervention. Through Ujjwala, poor households have received access to clean energy. Construction of toilets under Swachh Bharat is a silent social revolution. To overcome the state’s limited capacity in secondary and tertiary healthcare, Ayushman Bharat scheme ensures quality service in good hospital for families below the poverty line. This not only saves a family from entering into the poverty trap but allows them to continue building on with additional schemes made available to them. In addition to this, Jan Aushadhi Kendra provides generic medicines at much lower rates.
Household centric policies inherently place women at the centre. Asset creation and amenities serve familial requirements. This has a political dividend for Modi with loyal female voters across the board. government policies and reforms together bridge the divide between market and masses with focus on families. The emergence of the neo-middle class is one of the link factors. There is an absence of doles but there are incentives for engagement. All the discussion about potential turning into reality becomes possible by enabling the market and empowering households. There emerges an environment for the market playing a more decisive role in shaping the future. At the same time, the state is striving to provide level playing field to the economically weaker section of society. There is a departure from the predecessor in approach but success depends on the strength of new institutions. Old style cronyism is the single biggest threat to the aspirations of millions. For the same reason, this regime has garnered popular support for its fight against corruption.
(Courtesy: Academics4Namo)