Narendra Modi: The next five years ahead
The BJP’s vote share has increased hugely. But India's economy is also on slow-down. PM Modi, with a mix of welfare schemes and market reforms, must unleash new economic energy.
Narendra Modi has set two milestones in his second term as Prime Minister. First, 2022: the 75th anniversary of Indian Independence. Many of Modi’s welfare schemes for the poor that contributed significantly to his victory in the 2019 Lok Sabha election need to reach successful outcomes by then — rural electrification, health insurance, sanitation, digitisation, infrastructure and housing. Many remain works in progress. By August 15, 2022, three years into his second term as Prime Minister, tough questions will be asked.
Why has open defecation continued, despite the extraordinary rise in coverage of toilets across India from 43% before 2014 to 98% today?
The answer: culture and religion.
Toilets in some villages have been converted into storerooms — many lack sewage connections and are unusable.
On rural electrification, last-mile connectivity remains a problem. For free LPG cylinders, refills are often unaffordable for many poor families. In health insurance, top hospitals have been reluctant to empanel themselves, citing low rates set for various surgical and non-surgical treatments.
All of this captures the scale of what Modi is attempting to do — and largely succeeding — though the job is yet half-done.
Modi’s welfare schemes for the poor put to shame the Congress’ record since the 1971 empty slogan of garibi hatao.
All the pro-poor welfare schemes that the Modi government has initiated since 2014 should have been initiated and completed by Congress governments which ruled India for 55 out of the last 72 years.
The Modi government inherited a broken economy in 2014 — high inflation, high fiscal deficit, low GDP growth. Modi’s five years have focused on “micro reforms”, welfare schemes principally, but less so on macro economic reforms.
Over the next three years, by the first milestone of mid-2022, Modi therefore has two complementary tasks. One, take the welfare schemes to their conclusion, ironing out the wrinkles in their execution. Two, refocus on the broader economy.
Here the task is onerous. Economic growth has slowed. Private investment is down. Banks are moving cautiously from the ICU to the general ward as NPAs get extinguished under the Insolvency and Bankruptcy Code (IBC), despite judicial bottlenecks.
Clearly, the economy needs a stimulus. Economists often throw up their hands in horror when pump-priming the economy is suggested, warning grimly of inflation. But with food inflation below 1% and wholesale inflation around 3%, those fears are exaggerated.
The Indian economy needs a booster shot on both the supply and demand side. That means recapitalising banks to revive corporate lending so that private sector investment starts buzzing again, increasing the supply of goods and services.
The RBI’s Monetary Policy Committee (MPC) is scheduled to meet in June. It must cut interest rates to reflate the economy, spur investment and propel demand as borrowing costs fall.
On the demand side, tax reform is critical. The new finance minister must cut direct taxes — personal and corporation — to put more money in consumers’ hands, boosting demand and consumption.
Some green shoots are already sprouting. Cement volumes are up by 13% in 2018-19 after years of stagnation, pointing to a new up cycle in the infrastructure and housing sector.
Land reform is next on the PM’s agenda — the land acquisition bill remains in limbo. With five clear years ahead of him and a near-two-thirds NDA majority in the Lok Sabha, bold reforms on both land and labour are essential.
The market value of the government’s stock holdings in more than 80 listed PSUs is reportedly over Rs 18 lakh crore. A target of divesting approximately Rs. 1.5 lakh crore a year from this PSU corpus will increase both the government’s fiscal elbow room and make loss-making PSUs more efficient after privitisation. The market cap of the balance PSUs will continue to increase in expectation of more privatisation, setting off a virtuous cycle.
India’s current GDP is $2.9 trillion. The Modi government must target — and achieve with structural reforms — an annual growth rate of 7.5%. With inflation, following a stimulus to the economy, trending up to 4%, India’s nominal GDP by 2024, at the end of Modi’s second term and his second milestone, should be $4.5 trillion, making India the world’s fourth largest economy — ahead of Germany, Britain and France.
The new Modi government’s foreign policy agenda with the United States, China and Pakistan will be more robust if the economy returns to good health. Geopolitical power flows from economic power, as China’s rise has shown.
Less regulation, less bureaucracy and less government will help Modi achieve the second milestone of a strong macro economy by the end of his second term: May 2024.
One key statistic of this election will send a chill down the Opposition’s spine: the BJP’s vote share has reportedly climbed over the past 35 years from 7.6% in 1984 to 37.5% in 2019; the Congress’ vote share during the same period has fallen from approximately 48.1% to just over 20%.
It might be a frightening prospect for the defeated Congress-led Opposition, but Modi in 2024, having shattered the caste consensus of the past 30 post-Mandal years as the 2019 Lok Sabha election demonstrated, and with a robust economy and welfare schemes reaching their planned outcomes, could be an even more formidable opponent than he is today.