Narendra Moderately Modi

A good but incomplete report card from the PM on his government

At the Economic Times Global Business Summit last week, Prime Minister Narendra Modi gave a detailed report card on India’s economic performance, and declared “India is open for business”. He reeled off a horde of impressive economic statistics. However, the list was so long and detailed that it became a bit boring, a surprising outcome for a normally lively speaker. Possibly this statistical avalanche helped gloss over some key weaknesses in his ‘New India’.

He recalled that when he came to power in 2014, global markets listed India among the ‘Fragile Five’. Today, he declared, the same markets saw India as a potential $5-trillion economy. India’s macros have certainly improved greatly, and global confidence in India is much higher than in 2014. Moody’s has upgraded India’s credit rating. Yet, actual nominal GDP right now is only $2.5 trillion, barely half of Modi’s new benchmark.

He noted that after coming to power, he had cut the fiscal and current account deficits and slashed inflation. Very true. But consumer inflation, once down to 2%, is rising again and has crossed 5%. Interest rates are rising globally and in the Indian bond market, putting upward pressure on prices.

Worse, the Budget has promised farmers that the minimum support price (MSP) for all crops will henceforth be at least 50% above the cost of purchased inputs and imputed family labour. Former chairman of the Commission on Agricultural Costs and Prices (CACP) Ashok Gulati has shown that last kharif season, MSPs represented a profit margin of only 39% for paddy, 9% for hybrid jowar, 37% for maize, 32% for cotton and 41% for groundnuts.

Since then, input prices have risen a lot, especially for diesel and fertilisers. If, in addition, the profit is raised to 50%, kharif crop prices will rise sharply. Indian inflation is sensitive to food prices. So, the inflation outlook is worrying in the politically sensitive run-up to the 2019 general election.

Recounting Achievements

Modi said as many as 400 welfare programmes now reached beneficiaries through direct benefit transfers to their bank accounts. This impressive achievement cuts delivery costs and corruption, and eliminates ghost card holders. He praised the trinity of JAM (Jan Dhan accounts, Aadhaar and mobile phones) for revolutionising GoI’s ability to reach beneficiaries quickly, without corruption or diversion.

Today, India had 330 million Jan Dhan accounts holding ₹75,000 crore of deposits. The Mudra scheme for loans without guarantees to small and micro industries had, Modi claimed, reached 40 million beneficiaries. Farmers had 110 million soil health cards to guide them on what fertilisers would best suit their holdings.

Caveat: Aadhaar has technical flaws and can affect the privacy of individuals, and the Supreme Court is hearing pleas to scrap the use of Aadhaar for breaching the fundamental right to privacy. Probably the court will approve Aadhaar subject to safeguards.

Modi said the new National Health Protection Scheme (NHPS) will cover 500 million people, without admitting that the proposed cost of ₹12,000 crore was just 0.075% of GDP. He boasted of bringing 800 medicines under price control, and reducing the price of heart stents by 80%. He claimed welfare schemes would soon ensure housing, clean cooking gas, healthcare, electricity and life insurance for all.

He highlighted India’s improved ranking in the World Bank’s ‘Ease of Doing Business’ index, the boom of stock markets and startups, and India’s becoming the fastest growing major economy in the world. Today, virtually no global company could afford not to be in India. He said in the last four years, $209 billion of FDI had flowed into India, far higher than under Congress rule.

Modi declared his ‘Make in India’ programme was a success, even as job creation is nowhere near the promised 100 million. He said the number of mobile phone manufacturers had risen from three to 120—without explaining why, in that case, he had raised import duties on phones and components.

He was silent on weakness in banks exposed cruelly by Nirav Modi. Nor did he mention the RBI tightening of norms for recognising and providing for doubtful loans, something that plunged SBI and Bank of Baroda into record losses last quarter. Bank recapitalisaton now looks grossly inadequate, and the twin balance sheet problem is far from over. Domestic bond interest rates have shot up. Not even the flood of foreign money has sufficed to finance both the fiscal deficit and growth needs of business.

Free Trade?

Modi failed to repeat his muchpraised talk of free trade and globalisation at Davos. This—to the dismay of analysts—had been followed by a protectionist Budget raising duties on 40 manufactures. Modi insisted India is “open for business”. This clearly means India is open for foreign investment rather than imports. The populist job pressures squeezing Donald Trump in the US are squeezing Modi too.

The prime minister’s report card giving high marks to India was mainly correct. But it failed to list several problems and unremedied flaws. This qualified but did not quite invalidate his report card.

What do you think?