The five sutras of Modinomics

One of the most potent criticisms of Prime Minister Narendra Modi is that he has a penchant for alliterative flourishes rather than coherent economic thinking. The past few weeks have seen him articulate what seem to be the broad contours of Modinomics. There are five broad themes that emerge.

The limited role of government: Modi said in a speech last week that there are five essential tasks for a government. It has to provide public goods such as justice, it should deal with externalities such as pollution, it should act to control monopoly power, it should address information asymmetries in areas such as medicines and it should run a robust welfare system. It would seem that the prime minister believes the rest should be left to the market. Also worth noting is the fact that Modi has not identified running public sector units as one of the key tasks of government.

Inclusion needs economic growth that creates jobs: The original promise of the 1991 economic reforms was that India would replicate the sort of labour-intensive industrialization that helped so many countries in East Asia escape the historical scourge of mass poverty. Manmohan Singh explained this with great clarity in his landmark 1992 budget speech. It is likely that the failure to create adequate jobs in the modern sector eventually led the government he led after 2004 to bet on entitlements as a tool of inclusion. Modi seems to be salvaging the original promise of economic reforms by once again focusing on job creation, though he has also done well to recognize that India needs to build the skills base needed to industrialise.

A new federal architecture: Modi has often spoken of how the chief ministers of states will be his partners in cooperative federalism. They will also have an important voice in the new Niti Aayog. It is likely that the 14th Finance Commission will recommend a steep increase in the share of central revenues that will go to states. Equally important is whether it will suggest conditional transfers or will ask New Delhi to send money to the states with no strings attached. A little used Article in the Constitution has been used to allow Rajasthan to override central labour laws while other states are being goaded to follow this example. The underlying theme: a heterogeneous country such as India needs policy diversity.

Technology as a transformative tool: One of the most sensible decisions by the Modi government was to eventually back the Aadhaar programme. The use of this technology can totally alter the Indian welfare system. The prime minister has also spoken about the need to use computers to improve the public distribution system. But technology has a more important role to play than just keeping costs under control. The easy availability of broadband can change the way services such as education and health are made available to the poorest communities while network technology can help millions find access to markets. Some contemporary economists have shown that poverty is most intimately linked to the lack of access to networks of economic exchange.

Mindsets need to be changed: Political scientist Pratap Bhanu Mehta had perceptively noted after Modi made his first speech from the ramparts of the Red Fort on 15 August that the prime minister had identified social failure as one of the key problems in India. He was specifically talking about the call to parents to teach their boys how to respect girls. Modi has continued in the same vein. He has spoken out against the command-and-control attitude in government. He wants development to involve all citizens in a movement. But he has also gone with his conservative instinct to argue that India needs to preserve its family system, social networks and value systems in a changing world.

India has a unique opportunity right now. China is exiting many industries as part of its economic transition. India can step into the vacuum. But what Modi will eventually have to deal with is a strategic dilemma. The sort of rapid economic change that Modi is talking about will necessarily threaten traditional social arrangements. His main challenge on this score will be internal.

Can Modi tackle the challenge to reforms from within his party? Tell us at views@livemint.com

Follow Mint Opinion on Twitter at https://twitter.com/Mint_Opinion