Home >politics >policy >What Narendra Modi’s WSJ interview says about his economics

New Delhi: Economic reforms are on course and the government will secure Parliament’s approval for the implementation of the single goods and services tax by 1 April next year, Prime Minister Narendra Modi said in an interview published in the Wall Street Journal on Thursday.

The interview, timed with the second anniversary of Modi’s Bharatiya Janata Party-led (BJP-led) government, comes ahead of the Prime Minister’s visit to the US early next month. It is one of the few Modi has granted after becoming Prime Minister. Here’s what it says about Modi’s economics and politics.

The next round of ‘big’ reforms will be driven by the states

Modi indicated in the interview that “big" reforms—so-called second-generation reforms, especially in areas such as labour laws and land acquisition—will be driven by the states. In part, this is about respecting the authority of the states. And in part, it is about avoiding fractious politics of the sort engendered by the government’s efforts for a national land acquisition bill. Since both are critical to attracting investments for business, and because states are very competitive when it comes to attracting investments, it is likely that states will try to match each other on these fronts. That is already happening in the case of reforming labour laws, where Rajasthan has set the pace and others have followed.

The government will take a progressive, but centrist approach to subsidies and privatization

The government is unlikely to listen to voices from the economic right (even from within it) asking for a complete scrapping of subsidies and entitlements. Indeed, this is already evident in its continued patronage of the rural job guarantee scheme put in place by the previous government. “Programmes to provide a social-security net are found in every country including yours, where you provide unemployment benefits and food stamps," Modi said in the interview. The BJP-led National Democratic Alliance (NDA) government, will, however seek to better target subsidies, using technology.

The NDA’s approach to privatization will lean more towards “strategic disinvestment" than outright sales of the sort pioneered by its first avatar, which governed India between 1998 and 2004. “In a developing economy, state enterprises do have a role in some sectors. They have to be managed professionally and efficiently," Modi said in the interview.

The NDA’s definition of reforms is different from the market’s

In the course of his interview (supplemented with written responses), Modi listed several reforms that his government had undertaken, and which have been appreciated by industry: “... a new insurance law with enhanced foreign-investment limits; inflation targeting with an independent monetary policy committee for the Reserve Bank; a Bankruptcy Code; and a regulatory framework for real estate;...opening up nearly all sectors, including defence, to foreign investment; de-controlling fuel prices; permitting listing of stock exchanges; licensing many new banks; and ensuring every family including the poorest, has a bank account". But he also added that to him “reforms are those that transform the lives of ordinary citizens".

Modi believes in the Indian way

India can learn from US “regulatory practices, Japanese quality, and European social protection," Modi said, but its preferred economic growth model has to be true to its culture so as to achieve a balance between growth and the environment, Modi said in the interview. India will “show a new (growth) path to the world", he said.

Skills and start-ups are key to Modi’s plans

The NDA government has already launched the Skill India and Start-up India programmes to train people and make it easier to start businesses (respectively). The first, he said in the interview, will help his government meet the aspirations of India’s millions of young. “The youth, in fact, matters a lot to me because around 800 million of India’s population is below 35 years of age and to create a skill set for that youth population, to create job opportunities for them, is a priority and a focus area for my government." And the emphasis on entrepreneurship will mean that people, far from being job-seekers, actually become “job creators," he added.

Through the interview, Modi repeatedly indicated the magnitude of the challenge before India. “Global experience shows that to transform any country, we need sustainable high growth for 30 years," he said.

Indeed, while the government has been able to contain inflation over the past two years, it has not been able to kick-start the investment cycle, especially because many companies are loaded with debt, and demand has not picked up in a significant way.

Meanwhile, in its review of the Modi government’s two years in power, The Economist said the high points have often been overshadowed by the actions of fringe right-wing groups.

In a comment published on its website on Thursday, it added: “India’s economy is doing well, too: the official rate of growth is 7.3%."

The magazine did acknowledge the difficult road ahead, though. “The BJP strongman (Modi) is a superb salesman, but he may need better products to sell," it said.

Modi is probably aware of that. “I have an enormous task ahead for myself," he said in his interview.

To read Mint’s complete coverage of two years of the NDA government, click here

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