BackOpinion | Modi’s approach to economics doesn’t tick any of the old boxes
It is politics-cum-economics, with the key element being ideology-free opportunistic pragmatism
PremiumAfter eight budgets, including the “interim" one last February, and several major off-budget initiatives, this is probably as good a time as any to define Modinomics. Early expectations of Prime Minister Narendra Modi doing a Ronald Reagan or a Margaret Thatcher were clearly off the mark. But just as one was about to see Modi as a statist with little trust in business or markets, we have suddenly got big-bang moves in the form of massive corporate tax cuts and bold privatization moves.
So, what really is Modinomics? It is not easy to say, for Modi represents a post-ideological world view whose political economy solutions go beyond the left-right binary, or socialism and market economics. This is not surprising in a world where Democratic presidential candidates are jostling to appear more socialist than the rest in the world’s most capitalist country, the US. There is no such thing as a “Washington consensus" in a de-globalizing world. The operative buzzwords for this era are “whatever works".
That should define Modinomics, too, but it does not go far enough. For Modinomics is defined not just by pragmatic opportunism, but by Modi’s persona. The Prime Minister can perhaps best be described as a conservative modernizer, an incremental reformer, with a penchant for the occasional big gamble.
Modi seems tight-fisted by nature, which may explain his fiscal conservatism in four of the five years of his first term. This is evident in the decision to rein in fiscal looseness in the Union Budget for 2020-21, when the slowdown warrants a bolder approach to infrastructure and consumption spending.
As prime minister, if one were to exclude his consistent pro-poor rhetoric, Modi can be seen as non-doctrinaire, with his politics and economics fused. His stance changes with the circumstances. You cannot explain his economics without his politics. His first-term policies were dictated by his need to be seen as clean and hard on corruption, which may be why he avoided meeting businessmen—something he did routinely as Gujarat chief minister. In his second, he appears to acknowledge that the economy cannot be revived without business-government trust. He has thus repositioned himself as a proponent of clean “wealth creation", rebuilding trust with India Inc.
Even in his populism, he has been conservative, preferring empowerment over entitlement. Thus, the Ujjwala gas cylinder beneficiary gets a free connection, but no free refills. The affordable home buyer gets rate subventions, not anything more. The ordinary citizen or unorganized sector worker can buy himself a cheap pension plan subsidized by the state, but it’s not a freebie. Perhaps the only free thing Modi has offered is the PM Kisan Samman payouts to farmers ( ₹6,000 annually), but that came at the fag end of his first term, when general elections loomed.
The promise of a corporate tax rate cut, made in 2015, came in conservative doses. It was never delivered fully till September 2019. Once he saw the need for a dramatic move to revive animal spirits, he went the whole hog in one day. It was a gamble in a difficult economic situation.
Modi’s essential conservatism is counterbalanced by a predilection for bold and dramatic gambits. This is what brought on demonetization and the goods and services tax (GST). Despite the economic havoc caused by demonetization, Modi was firm in pushing ahead with GST barely a few months later, which shows his readiness to go against common wisdom to get things done. No one barring Modi could have got all states on board by promising them a blank cheque of 14% annual revenue growth. GST is still a shoddy work-in-progress because of that rash promise and the tax’s poor design, but it got done. Once it is fixed, it will always be seen as Modi’s achievement.
On the trade front, Modi has over the last two years gone swadeshi (domestic-production-focused). This is partly because he has to pander to protectionist voices within his own Sangh parivar and also because he knows that India cannot be competitive globally anytime soon without second-generation reforms.
Modi’s second term was widely expected to focus on the economy, given the slowdown, but his first moves were all political: Article 370, Ram Mandir, Citizenship (Amendment) Act. While his economic moves were announced in parallel, the political action made headlines. Again, this shows the link between Modi’s politics and economics. To focus on the economy, he has to propitiate his political base. The political moves made in the first six months of his re-election now allow him to focus on fixing the economy, as it neutralizes the opposition within his camp. He is free to follow his bolder reforms—from privatization and labour reforms to restructuring the public sector and the bureaucracy—without being tripped at every stage by Sangh ideologues.
Modinomics is clearly politics-cum-economics, with the key element being opportunistic pragmatism unhindered by economic ideology. In the years ahead, expect conservative budgets, with big gambles outside them. Modi 2.0 has come a long way from Modi 1.0.
R. Jagannathan is editorial director, ‘Swarajya’ magazine
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