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BW Businessworld

Modi Govt: And The Jury Decides

Top economists and thinkers give their verdict on how Modi and his ministers have performed in the past three years

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As the Narendra Modi government completes three years in office, it’s time to pause, and dispassionately evaluate the government’s report card. In addition to a “Mood of the Nation Survey” and a “Corporate India survey”, we present a BW Businessworld panel evaluation that grades the government performance.

In an age where polarisation is the buzzword, it’s important to pick names who don’t share pathological hatred for an idea, but believe more in critically evaluating it. True, some of the panellists here may be sympathetic observers, but they believe in evaluating an idea on its merit — such is their credibility.

Also, they come from diverse backgrounds — four of them are economists; one is a distinguished social scientist; and another is a former Cabinet Secretary. All in all, a panel that does justice to the enormity of the task at hand.

Q. How would you rate PM Narendra Modi’s three years in office?

Arvind Virmani: Above average.

Abhijit Sen: Under Modi, the first year, 2014, was relatively good, because they started from a bad base. But they couldn’t sustain it in 2015-16, and then, at the end of 2015-16, they witnessed an upswing. This is certainly reflected in the new IIP. This upswing continued till September, but in November, it was again knocked out of the door.

The PM took a lot of good decisions such as GST, Bankruptcy Act, etc., which drove the growth story. But demonetisation messed up things and dropped confidence.

Swaminathan Gurumurthy: In judging his three years performance, the background of his assumption to office must be factored in. If Jawaharlal Nehru was the best internally and externally branded PM to assume office, Narendra Modi was the other way round. He was branded as a Hindu extremist leader, out to crush the minorities, almost the Indian version of a Hitler. The way Modi overcame that brand deficit externally first, testified to his brilliant strategy. He had to acquire respectable external brand image to correct his internal brand image. He became a world leader in the process, which even Manmohan Singh, who commanded great respect outside India, could not do. Modi spent a huge amount of time outside India and faced criticism for the same. But thanks to his efforts, not only he but India too has now emerged as a serious player in global affairs — military, political or economic. I would regard the first three years of Modi as PM as the best three years of any PM in India including Pandit Nehru.

Mohan Guruswamy: It could have been much better. But then it could have been worse. I would rate it as 6/10.

T.S.R. Subramanian: Considering that the country has seen poor governance for nearly 70 years, especially the last four decades, Modi’s government is a refreshing change. It is not fair to expect to erase the results of 70 years of misgovernance, and see visible change in three years. The main achievement of the Modi government is to address positively the despondent tone in public life and the country at large.

How do you compare it with Manmohan Singh’s first three years as PM?
Virmani: Completely different challenges. The global financial crisis world was quite different from the post-crisis world. In the early 2000s, the challenge was to convert the fruits of the 1990s reforms into higher growth. The challenge of the 2010s was to sustain high growth, particularly after the financial crisis.

Sen: Let us take the first three years of UPA and NDA both and draw a comparison. I want to bifurcate the two UPAs. If we take the first three years of UPA-I, it performed fairly highly on all fronts, including growth and inflation. UPA-II stood on similar grounds for the first three years and performed well, but it was bad on inflation and terrible on the fiscal side. Comparing NDA with both these terms, it wasn’t that great when compared with UPA-I,
but better than UPA-II.

The Modi government failed to cash in on low inflation and low international oil prices to drive the economy. Let us not forget that UPA’s good years were 9 per cent-plus growth rate and the average was almost 8 per cent. It was the last two years of the UPA that saw 6.5 per cent growth rate and this government inherited that and carried a bad legacy of this low growth rate. So, this government did nothing substantial, could have done better.

Gurumurthy: The first four years of Manmohan Singh’s government, India rode on the crest of the global financial wave, which flooded India with external investment. This set off an asset inflation-led growth sans jobs. I regard the first four years of the Manmohan-led economy as deceptively destructive years — contrary to the high growth perception marketed well by the UPA concealing the absence of real growth.

Guruswamy: Under MMS’s stewardship, India posted its highest GDP growth ever. We averaged almost 9 per cent for the first three years. Under Modi, GDP calculation was tweaked by 2.2 per cent. Taking that into account the first three UPA years growth was over 11 per cent. No comparison.

Subramanian: The tone of administration is currently far better than the Manmohan era. Though the first term of Manmohan was relatively devoid of major scandals and scams, it was also without any perceptible significant development initiatives. Besides the public knew that the PM was not the main authority in the governance system. The administration in the past three years has been far superior.

Madhu Kishwar:
It is absurd to compare Manmohan Singh as PM with Narendra Modi because Singh was not his own man. He is a very talented man but had no choice except to play a rubber stamp because he had no political base of his own. We have no idea what he would have done if left to his own judgement.

Whatever the flaws and limitations of Modi as PM, one thing is sure: he is his own master. However, his policies have left more questions than they have answered.

What are the landmark decisions of the last one year — the third year of Modi government in office — that proved to be a game changer?
Virmani: Reforms is a process and a direction and the government has been on the right track since its inception, moving faster in some areas such as auction of natural resources and e-governance and slower in others like labour reform. So, every step of reform builds on previous ones. However, the bankruptcy law and the GST Act stand out and will have the most long term impact on growth.

Sen: There is nothing I can think of as landmark or game changing. Most of the reforms that took place in the Modi government were inherited from the previous one and were in the Parliament for the last few years, like the GST. Demonetisation cannot be termed as landmark. It was something that took everyone by surprise and its impact is still unknown but the implication is massive. Politically, it is a game changer, but not economically. It is landmark, not because it happened, but because it shouldn’t have taken place.

Gurumurthy: Undoubtedly, demonestisation was the most remarkable decision. Demonetisation was actually de-fattening of the economy, which had got bloated with asset price-led growth for almost eight years to 2012 as contrasted with production-led growth in the five years to 2004 earlier. If the growth in the Rs 500-1,000 notes had not been checked in 2016, their volume would have risen to over Rs 32 lakh crore in the next five years. Indian economy would have collapsed due to cash-led asset inflation like the bank-led asset inflation in the US and the West. Demonetisation is a game changer. This leaves huge opportunities for growth in the future once the bank-credit cycle restarts after the NPA issue is handled. Mudra finance has to be institutionalised in the way it was conceived. Once these two aspects are handled, the Indian real high growth story would kick in.

Guruswamy: No game changers as yet. He has not acted on NPAs. GST was a carryover from the UPA days. Ditto for Aadhaar and DBT. Modi did the Gold Bond scheme but his bureaucrats did not allow it to succeed by loading it with too many conditions. He didn’t free PSUs from the joint secretaries and didn’t reform the PSU banks. He has not reformed the oil sector. He did some good tweaks.

Subramanian: So many can be named. On the economic sector, the forward movement in GST; the tangible moves to take on the parallel economy through demonetisation; and other concrete steps — Digital India, cleaning up the coal sector, stress on infrastructure are welcome developments. Repeated reference to skills training and enhancing job creation opportunities, though not yet visible on the ground, are approaches which are very welcome.

Kishwar: There are no two opinions that the most landmark decision of the last three years, not just the last one year, is demonetisation. It was calculated as shock therapy and threw the entire Opposition into disarray. Since it was presented as a surgical strike against black money and terror funds, any political party or leader that opposed Notebandi appeared to be guilty of hoarding illegal wealth. Sadly, it prevented serious and open debate on the actual merits and demerits of the move.

Do you think the economy, under Modi, has done well?
Virmani: The growth acceleration of the reforms was delayed by two consecutive droughts in 2014-15 and 2015-16, by the mismanagement of the global economy post-financial crisis, and in 2016-17, by demonetisation, and by excessively tight monetary policy. The diversification/spread of growth will most likely occur this year.

Sen: At the moment, there is about 7 per cent growth rate, which is not bad. It has come along with inflation of 3-5 per cent, which is fairly low and is a substantial improvement from what this government witnessed, when it came to power.

However, on the growth side, it is a let-down, because even in the last two years of the UPA, which were its worst, the growth rate was 6.5 per cent. We have moved from 6.5 to 7, which is not a big deal. This is important because this government had the advantage of low inflation and massive international oil prices drop beneath it, which should have given a much bigger boost to the economy and the GDP numbers. Therefore, we could have done better.

But they got their inflation story right, which again got stalled and one of the consequences of this is the employment failure. This economy most of the times has been on auto pilot. They inherited most of the reforms.

Gurumurthy: If you consider the fact that Modi had to begin his work from a negative of 5 in terms of scam tainted business, banks, finance and polity and brought it to a positive of 7 in all respects, his performance should be regarded as superlative.

Guruswamy: It has done okay. But demonetisation was an act of financial vandalism that has set us back by at least 1.5 per cent of GDP.

Subramanian: The steps taken so far have created a good base for improvement of the economy. Tangible results are yet to be seen.

Kishwar: The success of Modi in the economic domain should be judged by the following parameters:

a) Agriculture: The pace at which problems of the farm sector are being handled is slow. Farm incomes have yet to show the promised increase. Nor has the distress migration from rural areas been arrested. The government had pledged nearly $13 billion for rural development in the current Budget, aiming to double farmer’s incomes by 2022. One of the key elements of this is spread of irrigation. But lack of coordination between the Centre and States has kept the pace of development on this score far from satisfactory.

b) ‘Make in India’ campaign: There is no sign that small or big industrialists of India that had moved to China, Korea, Singapore or to other Asian tigers are ready to revert their manufacturing activity to India. This indicates that “ease of doing business” is not yet a reality. Unfortunately, the Modi government has revived with great ferocity the notorious Raid-Raj of our socialist era.

Do you think the three sectors — agriculture, manufacturing and services — have taken off in earnest in the Modi regime?
Virmani: Agriculture requires much more reform, particularly by state governments. Services sector is negatively affected by global developments, but the reforms including those related to ‘ease of doing business’ should start bearing fruit in the manufacturing sector. These reforms also need to be extended to the services sectors.

Sen: On agriculture, they had bad luck. We did miserably. If we take all the three years together, the average growth rate is less than 2 per cent. We did not see any clear cut direction, except some big words in the Budget. The fact is that it is a state subject and even in the market reforms, you have to involve the states. One of the problems with this government has been the non-involvement of the states or what we term as collective federalism. The ability to bring the states on board has been missing.

The manufacturing sector has not done too well. By and large, the manufacturing growth has been, at best, about the same as UPA 2.

For services sector, the problem we are staring at, is that within the services sector the most buoyant was the IT sector, which is taking a problematic turn. It is trying to consolidate itself. The outlook doesn’t look very good. On the other hand, there are areas where the services sector has done well but overall, the rate of growth of this sector is nothing to go gaga over. The reason everybody looks at this sector is because of its employment factor and we have not been active on that.

Gurumurthy: Agriculture has definitely begun doing better, though not uniformly throughout India. Manufacturing is being regarded as the domain of large industries in India. But the fact is, like in China, where the town and village enterprises led the manufacturing and job revolution, in India also, the MSME will only trigger the manufacturing and job rise. But the Indian financial system is not designed to serve the credit needs of the MSME sector, which accounts for 90 per cent of non-farming jobs in India. This is an area where the Modi government has not been able to put its act together.

India is still plodding along. No sector has really taken off. The big push on irrigation has not happened. Services is getting over crowded because the industrial sector is stagnating in terms of employment. Unorganised sector employment is expanding with low pay jobs. We need to expand organised and modern sector industrial expansion and create good paying jobs.

Subramanian: One does not see a ferment or positive movement in the agriculture sector. The strong base has been laid in the manufacturing / services sector. The echo of all this has not yet been seen on the field.

What has been the most outstanding feature of the Modi government in its three years in office?
Virmani: The use of technology (IT) to address issues of corruption and evasion and get around vested interests who have stymied reform of governance systems for decades.

Sen: Its effort to create a ‘new look’ for India. What is driving this agenda is the institutional change, they are trying to bring in.

The most important would be the Bankruptcy Act. It got passed quite smoothly. Without this, the bank cleaning up process would have been even tougher.

Gurumurthy: The rise of India and the confidence of the Indians, and also the Indian diaspora abroad with the global powers seeking to ally or work with India – something not seen in the UPA days except when the Nuclear Deal was signed. And the rise of the BJP as an acceptable party.

Guruswamy: Market forces have been given more play. Cronyism reduced. Except for the Rafale deal, there is no suggestion of big corruption. It seems one big corrupt deal is better than a hundred small ones. He has shown leadership and has often been inspiring, unlike MMS.

Subramanian: The government is now seen as a serious, earnest and positive player for the benefit of the country. The tone of governance is far superior, decision-making is swift and strong; the ministers and higher bureaucracy are seen to be working.

Kishwar: Modi’s ability to capture popular imagination and give people a sense of confidence that a bright future awaits India. Modi’s popularity ratings keep soaring even into the third year of his government. This is very unusual for India because all the earlier PMs that rose to power on the strength of popular support could not sustain people’s faith for long. Given the abysmal state of Opposition parties, Modi is likely to remain the best option for the vast majority in India.

What has been the biggest disappointment?

Virmani: Lack of attention to reform on the quantitative restrictions on import and exports, their replacement by tariffs and the reform of import/export duties. The bad loan issue has festered a little longer than it should have been, but is now expected to be addressed more quickly.

Sen: First, its inability to generate employment. Second, they failed to do much either in terms of unblocking the bank’s lending problems and huge debt build up in the private sector. It’s only now that they have started to do something. They also failed to do substantial infrastructure spending. Things are better in sectors such as ports, roads, power, but not in railways or other infrastructure sectors.

NITI Aayog is a toothless organisation and it has effectively pushed all the economic power vested with the Planning Commission to the Ministry of Finance. There is no vision in operation. India has institutions, which were relatively independent and had their own voices. The strength of these institutions is under pressure, which is disappointing.

Gurumurthy: The biggest disappointment of Modi government is that he has not been able to build a political team within the government like he has built a bureaucratic team. The absence of a political team within the government is telling on the slow pace of appointments and other critical areas.

Guruswamy: Biggest disappointment has been the festering of the NPAs issue. Not refinancing the banks. Making new credit available. Investment is in doldrums.

Subramanian: There are extremely significant areas where the reform process has not yet started, though these desperately need major restructuring and strong reforms.

a) Electoral reforms

b) Reform of administration in the states, from state capital up to block/village level — corruption levels have not decreased, if anything they have increased. Public contact is highest at state level — there is palpable failure to address the underlying problems, and tackle the various mafias, which are in charge.

c) The education sector, which is the most fundamental of all for the wellbeing of a democracy. This has been completely neglected for the past 70 years. The problems are well known. No political will has been shown in tackling the issues, and raising education standards.

d) Despite a new public health policy, this sector is in shambles. Education and public health are the two fundamentals — both have been neglected.

e) Employment is going to be a major issue in the next two decades (this issue is also sharply linked with education and public health). The present skill development programme and other measures are not even scratching the surface. This is critical for the nation’s survival.

Kishwar: My biggest disappointment was in the field of education till Javadekar took charge as HRD minister. He seems to be putting things back on track and is much more open to new ideas. But Modi government has not handled key appointments in the domain of education with required sophistication.

My second disappointment is over the Swachh Bharat campaign. Despite projecting it as his do-or-die mission, Modi failed to build appropriate institutional mechanisms for making it a reality.

On a scale of 1 to 10, how will you rate the Modi government?
Virmani: Overall I am happy at the direction and pace of reforms, despite some known hiccups — one doesn’t expect perfection and every government is entitled to make a few political decisions.

Sen: I would rate it 6/10.

Gurumurthy: As I had said, if the deficit of 5 with which Modi had to begin his innings and overcome is reckoned, his score will be even 10/10 and if that is not reckoned definitely not less than 8/10

Guruswamy: 6/10

Subramanian: I will given 8 or 9 for promise or creation of hope. I will give 7 for actual performance.

Kishwar: On a scale of 10, I would give 6, but I am sure in the coming years we will see Modi fulfill many more of his promises.

What should the future roadmap of the Modi government look like? What are the three key decisions/ areas that that the Modi government must concentrate on, in the next two years?
Virmani: The Albatross of loss making public sector units, banks and financial institutions must be addressed. Repeating failed solutions to retain them in public sector, has never worked and never will. The government has expressed its intention to dispose of loss making PSUs but process should be accelerated.

Reduction and integration of labour laws will also be useful if it is not linked to failed experiments in social engineering in an economy which has recently transited from low to lower middle income. Land being a state subject, there is little that the Union government can do besides passing some model laws and persuading states to adopt them. The education sector still awaits policy reform, both at higher level (Union) and at lower levels (States).

Sen: The most important thing is to get something done on the employment side. If they can’t do it, they are finished. That is what politics will be once the tamasha of black money, gau raksha, etc., will be over. Beyond a certain point politics gets back to its roots. Employment is a difficult area and they have got to put their minds into it, which they are not doing. Skill development is not enough; they need to get things done on the ground.

Next, is the banking sector. The government must bring all the states on board for the national agenda to become a priority and not make it all about what an individual does. The government’s ‘Make in India’ commitments need to come into action. Other sectors such as health and education need to be addressed and take centre stage.

Last, is our economic diplomacy, which needs to be geared up. It is time we get greater clarity on our neighbours. Our PM did a great job and started out with a bang but now it seems to be impasse, especially with Pakistan and China.

Gurumurthy: I think he has to give thrust to the idea of domestic growth, domestic capital, domestic consumption as the core drives of our growth. Already this is implied in Modi’s economics, but that must be made explicit. He must scrap the FRBM law and align the fiscal and monetary economies mediated only by inflation and nothing else.

Modi must also discard the Basel norms of NPA and move to indigenously devised credit norms, which should be based only on the viability of an industry or company — like steel industry was NPA last year, but not this year as tariff policies have changed. Sometimes solution to industrial NPA problems may be in tariff and fiscal policies. NPA may not be seen as only monetary issues. This kind of original thinking will be needed. Modi administration needs to think originally for its economy. This is what Modi’s own NITI Aayog resolution says. It says: The NITI Aayog “must adhere to the tenet that while incorporating positive influences from the world, no single model can be transplanted from outside into the Indian scenario. We need to find our own strategy for growth. The new institution has to zero in on what will work in and for India. It will be a Bharatiya approach to development. Modi must ask his economic, social and commerce ministries and personnel to read this mandate and devise policies including the Mudra finance, which is integral to our own growth strategy.

Guruswamy: I think, they have lost the plot and have got lost in the dreary desert sands of dead habit. But direct transfer of basic income is a good idea. It could replace undeserved subsidies on food, fuel, etc., and put money into the hands of the poor directly. If Modi does it, it will change how India runs and plug much corruption. It will be a big winner and people will be happy.

Subramanian: These have already been covered in the replies above.

Kishwar: Modi’s ability to deliver on his key promises depends on the following:

* A real renaissance in the education sector. We can’t produce adequate numbers of good health professionals, competent engineers, efficient policemen, trustworthy judges, innovative administrators or even capable politicians if the government fails to upgrade the quality of education to world class standards on emergency footing.

* Massive investments in providing world class health services. Thailand provides a very good role model for this.

* Far reaching police and judicial reforms. Without an effective law and order and justice delivery system, India cannot flourish as an economy or hold its head high as a society. So far, there has been zero action on these areas.

* Establish a system of transparent merit based appointments at all levels. An impartial review of Modi government clearly shows that only those ministries and departments are doing well where the government appointed an appropriately talented person to lead them. Modi should avoid the temptation of micro managing all ministries and instead choose trustworthy and competent persons who can steer their own course, instead of waiting for PM’s clearance for the smallest of decisions.