Modi Report Card Part One: 4 Economic Reforms In 5 Years; Unflattering!

Phew, Prime Minister Narendra Modi 1.0 is done. With the model code of conduct for the general elections now in force, his first inning has effectively ended. As he pitches to get re-elected, we should call in his report card.

Since he was a high-voltage, forever-campaigning CEO who took all key decisions in a my-way-or-highway style, most of his achievements and failures can be docked in black and white boxes. For instance, his military counter-terror strikes in Pakistan, followed by an aggressive acclamation and diplomatic outreach to win global (except for China’s) endorsement, is a clear positive/white-box achievement. Similarly, his silence—even as his party members proudly inflicted violence on innocent Muslims/Dalits—and following ‘digital lynchers’ on social media, were a clear negative/black-mark on his tenure.

Perhaps the only ‘grey box’ in his record is over the economy. People are truly divided here. His fans, from sharp-shooting statistical doyens to celebrated ex-CFOs, believe he performed miracles. Less shrill, but equally intelligent analysts believe he was plenty of sound and fury, but little action. So, to paraphrase Prime Minister Modi himself:

Modi’s Four Reforms In Descending Order Of Importance

I will try and answer this question in two linked articles. Part two shall follow in a few days. In this one, I start with the positive bits – frankly, in my humble opinion, this is the shorter, easier part of the analysis. Because, unfortunately, Modi’s economic reforms—not tweaks, not administrative actions, but reforms—can be counted on less than the fingers of one hand; to be precise, here are four achievements, in descending order of importance:

1. Ujjwala

Under this scheme, over 60 million poor/rural women were given free LPG connections, to yank them away from harmful smoke chullahs. Wait, I can already see that many of you are up in arms. Why am I calling just another subsidy/freebie a ‘reform’, you will ask angrily? Because this is perhaps the only Modi scheme whose underlying economic principle is genuinely reformist, i.e. a move from generalised to sharply targeted subsidies. And even more critically, the prime minister donned a free-marketer’s hat, launched a non-coercive campaign to persuade non-merit subsidy takers to voluntarily give up in favour of those who needed the handout. Just see the half a dozen words I have emphasised?

These words should be at the core of any pedigreed economic reform. But alas, Ujjwala is the only Modi initiative that ticked all these touchstones.

2. Insolvency and Bankruptcy Code

Finally, badly run companies in India can be legally wrenched from corrupt—sometimes, incompetent—owners. India was often derided—and correctly so—as an economy thick with poor companies/shareholders but extremely wealthy founders (sub-text: those who had skimmed value from public to private assets). Mercifully, now the fat-cats/crooks can be brought to book. The only reason I’ve placed this fundamental change at the second place is that the legal architecture could have been tighter, with fewer loopholes – but heck, this is a big reform, no question about that.

3. Direct Benefit Transfer

While this is another huge reform – nearly Rs 2.8 lakh crore or $40 billion of sops were transferred directly into the bank accounts of authentic beneficiaries this year, thereby saving Rs 1.20 lakh crore or $18 billion in leakages/fraud over the last four years, and eliminating almost 7 crore fake accounts over several schemes – Modi will have to share credit here with his abhorred Congress/’family’. Because, whether he concedes it or not (he never will!), the foundation for this massive reform was laid by the political foes he endlessly vilifies, namely Manmohan Singh and Sonia Gandhi, who created the Aadhaar digital identity superstructure for over a billion people. To complete this messy picture for Modi, he had vehemently opposed it under the earlier regime. So, this one cannot be game, set and match for Modi. At best, it’s a draw for him, with equal credits.

4. Finally, the Goods and Services Tax

This is truly one-legged, but nonetheless a reform. It’s been made horribly complicated, the very antithesis of what a GST is supposed to be. Here’s one egregious example from just the last week – one fine day, the GST Council changed the design for real estate transactions from a 12 percent rate to 5 percent, but “without any input tax credits”! Now tell me, if there is no credit, can it even be called ‘GST’? Shouldn’t it be called just another plain indirect tax? But then, who bothers with these niceties in the Modi government. And wait – less than a week later, this change was changed again! Now you could choose – i.e., you could do 12 percent with input tax credits, or 5 percent without.

To cap it up, you’ve got more than half a dozen rates, cesses, exemption for alcohol/petroleum products etc etc. Net-net, it’s hardly a GST, but given that it’s a generic, elemental change in our federal tax structure, let’s be charitable and cut Modi some slack. At least he’s taken the first—albeit faltering, stumbling—step on the road of this arduous tax reform.

What would you call it – good, bad, underwhelming, or ugly? But before you pronounce any judgment, let’s be fair and assess the rhetoric that Modi has been peddling at business summits, outside of “revolutionary pro-poor schemes”:

• Foreign capital: FDI inflows in the past four years have been almost equal to that in seven years before 2014. So deft, right? But he makes no adjustment for either the time value of money, or shares within a sharply-growing nominal GDP.
• Between FY12 and FY14, average annual equity financing was Rs 14,000 cr vs Rs 40,000 cr over the past four years. Cute! Compare two crisis years of UPA with four of his own when the world is in the pink of economic health.
• Average annual placement of bonds was $40 billion in 2011-14; it’s been $75 bn over the past four years. Same cuteness repeated!

This is vintage ‘Modi spin’ on economic stats. But does it change the picture by very much?

As promised, my accompanying sequel to this ‘positive’ piece will capture all the economic negatives of the Modi Raj. Brace yourself for a tough ride.

Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of two books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, and ‘Super Economies: America, India, China & The Future Of The World’.