One of the major criticisms of Modi’s first year in government has been that the economy under Modi is directionless. This is understandable since it’s difficult to put the Modi government’s policies on the typical continuum of left-wing or socialist economic policies and right-wing or free-market policies.
On the one hand, Modi is globe-trotting to attract foreign investment, liberalising foreign investment proportions in defence, railways, insurance and other sectors. On the other he is focussing on opening bank accounts for the poor, constructing toilets in rural areas, and providing micro insurance and an old age pension for the poor. Since Modi is neither going whole hog towards a free market economy by slashing subsidies or privatising government enterprises, nor towards the socialist path witnessed in the Nehru dynasty era, critics are justifiably perplexed.
With previous governments, it was easy to know which direction the government was taking. All governments ‘till that of PVN Rao were unidirectional - following left of centre policies. Nehru’s policies (planning commission, high levels of state control over the economy) or Indira’s policies (bank nationalisation, directed interest rates) clearly showed the government’s economic direction.
The direction shifted somewhat to the centre-right after PM Rao was forced to let go the Licence and Permit Raj for businesses under compulsions of dwindling foreign exchange reserves. Banks were given free hand in setting interest rates for example. Vajpayee’s coalition government (of which Modi’s BJP was a major partner) could not go the whole hog for centre-right policies and likewise the others that followed.
Starting from a difficult position
The economy that Modi inherited was in a limbo. Though ground level realities like rising unemployment, inflation would require more market-friendly policies, legacy issues like poverty, the baggage of ideological binds and real politic required more left-wing policies. Consequently, these governments were in a quandary.
The current direction of the Modi government is towards solving legacy issues. The issues haunting India since the Nehruvian era are lack of infrastructure (roads, electricity, irrigation, drinking water), lack of rural sanitation (India tops the world in terms of unsafe sanitation), education challenges such as low levels of literacy, lack of research and development, lack of good quality higher education institutions, and rural and urban poverty, affordable housing, unemployment, corruption and the like. These are the shackles created by left-wing policies that instead of solving the problems compounded them. These shackles also prevent India from ushering in big bang reforms.
As a result, Modi’s pragmatic government, intending to deliver on promises, is focused on implementing policies that hit the issues on the head rather than getting tied up with taking a defined direction. This confuses critics who are used to analysing in a stereotyped manner. In reality, expecting a defined direction demonstrates how divorced the critics are from the ground-level realities Modi has to face.
Focus is on individual problems
Modi is focussed on removing the shackles. Swachha Bharat Abhiyan (Clean India Mission), constructing toilets in rural areas to improve sanitation and rural health, addressing power shortages through more nuclear, solar and hydro power and social programs like Save the Girl Child are his priorities.
Providing employment to rural youths who can’t get sustainable work on small farms requires having agro-processing industries close to villages which requires land. Consequently, Modi is pushing for land acquisition, which is being stalled in the Upper House by the opposition.
Critics cite anomalies in the tax system as evidence of Modi’s government being “directionless”, but do such operational issues determine economic direction? The World Bank, IMF and international ratings agencies put India’s GDP growth rate above 7% (exceeding China’s) in Modi’s second year. Is that possible without appropriate economic policies of growth? Would foreign investment flow increase significantly without appropriate policies? Modi repeatedly says his government is there to achieve the twin objectives of development and good governance.
Critics often forget the Jan Dhan Yojana which in six months opened bank accounts for 140 million poor families – something not done in the last 65 years. This massive financial inclusion program has drawn accolades worldwide and will help reduce corruption.
Modi has delivered decisive leadership in his first year, overseeing rising GDP, declining inflation, a stable rupee, corruption and scam free administration, modernising military through defence co-production, a massive infrastructure development program (especially roads and power generation), increasing digitisation, reducing red tape, proactive foreign policy and the like.
Social cohesion is another plus with the first year of Modi’s government free of any major religious or caste strife of the scale witnessed during the Nehru dynasty era.
Given the legacy issues that Modi has to face, these are noteworthy achievements.