What Economists Do Not Get?

The last three-years of Modi can be called the second phase of Indian reforms in post 1991 era, where measures towards stabilisation of Indian economy and introducing components of his successful Gujarat model were unleashed. An analyses by Team INCLUSION

01 October, 2017 Special Reports
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Modi is often criticised for having a penchant for foreign visits consisting of more than 200 days annually. It is true that Modi has made over 40 state visits to various countries but not much has been read into hectic travel for the last three years in which have changed the contours of foreign policy of India owing to his unconventional approach. Modi has stretegically befriended countries, which were either sceptical or hostile with he endearing art of diplomacy. For instance, by visiting UAE in 2015, Modi became the first Prime Minister to the gulf in 34-years after Indira Gandhi. During this visit, he asked the gathering, which was majorly Hindu to praise the ruler, thereby flattering a foreign strongman – an example of statesmanship. Acquiring modern and state-of-the-art weapon systems has changed the perception of the world towards India, which is no more perceived to be a soft state. “surgical strikes” and managing Chinese standoff at Doklam are few examples of standing courageously in the face of an enemy with world leadership support backing the act of bravery.

“Mere Good Governance is not enough; it has to be pro-people and pro-active. Good Governance is putting people at centre of developmental process.”
Narendra Modi

Economically, under Modi India has cemented its place as a global economic power with investor friendly environment. Notably, the visit to France resulted in investments around Euro 8.5 billion by more than 100 companies across a wide range of sectors in India and giving employment to 3 lakh people. Simultaneously, India continues to operate more than 75 Indian companies in France, employing around 7,000 people. His visit to Israel in July 2017, the first ever by an Indian Prime Minister made headlines where virtually the Israeli Prime Minister accompanied Modi throughout his visit—an honour befitting a true global leader. The agreements between the two nations especially in agriculture, water management and space technologies will give the required boost to India’s growth in these areas. It is to be noted, as Chief Minister of Gujarat, Modi had visited Israel and implemented examples of Israel’s innovations in agriculture and water management in Gujarat.

By these diplomatic moves Modi has conclusively ended the monopoly of US, Russia and other few countries, which India relied earlier on for its technological and economic needs. What needs to be observed is that Modi radiates warmth and confidence, which has in turn garnered the respect of all the world leaders. Therefore, whether it is Obama or Trump, he meets them on an equal footing and displays his ease and exchanged pleasantries in his own style… “bear hugs”. But on the whole his critics are unhappy for discarding the welfare state (read subsidies led growth) concept, which has palpably remained the hallmark of Indian Democracy.

Enhancing Defense capability

Modi has virtually delinked defence and civilian space agenda. On the one hand, he visualises strong technological co-operation and collaboration in civilian space programme while on the other, is to equip the defence capabilities. Moreover, Modi is the first Prime Minister, who has boldly opened privatisation for international collaboration in defence sector, a move which will enhance Indian private sector’s capability to get into defence production to compete with the likes of Lockheed Martin, Raytheon, Northrop, United Technologies and so on. To begin with Tata, Mahindra, Hero, Reliance Anil Dhirubhai Ambani Group, Reliance Industries, Bharat Forge and Hinduja Group are all making forays into defence manufacturing—fighter aircrafts, submarines and armoured vehicles— which had remained the mainstay of the government alone—an example of Make-in-India becoming a reality.

DRDO has deployed Primary Radar for Airborne Early Warning & Control System for the primary mission of AEW&CS to detect distant air and sea targets and simultaneously intercept multiple threats.
“When we speak of Digital India, we would also
like to see a Digital Armed Force.”

Narendra Modi

Modi has shown keen interest in speeding up completion of certain noteworthy defence projects thereby promoting Make-in-India. The Defence Avionics Research Establishment of DRDO has been developing the Digital Radar Warning Receiver – Dhruti, which is a tactical system providing the pilot information about enemy emitters including ground and airborne surveillance, tracking of missile guidance radar. Another is the deployment of Primary Radar (PR) for Airborne Early Warning & Control System (AEW&CS) for the primary mission of AEW&CS to detect, clarify and pack distant air and sea targets and simultaneously intercept multiple threat force. These two developments have ended India’s reliance on Sweden for Radar Technology and commence the marketing of Indigenous Radars in the global market.

For the first time in the World, India has also attained the distinction of integrating a heavy weight (3,000 kg) supersonic cruise missile on Su- 30 MKI Aircraft – a multi-role fighter aircraft, thereby having its own sound missile technology. In addition, the Light Combat Helicopter (LCH) has enhanced the defence system of India. It is to be noted that while indigenous “Tejas”- Light Combined Aircraft (LCH) took almost two decades, Modi government took only couple of years to complete the ongoing LCH project. These defence related developments have made India to emerge as technologically self-reliant, enterprising and well-equipped to counter any attack from its adversaries.

Space Policy and Technological Development

India has successfully launched a record-breaking 104 nano satellites into orbit in 2017, in a single rocket, breaking the earlier Russian record of 37 in 2014. The launch has enabled to cement India’s place as a serious player in the burgeoning private space market, which is expected to rapidly grow as the demand for telecommunications services increases. In addition, another milestone in the space technological achievement is the successful launch of the South Asian Satellite, which was promised by Modi two years ago. This is the first project of its kind, which has jointly been collaborated by India with neighbouring south Asian countries of Afghanistan, Bangladesh, Bhutan, Nepal, Maldives and Sri Lanka. The satellite will enable a fullrange of applications and services to our neighbours in the areas of telecommunications, broadcasting applications and to provide critical communication links in times of disaster. It has been pointed out that Modi has actually extended his slogan ‘Sabka Saath Sabka Vikas’ to India’s neighbourhood essentially to service the needs of the poor in South Asia. In addition, the three agreements signed with Israel cover specific areas of engineering co-operation and technology transfers, which will mark a giant leap in India’s civilian space technology.

Economic Development and Employment

On the domestic side Modi’s economic reforms have been criticised and the questions that are being put forth are many. For instance: Whether demonetisation is a failure? Is GST half-baked? Are youths really jobless? Whether Modi’s Kashmir policy is soft? This and more need little bit of elaboration and introspection.

Chenani-Nashri tunnel by IL&FS will assist in the promoting the inter-region economy and raise the standard of living. It has provided employment to over 2,000 youth in an around the Patnitop area.
“The tunnel will reduce the distance between Jammu & Srinagar, promote tourism, open up employment opportunities for the youth and give a boost to development in the state.”
Narendra Modi

Noted columnist Arun Shorie says, BJP is equal to “Cow plus Congress” but it can be said that BJP really is “Congress plus Common Sense”. This is because many of the economic reforms like the Common Minimum Programme (CMP) targeting inclusive growth, the formation of Unique Identification Authority of India (UIDAI), which rolled out the Aadhaar Enabled Payment System (AEPS) linking Direct Benefit Transfer (DBT) with social welfare schemes, Goods & Services Tax (GST), 51 per cent FDI in multi-brand retail chains subsidies, etc, all started during the UPA regime. But it lacked to feltneeds perspective (it was hijacked by economists crunching only the numbers), which had resulted in inflation and the prices of essential commodities went sky rocketing. In addition, owing to policy paralysis and red-tapism, the UPA failed to pursue any viable project with a longterm vision.

On the other hand, Modi is hailed as a common man and is praised for his Model of Inclusive Development or “ModiNomics” of how social inclusion is attained through financial and digital inclusion. He did not roll out any immediate populist bailout scheme to counter inflation and used demonetisation to bring it down without borrowing from any country or from multilateral institutions. Capital inadequacies were taken care of by the imposition of demonetisation, which made all money return to the banks and subsequently due to the withdrawal limits, there was enough cash in banks which, to a great extent, addressed the problem. The earlier governments tried to walk away with the slogan of “Garibi Hatao” ever since it was first raised in 1971, targeting the poor of India. The reality is poor and poverty, both remained and actually increased in number. Demonetisation paved way to address the psychological aspect of the poor, who were harbouring grudge against the rich, in a way, felt the move was “Modi’s tight slap, unknowingly appeasing the poor psychologically”.

The desired inclusive development, envisaged by Modi is to materialise in the year 2022. The higher growth of GDP as a result of GST has also been predicted by Moody’s.

The cash economy of India at ‘one stroke of midnight’ got hugely exposed to the cashless economy leading to e-Monetisation. It is to be noted that demonetisation has also led to the velocity of money and increased circulation of money, which has led to the increase in economic growth after initial stagnation. More importantly, it has brought the enabling environment for e-transactions and has brought in behaviuoral and mindset changes of people especially in the rural areas that they too are entitled to the benefits of cashless and digitalised economy. Moreover, for an effective e-Monetisation, instead of JAM trinity, India needs Jan Dhan, Aadhaar and Mobile (CAM) trinity, which will be an effective way in forging ahead the digitalisation of India with correct technology choices.

In addition to the above, Modi has focused on Micro, Small and Medium Enterprises (MSMEs) in the services sector and linking up with Rural Self-Employment & Training Institutes (RSETIs) thereby creating more jobs and promoting economic interdependence. Likewise, his innovative pro-poor ideas are like digitalisation of services has promoted Good Governance through e-Governance and virtual disappearance of unnecessary files and records, which people found it difficult to carry and maintain. To address the credit needs of MSMEs and others in the informal sector like the shopkeepers, vendors and artisans etc, Modi has introduced the Pradhan Mantri Micro Units Development & Refinance Agency (MUDRA) Yojana and setting up of MUDRA loans to MFIs and NBFCs, which in turn provide small credits to MSMEs and to small entrepreneurs outside the service area of regular banks. More importantly to ensure that its clients do not fall into the unending debt trap. As per a recent SKOCH Survey more than 5.44 crore jobs have been created due to MUDRA loans. It is further expected to pick up in coming years.

Chenani-Nashri Tunnel: Modi’s cross-sector linkages have also proven effective. For example, he has understood that the underlying problem of Kashmir is more practical in terms of bringing economic growth into the region by job-creation, which will settle other persisting socio-cultural issues. Therefore, he relied on his proven experience from Gujarat in connecting lives, where he had developed road infrastructure, which had resulted not only in better transport facilities but more importantly greater connectivity amongst population to facilitate regional and balanced development in terms of access to jobs, healthcare, education etc. Similarly, he has taken a keen interest in completing the Chenani-Nashri tunnel. This is Asia’s longest bi-directional road tunnel on the Jammu-Srinagar National Highway with a length of 9.28 km, cuting down travel time between Jammu and Srinagar by over two hours reducing 30.11 km distance. This tunnel in the long-run will assist in the promotion of inter-region economy and raise the standard of living of its inhabitants. It has also provided employment opportunities to over 2,000 youth in an around the Patnitop area, which upon completion of project have been deployed by the contractor – IL&FS – on its other projects. In line with the commencement of this tunnel, 10 more highway road project have been started in Andhra Pradesh to cover 405 km and 4 projects in Gujarat covering 241 km. It is to be noted, that Modi government constructed a record 47,350 km of roads under Pradhan Mantri Grameen Sadak Yojana (PMGSY) a successful scheme, which Modi has given utmost attention to.

GST is half-baked – this is an allegation, which the opposition has levied against the implementation of the bold initiative, which Modi has managed to roll-out. It is important to know that the architect of GST was the UPA, which could not manage to muster enough support to sail the GST Bill. Before and after GST there has been plethora of views citing how it will affect the common man and middle class. More importantly, it is pointed out by opposition that it lacks careful planning and is hurriedly introduced, therefore it is half-baked. Modi, on the other hand, hails GST as “Good and Simple Tax”, which will protect SMEs, protect states’ revenue and benefit people. For instance, there are no taxes imposed on traders with turnover of up to Rs 20 lakh, while tax on traders with a turnover of up to Rs 75 lakh is around one per cent or so, which is important as they had just been brought under the GST net. GST is aimed to garner sufficient revenue for the government, which can be used for pro-poor welfare scheme and would increase investments to bring the desired inclusive development, which is envisaged by Modi to materialise in the year 2022. The higher growth of GDP as a result of GST has also been predicted by Moody’s. It is to be noted that so far 80 lakh indirect tax payers have registered for the GST, which disputes the criticism that it is half- baked. Yes, GST remains an important component of India’s second generation reforms, which shall pave the way for much awaited third generation reforms.

National Skill Development is yet another agenda, which is close to Modi’s heart as it involved skilling of the youth, which Modi strongly advocates as a pre-requisite for the development and growth of India. Modi, in 2016 opened the first ‘Indian Institute of Skills’ and also Pradhan Mantri Kaushal Kendras (PMKKs) in each district of the country to create growth opportunities for the youth locally. Under the Ministry of Rural Development (MoRD), the Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDG-GKY) has been geared to cater the skill development needs of the youth. DDU-GKY focuses on rural youth between the ages of 15 and 35 years from poor families. As a part of the Skill India campaign, it plays an instrumental role in supporting the social and economic programmes of the government like the Make-In-India, Digital India, Smart Cities, Start-Up India and Stand-Up India campaigns. For the year 2016-17, DDU-GKY has trained 162,586 number of youths and 84,900 have been placed. Such initiatives immediately change the economic might of the families but take time to come on to the national headlines.

Agricultural distress: The crisis arising in agricultural normally results from crop loss and due to natural disasters and fall in market prices, in various states of India, which has cost lives and families. Agriculture, in first three years grew by just 1.7 per cent per annum, which is less than half of what was achieved during the last three years of the UPA government (3.6 per cent).

Neem coated urea works as an insecticide and it will cost 5 per cent more than the cost of normal urea, which is about Rs 260 per tonne but the benefits outweigh the marginal increase in price.

To counter the impact of agricultural crisis in India the NDA Government had brought out the novel pro-farmer scheme of Prime Minister Fasal Bima Yojana (PMFBM) in 2016. This is because of the severe draught in 2014 and 2015. The new scheme removes the earlier capping of the premium and now farmers can get full sum insured. The scheme is hailed by the farmers because it covers all farmers and the premium amount is very low and based on seasonal crops, i.e., for Kharif it is 2 per cent and for Rabi it is 1.5 per cent. The rest of the premium is paid by the Government. Moreover, Remote Sensing Technology, Smartphones, drones are to be used for quick estimation of losses and early settlement of legitiamte claims. In addition to the PMFBM, the Modi government launched following schemes to boost production and ensure better returns to farmers:

  • The Soil Health Card is a novel beneficial scheme for farmers who do not know which types of crops in which type of soil they should grow to get maximum yield.;
  • Pradhan Mantri Krishi Sinchai Yojana (PMKSY), focuses speedy completion of pending irrigation projects for which Rs 40,000 crore budget has been allocated in 2017-18;
  • Electronic National Agriculture Market (e-NAM) is a pan-India electronic trading portal, which networks the existing APMC mandis to create a unified national market for agricultural commodities. The NAM Portal provides a single window service for all APMC related information and services. This includes commodity arrivals, prices, buy and sell trade offers, provision to respond to trade offers, among other services.

Indigenous fertilisers: According to an Indian Express report in March 2017, from the coming Kharif season, beginning June, the Rs 70,000 crore fertiliser subsidy budgeted for 2017-18 will be disbursed to companies based on actual sales to farmers captured on Point-of-Sale (POS) machines installed at nearly two lakh retail points across India. This was a significant change from the existing system, where firms are paid the subsidy on receipt of their fertiliser at the railhead point or any approved godown of a district. Prior to this, till October 2012, they were getting the subsidy on despatch of material from their respective factories.

The proposed subsidy-post-sale system—as opposed to after receiptat- district or despatch-from-plant—is already being implemented as a pilot scheme in 17 districts. These include UP Chief Minister Yogi Adityanath’s home district of Gorakhpur; Kishanganj and Begusarai (Bihar); Dhanbad (Jharkhand); Hoshangabad (Madhya Pradesh); Pali (Rajasthan); Nashik and Raigad (Maharashtra); Narmada (Gujarat); Krishna and West Godavari (Andhra Pradesh); Ranga Reddy (Telangana); Tumkur (Karnataka); Thrissur (Kerala); Karnal and Kurukshetra (Haryana); and, Una (Himachal Pradesh).

Under the new system, it is possible to record transactions at individual farmer-level. If someone is buying 200 bags of urea, that person is more likely to be a plywood or particle-board manufacturer than a farmer. Either way, he isn’t deserving of subsidy.

Another notable feature of the NDA Government during this phase whereby it allowed fertiliser firms to produce 100 per cent neem-coated urea, a move aimed at helping farmers boost income and reduce subsidy bill by up to Rs 6,500 crore. It is expected that India will become self-sufficient in urea production in the next five years as the NDA Government has taken steps for revival of five closed urea plants and set up new ones. It is to be noted that earlier only 35 per cent was allowed to be produced from the total capacity of the plant. The main advantage when farmers use neem coated urea will be the slow release of nitrogen which helps the fertility of the soil. Therefore, there will be more yield to the extent of 15-20 per cent and less use of urea to the extent of 15-20 per cent of urea and there will be savings of Rs 5,000 crore for the government. Lastly, neem coated urea also works as an insecticide and it will cost 5 per cent more than the cost of normal urea, which is about Rs 260 per tonne but the benefits outweigh the marginal increase in price. This initiative of NDA has made India self-reliant in promoting indigenous fertiliser suitable for Indian soil and is also economical.

Impact of DBT: NDA Government has successfully been using Direct Benefit Transfer in social welfare schemes for the last three years to reach the intended target beneficiaries. This has enabled the Government to save crores of rupees as it roots out middlemen, fake and duplicate beneficiaries and is also cost effective. For example, the government could save Rs 21,672 crore of LPG subsidy in the financial years (2014-15 and 2015-16), thanks to the implementation of the DBT in LPG (DBTL) scheme that eliminated ghost or duplicate connections. To sum up, Modi’s Digital India has indeed been fully utilised with regard to DBT and it has made financial and social inclusion making strong in roads in society. National Child Labour Project Scheme (NCLP) Student scholarship and LPG subsidy are some of the major programmes using DBT.

Pradhan Mantri Ujjwala Yojana (PMUY) welfare scheme started by Modi in May 2016 has provided LPG connections to domestic households that fell in BPL category. The beneficiaries for the Ujjwala Yojana were identified based on four data sets—the Socio-Economic Caste Census, bank accounts, Aadhaar and the list of consumers after the de-duplication drive. Basically, the scheme aims at providing a proper cooking fuel that will, in turn, improve the health of the poverty struck families. Another salient feature of this scheme is provision of subsidised gas stove. People are getting gas connections. Local entrepreneurship is being encouraged through skill development in making eco-friendly gas stoves. It is to be noted that lesser scope of employment opportunities are available in this area of stove making thereby enabling to create more jobs for the poor. In fact, all the oil majors namely—BPCL, IOCL, HPCL— have formed a consortium and are promoting the subsidised gas stove industry in areas where there are not many employment opportunities. This is another example of innovation and cross sector linkages.

Human Development Index

Gender Empowerment: Modi has been an ardent advocate for the Gender empowerment in India and have initiated a novel scheme to counter gender discrimination in Indian society. The Beti Bachao, Beti Padhao (BBBP) scheme launched in 2015 by Modi aims to address the issue of the declining child sex ratio image and is a national initiative jointly run by the Ministry of Women & Child Development, Ministry of Health & Family Welfare and also the Ministry of Human Resource Development. It initially focused multi-sector action in 100 districts in the country where there is a low CSR. But the scheme has not been implemented as it is planned since 90 per cent of funds allocated to this scheme remain un-utilised.

Health reforms: The much awaited National Health Policy has been announced by the NDA, which comes after a gap of 15-years. It focuses on the public spending and provisioning of a public healthcare system that is comprehensive, integrated and accessible to all with a crucial gapfilling role for the private sector. In addition, policy advocates for increasing the life expectancy age from 68.5 to 70 years and to increase GDP from 1.4 to 2.5 till 2025.

In addition, Modi has announced the Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). Under PMJJBY, 3.1 crore insurance policies were issued as on 12 April 2017. A total of 63,291 claims were registered under PMJJBY of which 59,770 were settled by 12 April 2017. Under PMSBY, cumulative gross enrollment reached 10 crore in April 2017. A total of 12,816 claims were registered under PMSBY of which 9,646 were settled by 12 April 2017.

Both of these developments usher the welfare of the poor and to ensure quality services to all.

The unfilled vacancies of female health workers and doctors in nearly 2,000 PHCs remain an area of concern.

Welfare of Children: In the last three years, Modi has touched almost all sectors covering all classes and has also focused on gender aspects. But one of the landmark achievements of Modi is, taking up two most controversial international conventions, i.e., ILO Convention 138 pertaining to Minimum Age for Employment and Convention 182 dealing with Worst Forms of Child Labour. The former convention came into force in 1938 and later in 1996, both of which have been signed by almost all nations in the world except India. Both of the conventions’ subject matter has an indirect huge impact on economy in the form of disguised employment and underage exploitative labour from poor families, which goes against the UN Convention on the Rights of the Child and Right to Education Act of India. At one go in June 2017 both of these convention were signed by India. In addition, Modi has declared that the National Child Labour Project would be revised in the lines of RTE Act of having mandatory primary education.

Under PMSBY poor can get insured up to 1 lakh to cover their medical expenses. The risk coverage is Rs 2 lakh for accidental death and permanent total disability and Rs 1 lakh for permanent partial disability.

Education reforms: Modi has suggested a series of structural reforms in education, ranging from schools being mandated to display grade-wise learning goals for each class. School students will be asked to evaluate their teachers and a university will be started for teacher training. Modi has also indicated upcoming bold education reforms where Sarva Shiksha Abhiyan (SSA) and the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) will be linked to learning outcomes and fund release will depend a lot on quality. In addition, the Modi government is all set to scrap the University Grants Commission (UGC) and the All India Council for Technical Education (AICTE) and replace them with one higher education regulator, tentatively christened as Higher Education Empowerment Regulation Agency (HEERA). But NDA’s education reforms are marred by the accusation that it promotes nepotism in posting and has saffornisation agenda.

It is not to say that a with person like Modi, who has a clear vision marked by strategic planning and meticulous execution to deliver lasting outcomes, there is no room for more. Yes, undue importance to NITI Aayog and centralisation tendencies have gone against the proposed cooperative federalism. This and a few more require correction as Narendra Modi gears up for 2019.

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