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4 Years of the Modi Government: Taking Stock of Economic Performance
Image Credit: Flickr/ Narendra Modi

4 Years of the Modi Government: Taking Stock of Economic Performance

 
 

In 2014, then-Chief Minister of Gujarat Narendra Modi campaigned on a vision for economic growth, good governance, and reforms. Four years later, as Prime Minister Modi and the Bharatiya Janata Party (BJP) head into the 2019 general elections, the National Democratic Alliance-led government has made significant progress on economic growth and reforms.

Indeed, the government’s accomplishments on tax reform, insolvency and bankruptcy procedures, and FDI liberalization are incredibly impressive. However, when compared to the BJP’s election manifesto released in 2014, the government has been unable to undertake crucial items in its promised reform agenda, particularly on job creation, as well as land and labor reform. As the BJP looks toward 2019, a comparison of the BJP’s promises and achievements underscores a mixed record of remarkable progress and unfulfilled promise.

Progress on Growth and Reforms Made…

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Economic indicators under Modi’s government have been trending positively going into its fifth year. Indeed, the Hindustan Times notes that “India is the fastest growing major economy in the world. This growth has not come at the cost of high inflation or fiscal deficit. At no point of time has the Consumer Price Index, the benchmark measure of inflation for Reserve Bank of India’s inflation targeting agreement with the government, exceeded its targeted range.”

However, beyond the headline numbers, the government has undertaken impressive economic reforms over the last four years. The overhaul of the nation’s indirect taxation system through the goods and services tax (GST) remains one of the most significant accomplishments of the government. Although implementation of the GST has been less than ideal, given the inordinate complexity of the tax regime and numerous changes in how specific classes of goods and services were taxed, the passage of the reform was a crucial step in improving ease of business and removing trade barriers that prevented India from behaving as a single market.

Other major economic reforms also include the passage of the Insolvency and Bankruptcy Code, 2016, which created a uniform and comprehensive framework to oversee the financial failure and insolvency of companies and individuals. This much-needed and welcome reform also advanced the BJP’s goal of improving the ease of doing business in India by ensuring early identification of potential insolvency and maximizing the value of insolvent assets for creditors, thereby providing relief to India’s distressed credit markets.

The government has also pushed for greater liberalization of India’s foreign direct investment (FDI) regime, particularly in crucial sectors such as defense, e-commerce, and pharmaceuticals, leading to a record average inflow of $52.2 billion in FDI annually in the last four years. The creation of Aadhar, which has become the primary form of identification for most Indians, and the launch of the Pradhan Mantri Jan Dhan Yojana (PMJDY), which sought to bring millions of financially excluded Indians into the fold, are also major accomplishments although both still face significant implementation challenges. Indeed, data shows that “inactive accounts now make up nearly 50 percent of the user base” for PMJDY, and Aadhar’s security and constitutional challenges remain to be addressed.

…But Certain Promises Remain Unfulfilled

However, despite these notable achievements, the government has also been unable to act on a number of crucial reforms that it had promised. While the government had promised a greater formalization and digitization of the economy, the move to demonetize 86 percent of India’s currency has seen nearly all of demonetized notes return to the RBI as cash continues to dominate India’s transactions. Moreover, non-performing assets have remained a major concern for India’s economy; they have grown from Rs 2.52 lakh crore in  March 2014 to Rs 9.62 lakh crore as of March 2018. In dollars, non-performing assets make up more than $150 billion, of which nearly 90 percent is held by public sector banks.

However, chief among the government’s unfulfilled reforms are those related to labor and land acquisition. The BJP pointed to India’s existing land and labor laws as holding back economic growth, investment, and development in India, but has been unable to advance legislation to enact necessary reforms in these sectors.

Indeed, in the first two years of the government, the BJP pointed to the Land Acquisition Act of 2013 as being a barrier to investment and development. The Economic Survey released in 2015 pointed to land acquisition as the primary cause behind the lack of progress in 161 government projects. Dr. Arvind Panagariya, the vice chairman of the NITI Aayog, also argued that “The Land Act, 2013 is an onerous Act under which by all calculations it will take up to five years for acquiring land assuming that all steps progress smoothly.” However, on August 31, 2015, Modi announced that a proposed ordinance drafted by his government would to amend the Land Acquisition Act of 2013 would be allowed to lapse, and would not move forward.

Similarly, the BJP, in its 2014 election manifesto had outlined that, if the party came to power, it would “review our Labor laws which are outdated, complicated and even contradictory.” Indeed, India’s labor laws are “convoluted, restrictive, and archaic, much of it dating to the Raj.” Among the most onerous of such regulations include the requirement that any firm employing more than 100 workers must seek and receive government permission before dismissing any worker. Employers therefore hire employees informally. As a result, 81 percent of India’s workforce works in the “informal sector,” preventing India from transitioning to a formalized and high-production labor force. While Modi and his government have pushed for labor reforms over the last four year, progress has remained elusive.

As a result, perhaps the biggest promise made by the BJP in 2014 — job creation — remains unfulfilled, particularly as there is no clear indication of how many jobs were created in India. In its 2014 election manifesto, the BJP stated “The country has been dragged through 10 years of Jobless Growth by the Congress-led UPA Government. Under the broader economic revival, BJP will accord high priority to job creation and opportunities for entrepreneurship.” The manifesto pledged, that “Job creation [will be] central to our economic model.” Modi doubled-down on that goal, promising in 2013 that “the BJP would create 10 million jobs.”

Since the government data only tracks job creation in the organized sector, there is no clear indication as to how many jobs were created or lost. As a result, varying and contradictory job growth figures for 2017 have been published and publicized, ranging from 1.4 million to 15 million jobs. Despite the debate over the numbers however, the government is also battling a perception that its four years in power have been accompanied by jobless growth. Indeed, opposition parties have hit out against the government, especially as Modi and BJP President Amit Shah have stated that selling pakodas counts as employment. As the government heads into its final year, the narrative battle of job creation will be at the forefront of political debate.

The BJP has stated that it would publish a “report card” of its accomplishments in government and present it to the Indian people, leaving it upon them to judge its performance. While the government has made impressive strides in passing the GST, improving insolvency procedures, and liberalizing FDI, crucial other reforms and promises remains unfulfilled. The government has clearly taken steps to achieve the “Acche Din” it promised to Indians in 2014, but it must reckon with its mixed report card as it looks toward the 2019 elections.

Aman Thakker is a writer for The Diplomat’s Pulse section.

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