Modinomics

An Alternative ‘Economic Survey’

The new National Democratic Alliance government is to present the Union Budget for 2024-25 on July 23. The previous Bharatiya Janata Party-led government had presented an Interim Budget on February 1, 2024. Before the budget is placed in the parliament, it is customary that the government presents an Economic Survey for the year gone by. It lists the economy’s performance in that year and the challenges ahead. This gives an indication of the correctives the government may implement.

But past experience has been that these prescriptions are often ignored.

Alternative elucidation

The implication is that the government’s political judgment is at variance with the economic needs of the people. The Budget is a complex set of documents which most citizens are unable to decipher. The real political intent is hidden behind a mass of data and populist announcements in the budget. The problems faced by citizens persist year after year in spite of the grandstanding.

The government uses the budget to show that the economy is doing well in spite of difficulties and that the citizens’ problems will be taken care of. For this data is selectively presented. Since the full picture is not revealed, analysts have to go behind the numbers presented to reveal the actual situation of the economy. So, while the establishment economists praise the budget the critics present the realistic situation and therein lies the importance of the alternative elucidation.

This problem is compounded by a) the non-availability of crucial data and b) its manipulation. For instance, Census 2021 is awaited. The pandemic abated after early 2022 and most nations have conducted their Census, but the process has not been started in India.

Why is this crucial?

The Census data is used for drawing the sample for most other surveys used for data collection. Now, the 2011 Census is used to draw but that does not account for the major changes that have occurred since then. Thus, the results are not representative of the situation in 2024.

Data on employment, agriculture output, unorganised sector, poverty, inequality, etc. are manipulated. For instance, the declining unorganised sector has been largely proxied by the growing organised sector. This gives an upward bias to Gross Domestic Product and its growth resulting in the paradox of the high official economic growth accompanying high unemployment and price rise.

The claim that multi-dimensional poverty declined in 2020-21, when the adverse impact of the pandemic was at its peak, is hard to accept. This false claim was projected to show that 24 crore people were pulled out of Multi-dimensional poverty between 2014 and 2024.

Given these data related issues, critics use alternative data to present the real picture. Since their analysis is at variance with the official claims, they are branded as ‘naysayers’ and asked, ‘Is there anything right in the economy’?

Also read: NiTi Aayog ‘Poverty’ Stats: Serious Theoretical, Methodological, Empirical Questions

1) Denial of adverse News

This misses the point of a critique which by definition focuses on the big picture and its short comings. It is true that as the economy grows many things happen or change. There are more roads, higher literacy, more hospitals, more automobiles, etc. But, these can be accompanied by persistence of poverty, poor quality education and health, etc. These shortcomings are a cause of concern for society and critics highlight that. The pandemic brought them into sharp focus. The situation has not changed much after the recovery from the pandemic since it has been uneven. The organised sector is growing at the expense of the unorganised sector which is declining and aggravating the problems of the vast majority.

The organised sector’s post pandemic recovery is reflected in the stock market valuations reaching record highs. The government also cites this as a strength of the economy. Foreign investors are also responding to this since they have no interest in the unorganised sector.

The government has consistently denied adverse news.

Not only have the national data on unemployment and consumption been denied, international adverse rankings on hunger, press freedom, religious freedoms and democracy have been rejected. Many of these international rankings are relative and not absolute but a low rank or slippage in ranking for India indicates that either the situation is worsening compared to other countries or actually there is a decline over time. In the last decade or so, press freedom and democracy have declined while religious persecution has increased in India as the regime has become more autocratic and has systematically used agencies to attack and splinter the opposition.

2. Black economy and missing data

Growing corruption damages the society and the economy. At present, the fight against corruption is restricted to the opposition, to weaken it. But, it is more important to check the corruption of those in power. They are the ones fouling up policies and harassing the public. In fact, the ruling party is seen as a washing machine – the cases against the corrupt who join it are dropped or put on the back burner. This selective fight against corruption is seen as political vendetta and discredits it.

The growing black economy, linked to increasing corruption, further vitiates data since it does not get reflected in the official data. Thus, policy and analysis are based on partial data with the black economy becoming their missing dimension. The result is policy failure because, `expenditures do not lead to outcomes’. Black economy is also characterized as `digging holes and filling holes’. That results in lower investment productivity which reduces the rate of growth of the economy compared to its potential. In brief, black economy has an adverse impact on poverty, employment generation, environment, inequality and so on.

For the reasons listed above, an alternative picture of the economy which is closer to the reality than the official narrative becomes crucial. The critics and so called `naysayers’ present such a picture and whether the government admits it or not, it receives an important feedback.

Policy change?

The Economic Survey for 2023-24 will be presented after a contentious election which has sent a message to the government that the public is unhappy with its economic performance. The ruling party’s claim in the run up to the elections that India has now become the fastest growing large economy and a Vishwaguru did not cut much ice with the public in large swathes of the country.

So, correctives need to be applied to existing policies to take care of the problems perceived by large numbers of people. This would require the Survey to more honestly reflect the realities of the last five years and especially of the year past, 2023-24.

It is true that rising economic distress was not the only issue on which many voted against the ruling party. But, it constituted the background to the public discontent. If the ruling party persists with the narrative of ‘the economy is doing well’ in the Economic Survey then no basic change in policies would occur and the problems would persist. It would impact the coming important State elections where the ruling party will have to face anti-incumbency.

Further, the possibility of implementation of ‘one nation one election’ having receded, every year till the next General elections, there will be four to five important State elections. So, if the policies remain unchanged, the ruling party will have to face further losses.

Some argue that it is not in the DNA of the present leadership to bow to pressures. Its inclination is pro-business and it would continue with that while denying the problems due to inequality, price rise, poverty, unemployment, slowing growth, etc.. But it is likely that without admitting these problems, concessions may be announced to the marginalised sections, like has happened in the case of the Maharashtra budget.

The ruling party could have tackled these growing economic problems in the last five years and especially in the last one year but it has been in denial. Its victory in the 2019 General elections and after that in some of the States and especially in U.P. and the three States in November 2023 perhaps lulled it into believing that no course correction was required. For this obduracy it has paid a price. Would it want this to continue?

Guarantees?

The campaign for the 2024 elections started with ‘Modi’s guarantee’ and that is also the manifesto’s title. But, which of Modi’s major promises have been fulfilled in the preceding decade? Then why would the public now believe that Modi would deliver on any guarantee in the coming years? Perhaps that is why this slogan did not cut much ice with large swathes of the public.

Some of the major economic promises that have been belied, are creation of two crore jobs annually, doubling of farmers’ incomes by 2022, ending of black economy, bringing back of black money held abroad, cooperative federalism, rapid economic growth and ‘acche din’.

Also read: ‘Modi Sarkar Ki Guarantee’ – Wall to Wall Propaganda Using Public Funds

Economic performance since 2019-20

The five years since 2019-20 have been impacted by the pandemic in 2020-22. The economy experienced the sharpest fall since Independence. The official data does not fully capture this adversity since data could not even be collected in the crucial months.

The extent of error in official data can be gauged from the inability of the official machinery to count the number of deaths. According to some estimates, more than a million deaths were not counted. Many were incapacitated for long and faced long-COVID and could barely work after recovery.

For these reasons data, especially for the unorganised sector, had a hole for 2020-22. Even when collected, like for unincorporated enterprises and multi-dimensional poverty, the samples used were not representative and therefore, estimates were incorrect. Due to the shocks, many of the unorganised sector units closed down and that could not be captured by samples based on the 2011 Census.

Also read: The Jobless Growth of Unorganised Enterprises Is Worrisome

In the case of agriculture, doubts have been expressed about the method of measuring the output. The government has been claiming record output of foodgrains. Yet, their prices have been rising. To check the price rise, the government imposed a ban on their export but prices continued to rise nonetheless. The only plausible explanation can be that there was no record output.

As already pointed out, the declining unorganised sector is proxied by the rising organised sector, thereby giving an upward bias to the growth rate of the economy. This is further vitiated by the incorrect estimates of the agriculture sector.

If it is assumed that the organised sector data is correctly measured then the official GDP growth rate represents only this component of the economy. If the rest is declining even by 5%, then the economy’s rate of growth instead of being 7% would be 1.6%. This is the case since 2016 when the first policy-induced shock of demonetisation occurred. If the rate of growth has been between 1% and 2%, the economy would not yet be the 5th largest in the world. It may possibly be the 9th largest economy. This would also belie the official claim that the economy would become the 3rd largest economy by 2027.

This slow rate of growth of the economy due to the decline of the unorganised sector underlies the rising unemployment, inequality and persisting poverty. It is also the reason that farmers complain of falling incomes and because of which they are demanding state support.

Persistent inflation undermines the real purchasing power of the families in the unorganised sector who cannot bargain for a higher wage. A lower rate of inflation does not mean lower prices so that the purchasing power of the workers continues to erode. It is businesses that benefit from price rise because their share of the output rises. In brief, family poverty is fuelled by unemployment and persistent inflation.

The black economy concentrated in the hands of the well-off, further aggravates inequality and poverty. If the promise of checking the black economy had been fulfilled, the tax net would have widened and the direct tax to GDP ratio would have sharply risen. Instead, it has hovered between 5.7% and 6.3%. This undermines the official claim of having checked black income generation. The citizens sense this as they continue to face day to day corruption in their life.

Further, digitisation was supposed to curb corruption. GST was also expected to do that. But, fake companies to claim input credit are being unearthed routinely. The official estimate of evasion of GST runs into lakhs of crores. Fake Aadhaar cards, hacking of accounts, etc. are proliferating. As long as the person behind the technology is dishonest, technology by itself cannot check illegality.

Also read: Is it Time to Call India a Digital Dystopia?

Digitisation was supposed to reduce the use of cash. But data shows that currency in circulation has risen and surpassed its pre-demonetisation ratio to GDP. Digitisation was supposed to simplify life but that has not happened. For instance, KYC has to be obtained every two years which burdens the citizens and bank staff without deterring the crooks who know how to game the system. It has also made transfers of securities cumbersome. Further, poorly trained staff and poorly designed systems result in unnecessary hurdles. Consequently, the unorganised sector lacking financial literacy is unable to cope with the growing complexity and has further suffered.

Government’s pro-business tilt is clear. The organised sector is being promoted at the expense of the unorganised sector. Further, the private sector is being promoted at the cost of the public sector. Monetisation of public assets has become another way to privatise. With rampant cronyism, select businesses are cornering the benefits. The revelations about the electoral bonds scheme points to cronyism. It opened a way of bribing in white.

Cronyism has promoted select big businesses. They are enabled to acquire profitable businesses. This is spoiling the investment climate in the country and resulting in many High Net Worth individuals (HNIs) to leave India. No wonder, investment levels have declined since 2012-13. This decline is compounded by inadequate demand due to the low purchasing power of the vast majority of Indians. 90% of the 30 crore registered on the E-shram portal declare an income of less than Rs. 10,000 – close to the poverty line. RBI data shows capacity utilisation of the organised sector hovering between 70% and 75% – a level at which investment would be low.

The pro-big business policies promote capital intensive sectors at the expense of the labour intensive ones. The government’s budget illustrates that. Whenever the budget deficit has increased, expenditures on labour intensive items are curtailed in real terms while those on the capital intensive sectors are maintained. For instance, allocations to MGNREGS, education, health and rural development were reduced while allocations to infrastructure were maintained.

Federalism in India is being eroded by the overbearing attitude of the Union government. GST was the last time cooperative federalism worked. The slogan, ‘double engine ki sarkar’ is a clear threat to the diversity of the nation and to federalism. It signals that the ruling party in the Centre will favour those States which have the same party in power. It is visible when the Centre plays favourites among the States in the grant of projects and transfer of funds.

Opposition-ruled states have complained of slow release of funds due to them for programmes like, MGNREGS. They have been denied foodgrains they asked for to distribute under PDS. The Centre has dictated that the picture of the PM should be displayed on items being given to the public as if it is a personal gift of the PM to the public. Even the COVID-19 certificates had to have the PM’s picture on it.

COVID was indeed mismanaged with a sudden lockdown which resulted in a deep crisis for the economy. This was followed by complacency which aggravated the crisis in the Delta wave.

Summing up

The above presents an alternative macroeconomic picture. The challenges of the social sectors and infrastructure need another piece.

The argument is not that the economy has not grown but who has benefited from it? Why are farmers protesting that their incomes are declining if agriculture output is rising? Why is the decline in the inflation rate accompanied by a decline in real incomes of a vast majority of workers? So, ‘acche din’ are not yet for the majority. Worse, the adverse impact of the policy induced crisis due to demonetisation and the faulty GST on the poor was aggravated by the hasty lockdown.

Employment generated by the system is minuscule compared to the annual influx of 24 million young who are potentially ready to work. Add to that the backlog of work required by the unemployed, under employed, disguised unemployed and those who have given up looking for work. Workers are increasingly dependent on self-employment in marginal activities earning them little income. There is a mismatch between the work a vast majority of the young are doing and their level of education, like, PhDs applying for peon’s job or MBAs applying for a safai karamchari – cleaning staff – job. Many of the young appear year after year for examinations which often get cancelled due to proliferating malpractice. The resulting frustration is manifesting in substance abuse, family violence and petty crime.

The official data is partial and manipulated to mask adversity. That is why an alternative picture needs to be sketched which captures the reality of growing economic, political and social instability in the country and rising strife. It unravels the need for drastic change in policies to solve the problems faced by the marginalised sections. This would not be a zero-sum game but a positive sum game for the nation.

Arun Kumar retired as professor of economics from JNU. He is the author of Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead, 2020.

Delusions of Modinomics Cannot Hide the Gloom Which is All Around Us

Joblessness has peaked in India during the the BJP-led regime, whatever his spin doctors might argue.

Narendra Modi is clearly caught in a time warp created by his delusions and stubborn refusal to read the Lok Sabha verdict correctly.

In Russia, as usual, he addressed the Indian diaspora and described India as full of doom and gloom before 2014! He said pretty much the same thing after his 2014 victory, when, in Seoul and Shanghai, he suggested no progress had been made in the previous 70 years and that before he came to power “people used to wonder what sin they had committed in their past life which resulted in them being born in India.”

While the PM tried to hard sell this ‘before and after’ picture of his 10-year rule, it was left to the father of a Gujarati youth killed in the Ukraine war while serving the Russian army to deliver a stern reality check.

“What is there in India? We are ready to move to Russia… I am ready to give up Indian citizenship,” said Ashvinbhai Mangukiya, father of young Hemil who was killed in a Ukrainian air strike in Russia in February. Russia has offered Rs 1.3 crore as compensation to the family and Russian citizenship too.

Ashvinbhai, who spoke to The Hindu’s Vijaita Singh, can bring Modi out of his delusional state and tell him there are no quality jobs for the youth in India anymore. Ten years of Modi have seen unprecedented joblessness as most government data points reveal. No wonder, young men from Gujarat, Uttar Pradesh, Haryana and Rajasthan are willing to put themselves in harm’s way by taking up jobs in Israel and Russia in the midst of the deadly wars those countries are waging. His is the most stinging indictment of Modi’s economic performance – or lack of it. How else can you describe India’s predicament when Modi has to ask Putin to speedily repatriate the desperate Indians fighting Russia’s war in Ukraine (as mere ‘helpers’) while the father of a dead Indian soldier is saying there is nothing left in India and he too wants to migrate to Russia.

Joblessness has peaked in India during the the BJP-led regime, whatever his spin doctors might argue. I distinctly remember Modi telling enthusiastic youth in UP and Bihar during the 2014 election campaign, “You give me 10 years and I will transform your lives”. Well, Modi has had ten years already and he has just ended up seeking the return of desperate Indian youth fighting other people’s wars abroad because there are no jobs in India.

Also read: Some Proof Required: Modi Government’s Abysmal Record of No Jobs

Modi has presided over the highest level of unemployment in 45 years and the lowest average GDP growth and per capita income growth in any decade since reforms began in 1991. His economic record is so poor that no amount of lipstick on this pig will suffice or help hide the harsh reality. Modi’s decade in power has seen the lowest growth in private investment. In fact, possibly out of fear, Indian corporate honchos happily kept feeding Modi’s delusional narrative that India was the most attractive destination for investments globally when they themselves had not made any new investments. Largely because India has seen the most tepid private consumption over the last decade. When consumption demand is so low how will new investments come? This is a matter of great concern even today because private consumption accounts for nearly 60% of India’s GDP growth. Average private consumption growth over the last decade has been barely 3% annually, as per data released by the government some time ago. How will new private investments fructify in such circumstances?

Moreover, the government’s own periodic labour force survey has shown wage growth in India stagnating and declining sharply in real terms over the five years from 2017-18 to 2022-23.

The just released Annual Survey of Unincorporated Enterprises – which basically covers unregistered small and micro enterprises – showed how employment in this space has declined in absolute terms by 1.7 million from 2015-16 to 2022-23 even when the actual number of such enterprises had growth by 2 million in the same period. Labour economist Santosh Mehrotra calls this a classic case of jobless growth. He says youth unemployment (15 to 29 years) has doubled to 12% in 2022-23 compared to 2011-12. He reckons the actual figure of youth unemployment is much higher as India treats a very large number of people (about 90 million) as employed when they are actually unpaid workers in family owned enterprises with low productivity. No other country follows this methodology and even the ILO does not treat unpaid family workers as employed.

This week, Citi group’s research team spoke the truth when it said even a 7% GDP growth rate will not solve the problem of acute joblessness as it won’t be able to absorb the 12 million youths entering the labour market every year. The government contested the Citi report instead of acknowledging the reality that stares at us.

Meanwhile former Chief Economic Advisor in NDA-I , Arvind Subramanian, wrote an article in the Indian Express recently suggesting foreign investment into India has been very weak because the Modi government’s policy promoting “national champions” – seen as cronies by most rational observers – has greatly enhanced the risk factor for foreign companies looking to invest in India. Net foreign investment (FDI) as a ratio of GDP has collapsed from an average 2% of GDP until a few years ago to 0.5% of GDP in 2023-24, the lowest in a decade.

Recently The Hindu reported how new domestic private investments in the pipeline had also slumped to a 20 year low in April to June 2024.

Taken together, if this is the reality, then one can well imagine what the future holds for Indian youths seeking quality jobs.

Modi’s economic policies over ten years have broadly empowered big businesses by improving their profitability but structurally eviscerated micro and small enterprises where most employment is generated.

Consequently, the bottom 70% of the population has seen severe income stagnation accompanied by high food inflation in recent years. It is time Modi stopped talking about the gloom before 2014 and looked closely at the deepening distress in the economy he is supposed to be in charge of – which resulted in his being cut down to size by the Indian electorate.

Surely he must introspect over why even among the 82 crore people benefiting from free rations many have voted against the BJP.

This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been updated and republished here. To subscribe to The India Cable, click here.

Hanuman Needs Help From Those Who Rule in the Name of Ram

Nirmala Sitharaman’s exhortation to domestic investors only proves that India remains in the private investment famine which began in 2014, when Narendra Modi became prime minister.

This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.

Finance minister Nirmala Sitharaman last week likened the Indian industry to the mythological Hanuman, who often doesn’t understand his own strength. She asked why Indian industry was hesitant to invest when foreign investors are expressing confidence in India.

“Is it like Hanuman? You don’t believe in your own capacity, in your own strength and there has got to be someone standing next to you and say you are Hanuman, do it? Who is that person to tell Hanuman? It can’t certainly be the government,” Sitharaman said.

Her exhortation only proves that India remains in the private investment famine which began in 2014, when Modi became prime minister. The absence of a pickup in private investment over a decade could be Modinomics’ unenviable legacy. Sitharaman is merely reiterating that long-standing concern. She took over as FM in 2019 and came up with many policy announcements to boost private investment. Massive corporate tax cuts in September 2019, including just 15% for new investments, made India among the lowest taxed economies, but it didn’t attract significant new investments. The production linked investment (PLI) scheme after the pandemic is yet to take off. The Union urged RBI to cut interest rates drastically to help corporate balance sheets, but businesses still failed to make fresh investments out of internal surpluses. The lack of response from domestic businesses is the cause of the FM’s frustration and also reflects the PM’s growing anxiety.

The FM says foreign investors have shown confidence in India but domestic investors are still wary. This is not true. Foreign investors have shown confidence only in the tech, e-commerce and fintech sectors, not in broad-based manufacturing. Traditionally, foreign investors follow domestic investors. Many foreign investors and big brands have exited manufacturing in India in recent years. Prominent examples in the highly viable auto sector have been General Motors, Ford Motors and Harley-Davidson. Holcim Group’s sale of Ambuja Cements and ACC is the single biggest exit in manufacturing in recent times. Bottomline: foreign investors will not enter manufacturing until domestic investors show adequate confidence.

Nirmala Sitharaman’s diagnosis that Indian businesses, like Hanuman, don’t know their own inherent strength is also wrong. Businesses have built capacity but the Indian consumer’s income is not growing, and consumption-led growth is at an all-time low. April-August data shows sales of discretionary consumer items like soaps, toothpaste and shampoo are totally flat. No wonder Sanjiv Mehta, Chairman of Hindustan Unilever, is suggesting an urban employment scheme on the lines of MGNREGA!

Even if Indian businesses invest a lot more in capacity creation and try to discover their full Hanumanhood, it will be of no use until consumers respond. RBI surveys in the last few years have consistently shown low consumer confidence and negative prospects for future employment and income growth. Can industry invoke its Hanuman-like strength and do something about it? No, it can’t.

The real Hanuman with unlimited strength must reside in the 1.3 billion consumers who drive the economy. PM Modi has talked about the potential of 130 crore Indians to pull off miracles. That Hanuman is rather feeble at present, and needs help from those who rule in the name of Ram!

Revdinomics Isn’t About the Economy, Stupid

As economists of all hues have been forced to go into the intricate nuances of “merit and demerit subsidies”, the prime minister seems to be having the last laugh. Modi’s objective was purely political.

This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.

The debate on what kind of welfare handouts constitute freebies and what should be deemed productive and empowering is becoming noisy and combative. The Dravida Munnetra Kazhagam (DMK), which is in power in Tamil Nadu, has submitted to the Supreme Court that the public interest petition questioning certain welfare schemes as “freebies” has no merit and is an assault on the Directive Principles of State Policy in the Constitution. The matter is being heard today.

The DMK argues that the petition, filed by a lawyer belonging to a political party, is motivated and has no merit. The Aam Aadmi Party (AAP) has been far more direct, publicly accusing Prime Minister Narendra Modi of trying to disrupt well-run welfare schemes in opposition-administered states.

The Supreme Court has waded into the debate and issued notices to all stakeholders, including the Union government and the Election Commission. The apex court, which has had little time or inclination to consider long-pending urgent matters relating to habeas corpus and the challenge to electoral bonds, is showing a lot of interest in adjudicating the issue of “freebies”! It is considering forming an expert panel. Experts would muddy the waters even more.

PM Modi has succeeded in ratcheting up a high-decibel debate on the nature of welfare spending by governments with his remarks on the dangers of distributing “revdis” (north Indian sweetmeats). As economists of all hues have been forced to go into the intricate nuances of “merit and demerit subsidies”, Modi seems to be having the last laugh.

Modi’s objective was purely political. He is not really interested in a serious debate on what kind of subsidies are wasteful and what is indeed empowering for the poor. It’s just a red herring. Modi knows that his eight years as PM have not produced enough growth to generate real empowerment via jobs. Modinomics has delivered the opposite of what the PM had publicly promised in 2014 ― moving away from the “Congress’ dole economy” to empowering the people by enabling them to participate in growth.

Also Read: As Freebie Debate Rages, What Defines ‘Revdi’? Nobody Really Knows.

The numbers say it all. Whether the big increase in MGNREGA allocations, which Modi had earlier condemned as a monument to the Congress’s failure, or his continuing focus on multiple flagship welfare schemes in the run-up to 2024, it is clear that the PM now believes only welfare programmes, not growth, will garner electoral dividends.

If the government claims India is the fastest growing economy after the Ukraine conflict began, why is the BJP continuing with the free food grain scheme which was meant to tide over the COVID-19 crisis? Now, global food prices are moderating and the case for delivering free food at scale is weaker. Even southern states like Andhra Pradesh and Tamil Nadu, which pioneered subsidised food grain delivery 20 years ago, had put a small price on it – Rs 2 or 3 per kilo of rice. If the economy is indeed seeing “robust recovery”, as the government asserts, it should end the free food regime. This would be internally consistent with Modi’s argument of discouraging freebies. Another stark example of the Modi regime’s failure to move away from the “dole economy” is its failure to create a sustainable farm sector. Its promise of doubling farm incomes remains a chimera and PM Kisan cash handouts are a poor substitute for real empowerment of farmers. How is PM Kisan categorised? Merit or demerit subsidy?

Women wait outside a fair price shop to collect free ration in East Delhi. Photo: PTI/Kamal Kishore/File

PM Modi is not really interested in this nuanced debate. His objective is purely political. He wants to allocate maximum funds to welfare schemes run by Union government, such as the PM Aawas Yojna, tap water for all households, further penetration of Ujjwala free gas connection, PM’s flagship health insurance scheme where allocations are still patchy and possibly extending the free food grain programme to 80 crore people till the 2024 elections. Modi wants opposition-run states to align their allocations to centrally driven projects and not launch their own need based welfare projects, which may stretch overall finances.

Of late, the Union government has also been coming down hard on state PSUs borrowing independently from the market to fund state-specific schemes. Telangana and Kerala have been forced to borrow less via their PSUs. Shockingly, for the first time, the Kerala Investment and Infrastructure Board Fund has received a notice from the Enforcement Directorate (ED) to explain legitimate borrowings from the international market, done with RBI’s permission. Perhaps ED will stop asking questions if such borrowings are diverted to some of PM’s pet flagship schemes. Established federal fiscal principles are being cynically jettisoned in the absence of a rational dialogue with the states. The Union government is openly coercing states to abandon their own welfare projects and divert funds to the centrally driven flagship programmes.

This must be seen as the subtext of PM Modi’s revdi remarks. The PM is obliquely suggesting only centrally driven schemes are really empowering the people and do not fall in the “revdi” category.

After the UP assembly election victory, buoyed by the success of the free food programme, Modi had announced that he would implement all his flagship schemes to saturation over the next two years. Many are running behind schedule and Modi is now in a hurry as 2024 is not far away. Saturation coverage would also need large funding. Rising prices have considerably inflated the cost of projects like affordable housing and tap water for all households. Consequently, the PM is trying to discourage states from designing their own welfare schemes, so that funds can be reallocated to the Union government’s flagship programmes. Politically, this is the essence of PM Modi’s revdi remarks.

How Many Migrant Workers Left Cities During the COVID-19 Lockdown?

A PLF survey bears out the pain of mass migration for millions of Indian labourers.

New Delhi: The first lockdown imposed by the Narendra Modi government became a trigger for large-scale mass-migration. Now, data released by the Periodic Labour Force Survey under the aegis of the National Statistical Office provides evidence for the same.

In a report titled, “Migration in India 2020-21” the survey gives an account of the state of migration and migrants during the period of July 2020 to July 2021. The report, which surveyed a total of 1,13,998 migrants, shows that 51.6% of rural migrants migrated from urban areas in the aftermath of the pandemic.

This figure substantiates the unprecedented unemployment crisis that rankled the Indian labour ecosystem in the months following the first lockdown.

The absence of official data on unemployment immediately following the lockdown blurred the true spectre and gravity of the unemployment crisis, however, data from credible private organisations like CMIE helped bridge the gap. As per CMIE data, a total of 122 million rural as well as urban jobs were lost in the month of April 2020. The job loss data corresponds with the GDP data as recorded in the first quarter of FY21 which indicates that secondary and tertiary industrial activities, operating mostly out of urban areas, crashed while agriculture kept on growing at a strong clip.

Also read: To Fully Understand the Migrant Worker Crisis, We Need a Larger Perspective

Not surprisingly, out of the total number of urban migrants that migrated after the lockdown, only 11% are women, mirroring a larger trend in the Indian society where it is mostly men who leave their hometowns in search of jobs in urban areas.

Shedding more light on the unemployment crisis in the backwash of the first lockdown is an economic research work penned by Arup Mitra and Jitender Singh, published on the web portal Ideas For India. The research work chalks out an estimate of the labour force, workforce, and unemployed for the quarters January-March 2020 and April-June 2020 for the age group 15 years and above.

Research work by Mitra and Singh estimates that about 182 million people were either looking for jobs or had a job in the quarter just before the lockdown and about 7 million withdrew from the labour force during the lockdown period.

The pain point in this job loss was all the more pronounced for women, who even before the imposition of the lockdown numbered about 40 million in the labour force, a small fraction of the total of 140 million men employed.

Since the lockdown, the loss of jobs for women was as high as 4 million compared to men which were at 3 million.

Also read: As Tales of Migration Misery Continue, Biharis Now Accept That as Their Destiny

The research work states:

“The estimates suggest that during April-June 2020, the number of employed persons declined by about 26 million in the urban sector relative to the preceding quarter; about 7 million – predominantly women – withdrew from the workforce, and the number of unemployed persons increased by about 20 million. When examined by employment status, the worst affected were casual workers. In terms of industry groups, the secondary and tertiary sectors took a big hit, while agriculture remained largely resilient. This is because the lockdown had a strong region-centric impact, affecting urban more than rural regions.”

These findings are consistent with the argument that The Wire has been raising for long, namely, that Modinomics has consistently eroded the might of the unorganised sector in India with the demonetisation gambit and a ham-handed application of GST which was topped off by a reckless imposition of the first lockdown.

The lockdown culminated in a never-seen-before reverse migration of labourers and employment from factories to farms, a trend that is clearly reflected in the share of employment in agriculture rising from 42.5% in FY19 to 45.6% in FY20. Within its ambit, the 3 percentage point spike-up accounts for close to 12-13 million workers moving from working in factories to low-wage agricultural jobs.

Modi’s Trade Curbs Are Illogical, Unless There’s a Political Reason Behind Them

If the government publicly claims India’s inflation spike is not half as bad as it is in the US or Europe, how can it justify such export curbs?

A version of this article first appeared in The India Cable – a subscribers-only newsletter published by The Wire and Galileo Ideas. You can subscribe to The India Cable by clicking here.

It is conventional wisdom that economic policy should be consistent and predictable. Flip-flops do not augur well for broader economic growth.

In mid-April, Union commerce minister Piyush Goel outlined Prime Minister Narendra Modi’s vision of creating an “export-focused economy”, as India recorded $670 billion of exports in merchandise and services for 2021-22. But within a month, the Union government has put export curbs on wheat, cotton, sugar and steel. Rice exports may also be capped. The government appears to be spooked by the sudden rise in inflation and Modi may fear its political fallout.

But critics ask, why such a knee-jerk response when India’s inflation rate is nowhere near as high as that of the US or Europe?

The steel industry was unpleasantly surprised by the duty abruptly imposed on steel exports. Majors like Tata Steel and JSW had recently announced plans to create fresh capacity worth Rs 1 trillion with an export focus, and the duty was a dampener. The steel capacity expansion plan was seen as important fresh investment for the economy, which has faced a private investment drought over eight years of Modi’s rule.

The steel industry was among the first to declare fresh capacity creation to boost exports. This is because capacity utilisation remains quite modest at about 75%, due to lack of domestic demand over several years. But the export tax has prompted a review.

Similarly, India has been a strong agriculture exporter in recent years, scoring $50 billion in 2021-22. India was among the largest exporters of rice ($10 billion) and sugar ($4.5 billion), cotton ($6 billion), and wheat ($2.5 billion). The government has put export curbs on most of these items to contain inflation. It says it’s temporary, but exporters say India’s credibility suffers when sudden curbs are introduced, because importing nations want stable supply.

“If they don’t trust you in terms of consistency of supplies, they may move to others. Your credibility as a supplier is important,” said Gurnam Arora, managing director of major rice exporter Kohinoor Foods. This credibility suffered because wheat export contracts were annulled after the government abruptly banned exports on May 13.

Also read: Despite Talk of Free Agri Market, Modi Govt’s Export Policies Are Ad Hoc and Whimsical

So how does PM Modi’s vision of creating an export-focused economy square with such sudden export curbs in the name of fighting inflation? India’s total trade (imports plus exports of goods and services) is now nearly 50% of GDP, so it’s an important driver of growth.

It also seriously impacts our external sector and the value of the rupee.

Surprisingly, export curbs were introduced in a cavalier manner when the rupee is also under severe pressure. The curbs are concentrated more on agriculture items, raising questions about the government’s commitment to increasing farm incomes. Farmers get price upcycles every 5-6 years and to deny them their due is rank bad policy. If the government publicly claims India’s inflation spike is not half as bad as it is in the US or Europe, how can it justify such export curbs? The US and EU have not imposed curbs on such a wide range of items. Even former Niti Aayog head Arvind Panagariya, a reputed trade economist, admits that the government has regressed on trade policy reforms over the years. The imposition of export curbs reinforces that tendency.

The main reason the prime minister is imposing such wide-ranging export curbs is political ― the Bharatiya Janata Party has established inflation control as a key differentiator between the National Democratic Alliance under Modi and the United Progressive Alliance under Manmohan Singh. The BJP does not tire of saying that renowned economist Manmohan Singh could not tame inflation but Modinomics has worked wonders.

The prime minister now seems to be fast losing that edge.

It appears that the prime minister’s fear of a repeat of the 2011-2013 hyper inflation and its consequence suffered by the UPA seems to have, in fact, triggered such panic export curbs!

Low to moderate inflation was perhaps the only positive Modi could claim so far, and that differentiator is fading away. On most other counts ― GDP growth, employment, private investment, informal sector incomes ― Modi’s eight years have very little to show. This may explain why the Union government is so desperate to control inflation via export curbs. But it could be shooting itself in the foot.

Modinomics’ Legacy ― Labour Traffic Now Flows From Factories to Farms

The ‘vikas’ train has begun to chug the wrong way, as it were.

A worrisome aspect of the Indian economy is reflected in the share of employment in agriculture dramatically rising from 42.5% of the total employed in 2018-19 to 45.6% in 2019-20. This may signify an unusually large movement of labour from industry or services sectors to agriculture.

The total number of persons employed in India varies between 400 million and 470 million, as per credible private and government surveys which use varying measures ― from stringent to more liberal ― of actual employment status. So, a 3 percentage point increase in the share of agricultural employment in one year means that roughly 12-13 million workers have moved back from employment in industry or services to low wage agriculture in one year.

Why a large number of workers are moving from factories to rural farms needs deeper analysis and policy correctives. While the pandemic may have accelerated this process, there is little doubt that Modinomics had already provided fertile ground for this reverse flow of labour, when key policy goals of formalisation and digitisation of the economy suffered such disasters as demonetisation and a messed-up GST. The ‘vikas’ train has begun to chug the wrong way, as it were.

And don’t forget, the big increase in the share of agriculture in total employment has come at a time when unemployment itself is at a multi-decade high and women too have left the formal workforce in record numbers. This shows that the shift to rural employment is accompanied by distress. Besides, this is happening when farmers’ protests seeking higher income support are at their peak.

Historically, any period of consistent economic development is accompanied by reduction in poverty and a shift of labour from agriculture to industry and services. This is also marked by growing urbanisation and the broadening of the urban middle class, as seen in much of the developed and rapidly developing world. In India, this process had shown considerable acceleration in the boom years between 2005-06 and 2011-12, when over 37 million agriculture workers moved to non-agriculture jobs in manufacturing, construction etc.

Labour economist Santosh Mehrotra says this period saw an unprecedented shift from agriculture to non-agriculture employment. “This trend continued but it slowed down considerably after 2012 until 2018, but it never really reversed. However, for the first time, we are seeing a reversal as workers are moving from factories to farms now,” he says.

According to Mehrotra, “The really big shift in employment from agriculture to non-agriculture sectors happened after 2004 and accelerated till 2012 and continued thereafter somewhat slowly.” Interestingly, this period of 2005-06 to 2015-16 also saw the largest decrease in multi-dimensional poverty in India as 270 million people came out of poverty. It was the largest reduction anywhere in the world. This study was based on an index developed at the Oxford Poverty and Human Development Initiative (OPHI) and the UNDP. Last year in July, the Oxford Centre had warned that this progress was at risk in the context of the pandemic.

The pandemic has indeed exacerbated the problems of growth and employment which had started to manifest after 2016-17. All debate in this respect comes back to demonetisation and a badly implemented GST, as important markers of both the destruction of informal sector employment and the growing tendency for workers to move from factories to farms. This also shows up in the massive increase in demand for MGNREGA employment.

Things are so bad, Modi is now positioning himself as a sponsor of ‘Ann Mahotsav’ (free food festival) for millions of jobless migrant workers who have moved back to their villages. I recall the PM’s emphatic policy statement in 2014 ― he wanted to move the poor out of Congress’ dole economy and economically empower them to stand on their own feet. The celebration of ‘Ann Mahotsav’ makes a mockery of that objective. Indeed, the large-scale movement of workers from factories to low wage agriculture labour could end up as Modinomics’ most enduring legacy.

#RightSideUp: Arvind Subramanian’s Economic Somersaults; ‘Hate India Messaging’

A weekly round-up of voices from the right.

New Delhi: Even as the new Lok Sabha session began, it was the Bengal doctors’ strike that grabbed most eyeballs this week. Chief minister Mamata Banerjee’s initial angry tirade won her no brownie points, but eventually, on Tuesday, she relented to the demands of the protesting doctors.

Doctors and their patients also made the other big story of the week, this time in what has become an annual affair in Bihar and Uttar Pradesh: over 100 children suffering from Acute Encephalitis Syndrome (AES) died at SKMCH and Kejriwal hospital in Muzaffarpur.

The weekend though, was taken up by an old cricketing rivalry – the India versus Pakistan World Cup match. Even as roads across India remained empty as people huddled together to watch the match, social media was bursting with voices. And as many said, India may have won the match against a weak Pakistani team, but it was Pakistan Twitter users who truly won the day.

India’s GDP also came under question with former chief economic adviser Arvind Subramanian painting a rather bleak picture in a research paper made public last week about GDP growth under prime minister Narendra Modi.

Subramanian said that India’s average annual growth between 2011-12 and 2016-17 may have been overestimated by about 2.5 percentage points – meaning that India actually grew at 4.5%, not 7%, between 2011-12 and 2016-17.

Also read: #RightSideUp: ‘Cutting Chai Over Earl Grey’; ‘Building the Indic Grand Narrative’

Why Arvind Subramanian is wrong

Sanju Verma, an economist and the chief spokesperson of the BJP’s Mumbai intellectual cell, takes great umbrage to ex-CEA Arvind Subramanian’s “maverick statements” on India’s GDP, which she says borders on “ignorance and mala-fide, irresponsible behaviour”.

In the article for rightlog.in, titled ‘Why Arvind Subramanian is wrong: It’s time to understand the change in GDP methodology under PM Modi’, Verma says:

“The moot point is, Mr Subramanian has chosen to cast aspersions on India’s tag as the world’s fastest-growing economy, by simply making an allegation, without backing it with logic or data, thereby making a failed attempt at tarnishing the credibility of the very institutions and processes he closely worked with, at one point.”

She lashes out at the “leftist cabal” and claims that its “anti-Modi agenda” is the reason behind why the left “rubbishes the CSO, CII, Niti Aayog and our statisticians”.

According to Verma, India’s GDP under the UPA was sub-7%. But under Modi’s first term, she says, “the GDP growth has been within arm’s reach of almost 8%”.

Plugging her own book in third person, Verma writes:

“The revised GDP methodology adopted by the Modi government, has been explained in great detail in Sanju Verma’s book, “Truth and Dare–The Modi Dynamic”. Excerpts from this book, which form the basis of pointed rebuttals to Mr Subramanian’s flimsy claims, have been used in this column too.”

Moving on to how hypocrisy and Congress are old friends, she admonishes the Congress for “maintaining a convenient silence” despite owing it to the Modi government’s new methodology for the supposedly better GDP numbers it achieved during its regime.

“The last 2 years of UPA-2 saw GDP numbers being revised upwards to 5.5 and 6.4 per cent, failing which, the average GDP growth for 2012-13 and 2013-14, under the Congress-led UPA-2, would have actually been well below an anaemic 5 per cent, under the old methodology.”

Questioning why such a “brouhaha” was made when the Modi government changed the base year to calculate GDP to 2011-12, she explains how certain factors are at play – the value addition in goods, the elimination of redundant goods and the way we use different commodities.

What Modi naysayers conveniently forget is that this 5.8% has come despite rising global protectionism.

Verma moves from the Huawei case to Brexit and the Venezuelan crisis, and says:

“Against this tumultuous backdrop, the World Bank sticking to 7.5% GDP forecast for FY 2020 for India, with the RBI albeit a tad more conservative at 7%, versus the earlier 7.2%, bodes well. Also, after a 25bps reduction in Repurchase Rate (REPO), to 5.75% by the RBI in its credit policy on 6th June 2019, in all, there has been a 75bps reduction in the REPO rate between February and June 2019 and, sooner than later, banks will be nudged into meaningful monetary transmission.”

Talking about global crude prices and the domestic consumption of millennials, Verma then speaks of how “raising alarm bells due to a quarterly decline in auto sales is being prematurely pessimistic and wilfully naive”.

“Passenger vehicle sales in the last few months took a beating, ahead of uncertainty pertaining to the arrival of monsoons and nervousness in some quarters about the election outcome. However, the thumping majority that has given Modi a second term and will lead to policy continuity and of course, the Met department’s prediction of a normal monsoon, largely speaking, should augur well for auto sales, going forward.”

Getting back to Subramanian’s “misguided efforts”, she says:

Modinomics, needless to add, in the final analysis, is here to stay and its rock-solid foundations are cast in stone.

Also Read: #RightSideUp: ‘Hindutvaphobia’ and Whataboutery Tactics

Why the Congress is failing

R. Jagannathan, the editorial director of Swarajya magazine, elucidates why he believes the Congress is failing after its rout in the recent Lok Sabha election.

Toward that end, he equates Congress with Pakistan and says that they are both failing for the same reason: “hate messaging”.

Addressing the loss of the grand old party, Jagannathan says one of the main reasons it failed to win the hearts of the electorate was because it tried to copy the BJP’s formula – “the party spruced up its social media team; it tried to create booth-level presence for party workers, mimicking Amit Shah’s innovation without the soul-force needed for the exercise” – without trust understanding it.

“It also conscripted a new data analytics chief, Praveen Chakravarty, who then created a Project Shakti with a database of alleged true believers in the party who could then help spread the party’s message virally.

Conscious that the BJP was running away with a big chunk of the Hindu vote, Rahul Gandhi started his temple hopping tours from 2012, and called himself a Shiv bhakt.

The problem with the Congress, though, needs to be understood more simply: it is not the database that matters, but the messaging. It is not the numbers enrolled in Project Shakti that matter, but the emotional commitment of the cadre.”

Jagannathan here offers up an analogy from the Mahabharata where both Arjun and Duryodhana reach Krishna’s doorstep to ask him for aid to win the war.

“Krishna says that since he spotted Arjuna first, he will give him the first option to choose between his army and his own personal support. Arjuna chooses Krishna and Duryodhana gets the army – and the latter is overjoyed. But we know who won the war with Krishna’s help.

The moral of the story above: one person with commitment is worth more than an army of mercenaries.”

This is true of the Congress, Jagannathan says, and offers the party a lesson:

“Look for true commitment, and not an army of mercenaries masquerading as data analysts or new members.

The problem with Rahul Gandhi and his party is that they do not sound authentic on any count. If they can buy Chakravarty’s logic merely because it sounds good to Tamil ears, or if they can go about backing the tukde-tukde gang in Jawaharlal Nehru University merely because the BJP was against it, this implies that the Congress merely stands for something negative: we are not BJP.”

On the count that the BJP won because of sheer mountains of money, he says this belief of the Congress and BJP’s critics is unfounded because the reason why the BJP managed to “campaign effectively” is because “almost all of its ‘bhakts’ are true believers in the party, and if not the party, at least Narendra Modi”.

“In the JNU tukde-tukde affair, for example, most BJP supporters were comfortable with the party’s nationalism; most Congress supporters, despite paying lip-service to free speech at JNU, were not comfortable with the party’s identification with rogue anti-national elements at JNU.

The Gandhi dynasty no longer pulls votes, and the Congress party is lighting its own funeral pyre as it does not stand for anything, including many things it fought for during the freedom struggle. At the dawn of freedom, the Congress party was a Hindu party with secular leanings. Today, it is neither Hindu nor secular.

Pakistan, which has built its entire state ideology on an anti-Hindu, anti-Indian platform, is slowly unravelling. Pakistan itself does not stand for anything, anymore.

The Congress is failing for the same reason Pakistan is.”

Watch | ‘Modinomics’ Was a Big Disappointment

In conversation with Salman Anees Soz about his new book.

In a special interview with Salman Anees Soz, an international development expert and an economic and political commentator, M.K. Venu, founding editor of The Wire, talks about his new book, The Great Disappointment.

The book is about how Narendra Modi squandered a unique opportunity to transform the Indian economy. They discuss how the Indian economy has changed over the last five years, especially after demonetisation, where it stands today.

Analysing the Modi Years – Credit and Criticism

Modi’s relatively few successes built substantially upon decades of policy experimentation.

As the dance of democracy permeates India, the country is debating whether Prime Minister Narendra Modi has fundamentally transformed India for good or for bad.

Critics lament the systematic erosion of social harmony, constitutional values, and public institutions, while supporters laud the heralding of a new India, set on the path of prosperity and international glory under non-dynastic and decisive leadership.

Has Modi transformed India? While challenges to India’s democracy are grave, institutions like the Supreme Court and the Election Commission are alive. It would not be easy to transform the overwhelming diversity of India into a homogeneous Hindu nation-state.

India’s governance is a gradual story of experimentation and cogitation until an idea becomes hegemonic and reaches a tipping point. While Modi failed in protecting religious diversity, stemming corruption or creating jobs for Indians, his few relative successes such as implementing the Goods and Services Tax (GST) and the Pradhan Mantri Jan Dhan Yojana (PMJDY) build substantially upon decades of policy experimentation.

Also Read: Review: Battling Hatred and Sectarianism for Indian Democracy

Religious and cultural diversity

Modi’s approach to religious diversity is at odds with Indian tradition. While the Rashtriya Swayamsevak Sangh (RSS), his mentor organisation, proclaims Swami Vivekananda as its inspiration, it is clear to anyone familiar with Vivekananda’s teachings that the political vision of this Modi regime distorts his teachings beyond recognition.

Quoting the Bhagavad Gita, Vivekananda, in his well-known Chicago address of September 11, 1893, held religious fanaticism as the biggest cause of human misery. He called upon all nations to embrace diversity of faiths as merely different paths to the same goal. His teachings inspired the stalwarts of Indian nationalism ranging from Mahatma Gandhi to Jawaharlal Nehru and Subhash Chandra Bose.

Instead of the catholicity celebrated in our tradition, and enshrined in the Indian constitution, the political ideology of Savarkar and Golwalker enforces a homogenised Hindu nationalistic narrative, which turns Indian diversity into a problem to be overcome by compulsory assimilation.

Also Read: How I Came to Question the Hinduism I Grew up With

In this view, people with other cultural markers have to dovetail their identity with the persona of the majority community. Whipping up violent sentiments with fake nationalistic issues such as cow protection, beef ban, love jihad, ghar wapsi, and Pakistan has never been easier.

Growth, jobs, and international competitiveness

India has retained its place among the rapidly growing major economies, a legacy since the early 1990s. This growth has made an unsubstantial impact on poverty levels. To be sure, from the outset Modi‘s regime realised the importance of rapid economic growth (and it was lucky to have a declining oil bill) but failed to generate jobs.

This rights-based approach to welfare initiated under the United Progressive Alliance (UPA) regime had created strengthened the idea of citizenship by granting Indians a number of rights. The Modi government paid scant attention to this mode of welfare, and even actively weakened it.

This is clear from the implementation of the Mahatma Gandhi National Rural Employee Guarantee Scheme (MGNREGS). Ridiculing the right to work as a waste of government expenditure, the Modi government reposed its faith in the potential of the corporate sectors‘ capacity to generate jobs in the real economy. The results have been quite the opposite.

Ironically, the implementation of the right to work lost steam at the very moment when job creation was at its lowest ebb. Delayed payment of wages (which are already low) further plagued the scheme. This was most visible in parts of the country where programme implementation was earlier more effective. To add fuel to fire, the catastrophic demonetisation of the Indian economy only helped in decimating millions of jobs in the informal economy.

The Modi regime has also spurred unprecedented controversy regarding growth and employment statistics. While the unemployment rates increased dangerously during 2017-18, two members of the National Statistical Commission resigned owing to the non-release of the National Sample Survey’s December 2018 report. They claimed that an organisation with impeccable credentials for being unbiased (NSSO) was unfairly challenged by the current deputy chairman of the NITI Aayog. Could the government be worried about unemployment figures on the eve of the ongoing elections?

Also Read: Five Million Indian Men Have Lost Their Jobs Since 2016: Study

International competitiveness in manufacturing was at the heart of the Gujarat Model that the prime minister touted for the rest of the country. The claim of rising business confidence has not led to a surge in foreign direct investment. Moreover, exports as a share of the economy have shown a declining trend since 2014.

Digital India: Telecoms

The boom in Indian telecommunications a longwinded saga. The surge in tele-density really began during Prime Minister A.B. Vajpayee’s tenure. The Vajpayee government successfully averted Reliance Infocom’s attempt to monopolise the sector.

The regulator forced Reliance to pay $340 million to upgrade its cheap WLL (wireless-in-local loop) license to the level of the normal GSM license. Another $116 million was fined as a penalty for misusing the cheaper WLL facility as a mobile license. This regulatory move promoted competition and set the basis for a boom in the one area where India outpaced China.

India also weathered the 2G scandal in January 2008, when cheap licenses doled out to over a 100 companies constituted a grave loss to the exchequer. This episode may have hastened the demise of the Congress-led UPA coalition in 2014. The sector continued to grow at a blistering pace, despite the scandal.

Modi in Reliance Jio ad. Credit: Twitter

Why then has that growth momentum in telecoms declined under Prime Minister Modi’s Digital India campaign? Taking advantage of a cheap spectrum, Reliance Jio has precipitated industry monopolisation to three major players (Jio, Airtel and Vodafone-Idea) from seven or eight in the past. There are fears that Jio may succeed in killing competition. Rate cuts reminiscent of the WLL crisis have come with a cumulative industry debt of USD $75 billion. How was the promotion of competition stalled?

Also Read: Is the Modi Govt Helping Telcos By Lowering the Reserve Price of 5G Auctions?

Mukesh Ambani bought an obscure firm – Infotel Broadband Services Private Limited (IBSPL) – that secured spectrum by bidding 100 times its net worth on June 11 2010. The acquisition occurred the day after IBSPL had secured a countrywide spectrum.

Three factors helped IBSPL access spectrum at a cheap rate. First, the obscure nature of IBSPL made industry heavyweights complacent. Second, IBSPL had bid for spectrum meant exclusively only for the Internet. Buying an obscure company thus enabled Reliance to obtain spectrum at a reduced price. Third, in 2012, the regulator allowed companies to secure a unified license. This regulatory decision enabled IBSPL to enter mobile telephony. Subsequently, this firm was re-christened as Jio in January 2013.

Jio waited till October 2016 to launch its services. The regulatory conditions were propitious under the Modi regime. The government was lenient about the test time and competition requirements. The company then benefited from a reduction in internet user charges – or the amount the company would pay to use the network of other players. Even telecom secretary J.S. Deepak criticised the regulator for allowing extensive tests and for unnecessarily imposing a fine of $455 million on Jio‘s competitors. J.S. Deepak was subsequently transferred a week after he criticised the regulator.

Powerful companies have found new ways of monopolising the business environment. Will they succeed?

Corruption

Modi’s clear majority and his brand of non-dynastic politics were supposed to systematically deal with corruption. It is well known that electoral funding and political control over licensing decisions breed corruption. Capping the constituency-wise electoral expense could reduce the need for political rents. Similarly, licensing, which is a technical activity, should not be the exclusive preserve of politicians. Not only did Modi make no institutional attempt to deal with election funding and licensing, but the BJP’s recent electoral bonds scheme has gone as far to attract the ire of the Election Commission.

Also Read: Why Narendra Modi’s #MainBhiChowkidar Campaign Is Sheer Hypocrisy

Most recently, the Rafale deal has raised serious and well known questions. How was the deal concerning 126 aircraft transformed to one of only 36 units with a substantial rise in the cost per aircraft? Why was an experienced manufacturer like the Hindustan Aeronautics Limited replaced with a totally inexperienced Reliance Defence as an offset manufacturer of parts? Why was the issue of the indigenous production of Rafale taken off the table?

Gradual change in India

While challenges to India’s democratic institutions continue under the present regime, India‘s story of gradual change has also produced a few results. The Goods and Services Tax (GST) is a major tax reform. Even though there are complaints about implementation, no one will disagree that it required significant political will to implement a tax structure that will make for a single market in India with fewer challenges to the movement of goods.

The GST, however, is not just pure transformational Modinomics. The saga began in the 1980s when Finance Minister V.P. Singh announced the modified value-added tax under Prime Minister Rajiv Gandhi. Successive governments have worked on the GST to bring a powerful policy idea to tip.

Also Read: Modi Has Failed to Live up to His Promise of ‘Big Bang’ Economic Reforms

Likewise, the Jan Dhan Yojana has led to the creation of numerous bank accounts, even though the majority of them have lain dormant. This achievement builds on years of experimentation. In fact, Nandan Nilekani actively engaged both the UPA and NDA governments within the Unique Identification Authority of India.

Governments in India succeeded after years of experimentation under various regimes – be it missiles, nuclear technology or poverty alleviation. When politicians deviate autocratically by challenging secularism, by suddenly demonetising, by empowering monopolies, or by politically interfering with universities, they pose a grave risk to the country‘s consolidation as a successful liberal democracy.

India‘s institutions have not yet been transformed beyond recognition. The Election Commission and the Supreme Court are vigilant. In the ongoing elections, the citizens of India are casting their vote.

Politicians will learn their lessons.

Rahul Mukherji is a professor and head of the Department of Political Science, South Asia Institute, Heidelberg University, Germany. Seyed Hossein Zarhani is a Post-doctoral research fellow and lecturer at the Political Science Department of the South Asia Institute at Heidelberg University. Jai Shankar Prasad and A.S.M. Mostafizur Rahman are doctoral candidates at the Department of Political Science, South Asia Institute, Heidelberg University, Germany.