Narendra Modi is not a big reformer of economy but is rather just a tinkerer of administrative tasks who got extremely lucky with the sharp fall in the global crude oil prices adding to India’s economic growth, despite botching up with demonetisation and shying away from land and labour reforms. That is the message by The Economist, which, in its latest issue’s lead article and Briefing column, has questioned the merit of most of his initiatives ranging from domestic manufacturing push to cleaner India, branding many of those merely as PR blitzes and photo-opportunities.
The Economist, which has been mostly critical of Prime Minister Narendra Modi’s rule over the last three years and even before his election win in 2014, has also in some detail pointed out shortcomings in GST — the most sweeping tax reform in India since independence, due to be implemented on July 1 in a grand midnight ceremony. It has termed GST as an ‘opportunity wasted’, as the complicated version of the tax regime that India is implementing will improve the economic growth by only half of what an ideal solution would have delivered.
The publication has argued that Narendra Modi has mostly looked for quick fixes to address the symptoms of chronic problems plaguing the Indian economy, while failing to solve the root causes of such problems systematically, such as through privatisation of state-owned businesses, development of freer and more functional capital markets and making the business environment more friendly for attracting foreign investments into the country.
By contrast, Narendra Modi’s supporters mostly hail his economic policies, which have led to sustaining and improving an already impressive GDP growth, plugging subsidy leakages by using bank accounts and Aadhaar UID numbers, significantly lowering the inflation to much cheer across the nation, achieving hard-earned cuts in fiscal deficits to nearer to the mandated targets.
Indeed, falling crude oil prices have certainly helped India, which depends on imports to meet about 80% of its energy requirements. Although, Narendra Modi’s administration has been quick to use the fall to deregulate retail fuel prices and make those market-linked, which has freed up a significant amount of money which the government otherwise would have to pay to the oil marketing companies in order to compensate for their losses.
As for the ease of business and foreign capital flows, The Economist itself pointed out that technology giants such as Amazon and Apple see India as the next frontier. Foreign investments into India are surging, with the country attracting nearly $61 billion in foreign direct investment in the last financial 2016-17, a growth of 8% over the previous year.
On the other hand, demonetisation after all did take a toll on the Indian economy, though not immediately, but with the lag of one quarter, as the latest data showed that the country’s GDP growth slowed to 6.1% in the fiscal fourth quarter Jan-Mar of the last financial year.
Many believe that the long term impact of initiatives to get more businesses under the formal economy and thus the tax net would result in the GDP growth accelerating once again after the short-term effects of the demonetisation wane. Fitch Ratings predicts India’s GDP growth to be at 7.4% in the current financial year 2017-18, and improve to 7.5% in the next financial year 2018-19, and further to 7.6% in 2019-20.
The Economist though has submitted that Narendra Modi needs to do much more if he is to truly unlock India’s huge potential and not squander a golden opportunity by just biding his time till he gets greater majority in the Rajya Sabha and a second term in the next Lok Sabha elections.