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Financial Inclusion – Modi’s tryst with India

Financial Inclusion – Modi’s tryst with India

In his second term in office, Prime Minister Modi has talked about making India a US$ 5 trillion economy by 2024-20251. This has not only generated a lot of debate in India and but also has focused world attention on the Indian economy.

Many may think that this might be a tall order for a country that till recently was home to the largest number of utterly poor in the world. But the truth is that India may be closer to this target than we may realize.

While all sectors of the economy have to grow rapidly, the financial services sector has a key role to play to reach the mark. By stepping up its inclusive program that provides equal access to loans and other financial services to all sections of society, it can create a multiplier effect.

The obvious link here is that when a larger number of people borrow, especially the poor, increased economic activity follows leading to growth in sustainable means of income for broader sections of society. This, then helps rupture the “vicious cycle” of poverty.

Public policy planners, to their credit, have long been aware of the direct relationship between financial inclusion and swift economic growth. In fact, in 2005, Dr. YV Reddy, the then Governor of the Reserve Bank of India (RBI) had talked about financial inclusion in his annual policy statement2. In 2008, the Dr. Rangarajan Committee on financial inclusion3 recommended a national mission to facilitate required policy changes.

Despite all this, India’s progress had obviously been slow in the past. But the economic fortunes of the poor have changed for the better – quickly and noticeably – only in the last decade. A report published in the Times of India (TOI) in January 2019 quoting World Data Lab showed the steep fall in poverty in India and estimated the current ‘extreme poor’ to be around 50 million.4 [According to the World Bank, ‘extreme poor’ are those who make less than $1.9 per day.]

It is important to see the declining poverty levels in the context of the massive digital revolution that is taking place in India in parallel. Contrary to what the electronic and print media in India may have you believe, the digital revolution on multiple fronts has aided and catalyzed the financial inclusion programs of the government.

As of December 2018, 1.23 billion people had Aadhar digital biometric identity cards5 and over 1.21 billion had mobile phones.6 Also, as of 2017, 80% of adults had a bank account .7 Bulk of the new accounts were opened with the aid of Aadhar identity cards.  

Further, the country has also seen steep rise in mobile payment transactions. According to the data released by the National Payments Corporation of India (NPCI) 8 transactions via the Unified Payments Interface (UPI), the country’s flagship payments platform, grew 25% and crossed Rs.1 trillion in value in December 2018.

However, millions continue to live in poverty. India has a low credit access with only 154 loans per 1000 adults7. This may be attributed to the reluctance of lenders to lend to people whose credit worthiness cannot be reasonably assessed. Unlike the US, India does not have robust credit reporting agencies with depth of data that can help lenders in approving loans. This remains a major challenge for credit expansion.

The good news, however, is that the confluence of mobile penetration, establishment of a biometric identity and the emergence of disruptive credit risk solutions that facilitate the identification and assessment of borrower risk may set the scene for massive credit inclusion process. Consequently, India’s efforts to eliminate poverty may have reached a tipping point.

Many fintechs around the world and in India are now using a consumer’s digital identity to predict loan repayment behavior. In a report published in September 2018, the Federal Deposit Insurance Corporation (FDIC) of the US has reported9 that a predictive “model that uses only the digital footprint variables equals or exceeds the information content of the credit bureau score”.

In other words, lenders in India will now be able to assess credit risk of borrowers by using their digital identity. This also simultaneously obviates the need to build credit bureaus using traditional data – an expensive and time consuming effort in any case.

The purpose of this piece is not to speculate if India will reach the US$ 5 trillion mark by 2024-25, but to rather assess its preparedness in setting in motion a host of services and programs that will benefit the largest number of poor.  As is obvious, lifting millions of people out of poverty is a multi-pronged, multi-mission driven exercise where the happy meeting of cutting-edge technology and robust political will to execute the mission are necessary and imperative conditions.

India has adequately demonstrated its capability to execute complex projects on time and within budget. This augers well for the extreme poor. If they rise up above poverty, so will India, economically speaking, and crossing the US$ 5 trillion mark may just be one of the milestones.

Modi’s achievements in this regard, as substantiated by data from multiple sources, are substantial and suggest that it is broad-based and truly inclusive. This is in stark contrast to the efforts of the earlier government led by Dr Manmohan Singh who claimed at the National Development Council that “the first claim on the country’s resources for development”10 were reserved exclusively for a particular religious community.

It is indeed debatable if India, in its tryst with destiny, ever managed to redeem its pledge, as Pandit Jawaharlal Nehru dreamt at that midnight hour in 1947. Definitely data suggests that even after almost six decades, the redemption of the pledge in terms of poverty eradication, was not even substantial.  But given the track record of the last five years, Modi’s tryst with India is taking it places and the poorest of poor are joining the bandwagon in their millions. And Modi has the backing of the state-of-art technology. Of course, the claim on the country’s resources for development will be inclusive and for all, not the exclusive right of a select few.

References
1.Goal to make India $5 trillion economy by 2024 challenging, but possible, says PM Modi
https://www.businesstoday.in/current/economy-politics/goal-to-make-india-5-trillion-economy-by-2024-challenging-but-possible-says-pm-modi/story/356407.html
2.Annual Policy Statement for the Year 2005-06 by Dr. Y. Venugopal Reddy, Governor, Reserve Bank of India
https://rbi.org.in/scripts/BS_ViewMonetaryCreditPolicy.aspx?Id=2217#1
3.Rangarajan Committee submits report on financial inclusion
http://archive.indianexpress.com/news/rangarajan-committee-submits-report-on-financial-inclusion/257905/
4.New data may show big cut in number of poor
http://timesofindia.indiatimes.com/articleshow/67705787.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
5.Number of Aadhar Card holders in India
https://en.wikipedia.org/wiki/Aadhaar
6.Number of Mobile phones in use by country
https://en.wikipedia.org/wiki/List_of_countries_by_number_of_mobile_phones_in_use
7.Strategy for New India @ 75 – NITI Aayog
https://niti.gov.in/writereaddata/files/Strategy_for_New_India.pdf
8.UPI transactions rise 25%, cross Rs 1 trillion mark in December
https://www.business-standard.com/article/economy-policy/upi-transactions-rise-25-cross-rs-1-trillion-mark-in-december-119010100767_1.html
9.On the Rise of the FinTechs—Credit Scoring using Digital Footprints
https://www.fdic.gov/bank/analytical/cfr/2018/wp2018/workingpapers-2018.html
19.Minorities must have first claim on resources: PM Manmohan Singh
https://economictimes.indiatimes.com/news/politics-and-nation/minorities-must-have-first-claim-on-resources-pm/articleshow/754218.cms

 
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Posted by on July 18, 2019 in India, Indian Economy, Modi

 

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India’s RBI gets a new Governor

India’s RBI gets a new Governor

 The recent resignation of the Governor of the RBI, Urjit Patel due to “personal reasons”,as expected, has generated lot of discussion. The RBI was in the news recently for its apparent tussle with the government of India (GOI) on several issues including deployment of the central bank’s reserves.  The media had a field day speculating on the reasons for his departure.  Even the opposition parties cried foul.  Whether Patel resigned because he felt stifled, or had other reasons, will only be known if and when he chooses to publish his side of the story in his memoir.

 Reactions to the departure of the governor have been on expected lines. Many predicted the decimation of the stock markets and loss of confidence in the strength and resilience of the Indian economy. The stock market did fall during that time; however, it is unclear if the markets fell because of the exit polls on elections to key states indicating political instability or due to the departure of the governor. Beyond that, the banking and financial system in India remains on course. As regards confidence in the overall resilience of the Indian economy, there are no reports to suggests otherwise.

Is it true, as many in the media claim, that the RBI governor felt stifled by the government’s attempt to grab the bank’s turf? Or did he pick the wrong battles with the government? Should Patel have exercised discretion as the better part of valor and lived to fight another day? It would be interesting to look at some available pointers that may shed some light.

 
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Posted by on December 13, 2018 in Banking, Economics, India, Indian Economy

 

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Government of India VS RBI

Government of India VS RBI

As a former officer of the Reserve Bank of India, I was shocked to read the recent remarks of Viral Acharya, Deputy Governor of the Reserve Bank of India. There are probably no parallels or precedents to such public remarks that tantamount to threatening the government of India by a ranking leader of the Bank.

The RBI, India’s Central Bank is a venerable institution that effuses dignity and reverence in the world of banking and finance, not only in India, but the world over. Its rather quaintly abstruse and almost self-effacing communication style – be it in its official communiqués or while interacting with the public at large – speaks of its tradition and élan that is generally matchless. This quiet dignity actually conveys so much more than what it actually says and adds an aura of enigma to it. For example, even a passing nod from the RBI Governor at a meeting of CEOs of banks can set tongues wagging.

Like most other Central banks, its presence is felt, rather than heard. Insiders are aware that RBI’s reticence and an unwillingness to hog the spotlight is also a calculated strategy to create space for itself.  It provides enough room to maneuver, change course if needed, and fight its battle with the government quietly and behind closed doors. That has only earned it respect and reverence.

Given this grand setting, it was upsetting to read the speech of Viral Acharya. It is very amateurish indeed and only betrays a lack of experience in a managing a large banking bureaucracy. He is certainly oblivious of the ethos and dignified traditions of a great institution that he represents. That the Deputy Governor chose to attack the central government in a public lecture has not only raised eyebrows, but also raised questions of why the government has not acted on this. His continuing in office has become untenable.

 
 

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Chidambaram Peddles False Narratives on Indian Economy

Chidambaram Peddles False Narratives on Indian Economy

Two news items in the recent past caught the attention of many. They deserve closer scrutiny since it provides good insights into a thriving business in India. It is indeed representative of a deep and well entrenched industry that has prospered by profligate peddling of false narratives in India.

The first was observations made by none other than the former Union Finance Minister P.Chidambaram. He led the economic fortunes of the country during his days in the Union Cabinet and arguably presided over an economy that tanked the fastest despite strong fundamentals. That he is in the news for investigations by concerned agencies and related court cases for alleged corruption is beyond the scope of this piece.

The erudite former Minister – a Harvard alumni – has opined that the country’s current economic conditions were akin to a vehicle with three punctured tires. He went on to paint a very dismal picture where almost everything about the economy was wrong. If one were to believe him, it would appear that most Indians are rotting in poverty and even unable to sell pakodas to make a living. As a politician in the opposition camp, this was not unexpected.

As expected, this statement was lapped up by the media and reported 24/7. Many pseudo experts and self-acclaimed economists joined the fray, pontificating on why all these imaginary ills can be attributed to none other than Prime Minister Modi himself. Mercifully, the false narratives did not carry on for more than a few days of print and airtime.

The second item was a glibly written piece that subtly casts doubt on the sustainability of the high growth rate that India is currently witnessing. It again questions PM Modi’s statements where he called for a double digit growth rates in GDP. Eminent economist Dr. Subramanian Swamy has also talked about India’s inherent capacity to grow at double digits. With a touch of finesse the article cites other pundits who are not sanguine about double digit growth for India. It is certainly reminiscent of the days when socialists lectured us on why India can only grow at a “Hindu rate” of growth of 3.5% or less. The article pompously advises that it would do India better to aim for growth rates of less than 8%.

India has seen too many of these arm chair pundits and ministers of bygone eras attempting to water down the unprecedented growth we are witnessing. The fact is that this is not well intentioned advice or political strategy, but churlish rant emanating from those quarters where the sun has begun to set. It is indeed incumbent on Mr. Chidambaram, in particular, to tell the nation the initiatives that he had undertaken to stimulate the economy that provided better results, if any. That would garner better Television Rating Points (TRP) than the story of a vehicle with three flat tires.

The point is to not question anybody’s freedom of expression or the right to have an opinion that is different or even counter intuitive. On the contrary, such cross winds fertilize the idea pool and the ultimate winner is the country. But this virus strain is different. At a minimum, balanced punditry is morally duty bound to signal and call out the existence of a thriving industry that peddles false narratives.

Many politicians, together with some sections of the media, have excelled in consummating this art of creating false narratives via obfuscations, distorted and skewed opinions that is ably supported by presenting selective data.

Now let’s look at another set of data that provides a counter or shall we say a neutral narrative. In a recent article published by World Economic Forum (published well before Mr. Chidambaram’s statement), a researcher using World Bank data has shown the performance of the Indian economy over the last fifty years. Please refer to chart.

WB1The author argues that India’s growth rate has been consistent and has accelerated over the long run.  The author further projects “…..  GDP growth to be 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent respectively in 2018-19 and 2019-20”. (Emphasis added). The observation of the author – derived from data presented in the chart – seems tenable. Since the readers themselves can visually verify the data, it irons out any potential for mischievous interpretation that may ensue when data over a shorter window is observed.

This chart belies both the news items referred to above. The Indian economic vehicle does not have three flat tires, as alleged by Chidambaram. On the contrary it seems to be kicking and doing very well, despite pessimistic projections. Secondly, if we look at the performance over the last fifty years, a high trajectory i.e. double digit GDP growth may well be within India’s reach.

That leads us to the well-known truism that most Indians are aware of. In the worst days of socialism that beggared India, many exasperated but wise Indians would remark that no government rules India, for India governs itself. For them, India was on auto pilot on “Ram Bharosa”, meaning India was governing itself on the will of Lord Ram. The chart referred to earlier just seems to reinforce this dictum on India’s potential, well known only to ordinary Indians, and apparently not to some Harvard educated elites. In short, India’s growth is unstoppable, albeit it can be slowed down by the likes of Chidambaram in the short to medium term.

But that should make reasonable Indians stop on their tracks and ponder. Fashionable opinionistas in India and their allies elsewhere, as is their wont, have repeatedly lamented that India has missed the bus. But has it really? Today, when data is democratized and can be accessed by anyone in a matter of few clicks, it is indeed easy to review and draw their own conclusions.

But India has always been a paradise for peddling false narratives – be it economic growth, religious freedom, Aryan invasion theory or even the latest fad – intolerance. Some wisecrack puts out a skewed misinterpretation or blatant falsehood and this gets lapped up by the media like hungry wolves and then repeated ad nauseam. Finally, this becomes the established narrative – completely obliterating the underlying facts.

That has been the established and well tested strategy of the narrative peddlers who sell their views for a price, for a motive, in full disregard for India. And many of them happen to be politicians and opinion makers who presume they preside over the economic future of India.

The necessary and sufficient condition for the false narrative industry to thrive is a grossly ill-informed society. They had a free run for so many decades, but not anymore. Digital India has bought internet to every home and now information is free and the biased are being called out. This is the new ground reality politicians in India have to contend with. False narratives, be it from the government, the opposition political parties or for that matter from any quarter, will now be easily spotted and called out.

 
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Posted by on June 30, 2018 in Economics, India, Indian Economy, Media, Modi

 

Political Impact of Modi’s Transformation

Political Impact of Modi’s Transformation

In two earlier  pieces,  Modi’s transformation of India using the twin pillars – choosing the right policies and then executing them well – was examined in detail. The impact on the ground is for all to see. It is in this context that news of the plot to assassinate Modi by extremists groups has come as a shocker. Undoubtedly it is a serious issue and reports have indicated that the police as well as the intelligence agencies are looking into this.

The plot itself was not unexpected given that two former Indian Prime Ministers have been assassinated. But it comes as a living reminder that country’s leadership continues to face threats from forces inimical to India – both within and outside the country. More importantly, this is symptomatic of the deeper churn in the political ecosystem ever since Modi became Prime Minister. It is worth pointing out here that many opposition parties, particularly the fringe elements, have been drumming up so much hatred and spewing venom that may it have directly or indirectly contributed to such plots. But that is for the police to determine.

Modi’s focus on “development”, besides unleashing the economy, has enabled him to wrest control of the political narrative and lay down a new set of agenda for India. Muslim appeasement has lost its sheen – particularly after the banning of “triple talak” thus endearing himself to millions of Muslim women. Also the absence of targeted attacks on minorities that many Cassandra prophesied has only aided the shifting of the narrative. In many ways, much of the angst of these entrenched anti-national elements can be sourced to their complete disappointment in the successes of the ruling establishment.

This shift in narrative has immense consequences. India is witnessing a slow migration from ghetto politics – a perverted brand of politics of pandering to minorities at the expense of the majority that has only fissured India for seven decades – to one dominated by performance, punctuated by key statistics and data on the economy. The ground reality is that it is sounding the death knell for many political careers and parties. A careful examination of changes occurring in the political campaigns seem to suggest the movement in that direction.

The Congress party, India’ largest opposition party in terms of organization and resources, has been forced out of office all states save one.  India’s very own grand old party with a long history is today reduced to a mere rump of their erstwhile past. The massive mandate in favor of Modi has created severe long term damages to the party. Their banding together with all and sundry – disparate and desperate parties has only degraded India’s opposition polity into a chaotic agglutination for whom political ideology has become nothing more than a disguise. This short sighted calculus to gain political power at any cost has been their undoing.

Their responses to the government’s “development first” agenda have been bizarre – from a mix of standard divide and rule gimmickry to engineering violent protests to create a false aura of deteriorating law and order situation. They talked about unending oppression of Dalits, repression of Muslims, denial of equal rights to women, refusal to share river water sources between states, linguistic chauvinism, and north versus south India and on and on. But all these time tested strategies seem to have fallen flat on their faces and only succeeded in leading them further into dark political wilderness. The people seem to have called the bluff.

Aiding the Prime Minister in building his massive support base, albeit unintended, is the almost complete lack of thought leadership in the opposition camp. Their only answer to his development programs is a dysfunctional opposition to anything and everything he does. They seem to have mistaken rabid Modi-baiting for strategy. Engineering street protests and attacks on Dalits and minorities is now misconstrued as political stagecraft. So rapid is the erosion of their support base that today Congress is not even confident of being elected in their “safest” constituencies despite all allurements to the voters.

This truth is that Modi’s mindshare of Indians is real. He has captivated different demographic segments by providing different programs that appeal to them. With his powerful engagement on social media he seems to have captured the imagination of the younger segments. They see the fruits of his initiatives – from sleek railway coaches to soil data cards for farmers – and have massively backed him.

The expectations of the people on delivery of developmental agenda is high and there is no going back. In every village people are talking excitedly about electrification or the introduction of new railway lines or the spanking new highway that snakes though their town. They have now seen and experienced for themselves how things can change fast. The most important learning for the people is that these massive public investments and welfare programs, if executed well under watchful eyes can swiftly impact their economic fortunes. That is the essence of Modi’s economic transformation.

The fall out on the political ecosystem is that many political careers will be ruined and we may never again see the faces of many politicians. Fringe elements, arguably the loudest anti-Modi voices and the most virulent anti-national forces, have been corralled and their sources of funds have been shut down, thanks to demonetization. For others, the writing on the wall is clear. Perform your duties as expected or exit the political life.

The focus on governance and development may have found a long awaited cure for anti-incumbency that ailed India for decades.  This does not mean that 2019 election will be a cake walk for the BJP or Modi himself. There is lot of unfinished work. More importantly, he has to step up his publicity machinery to bring to the attention of every Indian in every village what has been achieved in these four years.

Good governance and data on economy may provide fuel to debates and score brownie points on the television talk shows and may even win thunderous applause. But winning elections is another matter altogether. The 2018 elections in Karnataka shows that BJP has much work to do. But at least one thing is clear. The days of perverted appeasement politics is definitely over and seems to have had a quiet burial.

 

Modi Lifts Millions Out of Poverty

Modi Lifts Millions Out of Poverty

In an earlier piece the ground work laid by Modi in his first four years in office was analyzed. His important achievement was the creation of a policy environment that facilitated an accelerated growth. As pointed out the implications for the country are many. This piece will explore the ripple effects of the rapid transformation on society

One big game changer that Modi has spotted very early has been the widespread use of the mobile phone in India. With over 118,34,08,000 mobile phones, India has a massive penetration of over 91% (Wikipedia), bulk of the users being rural and urban poor.

This large user base presented a great opportunity to deliver government services to the people via the mobile phone. In fact it Modi has used the mobile phone as a development accelerator. Called the Digital India initiative, the e-governance architecture provides swift and intermediary-fee delivery of services as never seen before.MSME1

Modi’s Digital India is probably the biggest platform for delivery of government services anywhere in the world. Fully leveraging India’s prowess in information technology, this has been created in record time. The bandwagon service platform enables citizens to track status of their application to government, request information, seek marketing information on agricultural produce, weather information, cashless transaction using digital wallets, file income taxes electronically, access free CBSE textbooks, review digital land records, view data from the Geo-Informatics Center and an almost endless list of services line up.

But how has the sweeping changes brought in by Modi impacting India? Have they created job growth? The political opponents of Modi have charged that despite these changes, there is no impact on employment. While concerns on employment are valid, the truth is that the changes have bought a large number of jobs particularly in the informal sector.

It must be noted here that Indian economy is a complex mix of formal and informal sectors. This informal sector, like the small business sector in the US, is a key pillar of the economy. It employs over 120 million people while the formal sector employs only 12.5 million (mudra.org.in). It is one of the largest disaggregated business ecosystems in the world – shopkeepers, vegetable vendors, repair shops, artisans, street vendors and many more – sustaining around 50 crore lives.

According to the National Sample Survey Organization (NSSO), as of 2013, micro, small and medium enterprises (MSME) totaled 6 crore business units mostly individual proprietorship. Most of these are owned by weaker section of society particularly from SC/ST or Other Backward Classes.

Since they are not organized, granular data is hard to come by. This is has posed a great challenge in assessing the true benefits particularly in generation of employment. But a fair assessment of the impact on employment can be deduced from the data available with the Mudra Bank. Since its inception three years ago, the bank has disbursed loans to more than 12 crore small entrepreneurs which is more than the total population of Italy and France (narendramodi.in). 50% of its borrowers were from SC/ST and over 75% were women.

Assuming that only 50% of the borrowers employed one additional help, Mudra bank would still have generated a minimum of 6 crore direct jobs. Further, even if only 25% of the borrowers were successful in developing their businesses, then at least 3 crore people would have enjoyed a higher disposable income. This is a very conservative estimate and data on the ground may indicate an even better scenario. More importantly, all this was in the weakest sections of society in rural as well as urban areas. The gains in employments from Mudra bank are substantial.

Modi’s transformation exercise has greatly impacted Indian society. Series of small but important changes in the way public consumes government services have generated optimism and has boosted the self-esteem of the people. It is now common place to hear senior citizens in temples, marriage get-togethers or other social occasions to wax eloquently about the beneficial changes Modi has bought about in the country.

The senior-citizen demographic segment in particular has lived through hell – having to pay bribes, suffering untold delays in everything, being ignored or harassed for seeking what is legitimately due to them. Many have not forgotten how millions of retired government and public sector employees have been forced to pay bribes just to get the legitimate pensions or retirement dues.  For them Modi has given a new life experience.

The impact on women is profound. For instance a housewife is now able to sell her cooked food to local area residents by soliciting orders via SMS and accept digital payments. She can borrow money at subsidized rates from banks or lending institutions that are refinanced by Mudra Bank. All this without paying a rupee in bribe to intermediaries. Such anecdotes abound in almost every town and village in India today. Not to forget, this was not even in the realms of imagination for many Indians even a few years back.

But bigger questions loom large for the BJP. The kick starting of the economy has started a new social dynamics in the county. It is narrowing, albeit at a slow pace, income disparities at the lowest levels in the economy. But how will all this impact the 2019 election?  Will it boost the prospects of BJP? Why did it not influence Karnataka elections or the recent by-polls? Is BJP’s ‘development first’ agenda waning? Political observers are not in agreement and opinions seems to vary widely, largely depending on whom you talk to.

The fact is that the number of reforms is unprecedented and the impact in the ground, as explained above is lifting millions out of poverty. But these poor millions, by themselves, may not be able to decisively sway the elections.  On the other hand it is also true that sections of supporters feel let down by the BJP. From the delay in building Ram Mandir to corrupt politicians of UPA not facing the law, the anger is real.

But this anger needs to be unpacked to have a better understanding. The dissatisfaction largely stems from impatience due to non fulfilment of expectations. Here again, these are the classic problems seen in a large pluralistic society where the expectations of different sections compete for attention at the same time and often are not complementary. Modi’s government has impacted them differently and hence the sense of unfulfilled expectations.

In a complex country like in India, poverty alleviation at the lowest level is rightfully the urgent priority and Modi has devoted a lot of time for it. As regards booking the corrupt, the delay is inexplicable. The only plausible explanation is that Modi does not want to create a martyr out of these corrupt leaders who left alone have no chance of winning.

For the millions at the lowest levels of society, Modi is a godsend. So too for millions of middle class Indians, particularly the under 35 segment. For them the actions have matched the promises. This is rarity in Indian politics.

 
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Posted by on June 4, 2018 in Economics, India, Indian Economy, Modi

 

INDIA’S TRANSFORMATION UNDER MODI – IMPLICATIONS

indianeconomy2The growth in the Indian economy has attracted a lot of attention. India has emerged as the fasted growing large economy, pipping China. It is expected to clock a GDP growth rate higher than 7.2% in 2018. Many international agencies that monitor key economies around the world have been sanguine in their projections on India.

A recent study published by UK based Center for Economic and Business Research (CEBR) states that India’s consistent GDP growth rate will push it to prominence in 2018. It has forecast that India will join the elite group of the top five largest economies of the world. This is a full year ahead of projections by International Monetary Fund (IMF) that India will make it to the top five in 2019.

India’s rise in global prominence has not come easy. In the last four years, Prime Minister Modi’s government has put in an unbelievable number of policy reforms and public investments in hundreds of projects that have borne fruit. This smorgasbord of reforms and investments have deeply impacted key sectors of agriculture, manufacturing, and services like never before. The gamut of initiatives – many of which have longer gestation periods – will continue to deliver results over an extended time horizon

.Top5

A dispassionate analysis throws up three key pillars that have provided the bulwark for the emergence of the economy.  Firstly, Prime Minister Modi, shedding ideological baggage, has incorporated best practices in economic management that are pragmatic and more importantly, well suited for the country. This is indeed refreshing, since for many decades India was hamstrung by ill-advised ideological paradigms that only resulted in poor growth rates and endemic poverty.

Secondly and more importantly, we are witness to an unparalleled excellence in executing these economic reforms and policies. Modi’s personal leadership qualities – acquired mostly as Chief Minister of Gujarat where he was virtually baptized by fire – have played an important role. The recent inauguration (May 2018) of the smart Eastern Peripheral Expressway (EPE) is but one example of this mastery over execution. Built at a cost of Rs.11,000 crore in Delhi, this 135 KM long solar power lit expressway was completed in 18 months.

Thirdly, and most notably, the government has ensured that, at least at the political level, there is no corruption, pilferage or fraud. These have been the core secrets of the swift economic transformation we see today. It is well known that India’s track record in delivering government services, particularly welfare benefits to the poor has been dismal. Former Prime Minister Rajiv Gandhi is on record saying that for every rupee the government spent on welfare only 15% actually reached the beneficiary.

But Modi had stopped all that by directly transferring benefits to beneficiary’s bank account. According to data published by the government, welfare benefits of Rs.3,65,996 crores were directly transferred to beneficiaries’ accounts in the last four years (www.narendamodi.in). This is an example of Modi choosing the appropriate service delivery vehicle and executing it well in a given time fame.

Modi’s developmental paradigm and governance strategy are built around these three pillars. Hence his schemes and initiatives, just to name a few –   GST, Indian Bankruptcy Code (IBC), recapitalization of public sector banks, unprecedented investments in national highways and railways, 100% electrification, transfer of welfare benefits directly to the beneficiaries’ bank accounts –  are runaway successes.

What is even more striking is the fact that the government has used existing laws, existing civil and administrative machinery, existing staff and officers to execute its vast number of projects. The same machinery has in many cases achieved the project objectives ahead of schedule without cost overruns.

Like all previous governments, Modi too had the low risk option of choosing reforms on a smaller scale that do not tend to rock the boat. But these changes would have yielded only incremental results or benefits that would have continued to keep India hostage to a pernicious low growth cycle, depriving huge sections of society a decent livelihood. But Modi apparently has taken a calculated risk and has instead, boldly opted to choose the transformation route, a high risk option, to achieve big results in as diverse areas as possible. The gamble, as seen from the optimistic projections by international institutions, seems to have paid off.

Many compare Modi’s transformation exercise to the reforms of 1991 initiated by the then Prime Minister Narasimha Rao. Rao’s reforms were no doubt extremely critical for India then, but were more in the nature of a rescue mission. They were focused on deregulation and attracting foreign direct investments to shore up dangerously low levels of forex reserves. They were incremental and definitely on a smaller scale in comparison.

As already pointed out, Modi’s reforms are transformational. Further his efforts must be seen as part of a master plan that includes securing India from internal and external threats as well as forging bilateral ties with various countries around the world to deepen India’s trade and commerce. The truth is that both Rao and Modi have succeeded in untethering the native economic sinews of the country.

Despite the din, distorted and mostly negative reporting in the media, Modi’s developmental agenda has the backing of large sections of society. For them the economic resurgence passes the smell test, at least anecdotally. For instance, in high growth states like Gujarat and Tamil Nadu, there is a noticeable absence of beggars on the streets or on railway platforms. Long gone are the days when people could not afford footwear or wore torn clothes. The so called ‘trickle down’ effect which was a just a dribble for several decades, now seems to be drenching vast sections of poor people. Of course this is not to gainsay the fact that poverty continues to pervade vast sections of society in many states.

The economic survey for 2018 has highlighted the strengths of economy. But it has also warned of potential risks and threats to the economy, both internal and external that need to be carefully watched. However, the good news is that key statistics and relevant data point to continued robust growth in the economy. Modi’s biggest achievement seems to be the setting up of right the ecosystem via a conducive policy environment, infrastructure building and massive public investments that has since unleashed the economy.

The silent changes that are sweeping across the country– mostly at the lowest levels of the economy – are creating huge impact on the very fabric of India – economically, politically and socially. The enthusiasm and expectations of the people – particularly the under 35 demographic segment that forms over 60% of India – seem be scaling up.

The clamor for corruption-free and swift delivery of government services – be it provision of electricity, sanitation, public health services or any service for that matter – is ratcheting up. While citizen experience is positive, this may not be a welcome change for the political ecosystem in India.

Modi’s iron will and mastery of execution is unmatched across the whole political spectrum in India today. He has given India a new mantra to the political class- perform or perish. He has set the bar for performance high enough that many in the current political scene may not be able to achieve. This probably explains the collective hatred seen for Modi among his political opponents and their proxies. But the impact of Modi’s transformations will continue to reverberate for years to come.

 

 
 
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