OCTOBER 2019 ISSUE NO. 318 The Economic Mind of Narendra Modi HINDOL SENGUPTA ABSTRACT India’s ruling Bharatiya Janata Party (BJP) has always sought a methodology to create economic policy that goes beyond the communism-capitalism binary. While the BJP is assumed to be more free-market-friendly than its main rival, the Indian National Congress (INC), it is also true that the BJP government has usually greenlighted significant government expenditure in areas like infrastructure. The current BJP government led by Prime Minister Narendra Modi is building a model that marries some of the largest and most expensive government programmes ever rolled out in the history of independent India to deliver goods and services, with a simultaneous push to trigger mass entrepreneurship by introducing reforms such as major tax cuts. This brief examines the task for the BJP government. Attribution: Hindol Sengupta, “The Economic Mind of Narendra Modi”, ORF Issue Brief No. 318, October 2019, Observer Research Foundation. Observer Research Foundation (ORF) is a public policy think tank that aims to influence the formulation of policies for building a strong and prosperous India. ORF pursues these goals by providing informed analyses and in-depth research, and organising events that serve as platforms for stimulating and productive discussions. ISBN 978-93-89094-91-6 © 2019 Observer Research Foundation. All rights reserved. No part of this publication may be reproduced, copied, archived, retained or transmitted through print, speech or electronic media without prior written approval from ORF. The Econmic Mind of Narendra Modi INTRODUCTION and managed the difficult task of achieving growth in agriculture while reducing its share Throughout its four-decade-long history, in the state gross domestic product. This is India’s ruling Bharatiya Janata Party (BJP) has particularly significant because Indian always been divided between two viewpoints agriculture has for long been plagued with low on economics: the free market model that productivity, and while it employs vast embraces globalisation and is private capital- numbers of people, often such participation in oriented, or the more indigenous, protectionist farm labour is due to the lack of alternative system with a significant welfare component. better-paying professional opportunities. The In the years the BJP ruled India in the late movement of excess farm labour to 1990s, and beginning in 2014, the party has manufacturing and services remains one of been wrestling with whether it should make India’s key challenges. Gujarat became a the role of the state more prominent, or that of model for “freeing up space for private business; and within business, should it open initiative and enterprise and the creation of an the doors to the world or focus on promoting— 1 enabling environment by the State.” Shortly and protecting— domestic businesses? before Modi became prime minister in 2014, Understanding the history and context of the Ministry of Commerce and Industry noted such a dichotomy explains many aspects of the in a report that Gujarat’s land acquisition BJP’s history and its stints in power as India’s system for business under the then chief 2 ruling party. Most importantly, it sheds light minister Modi was the best in the country. on the seemingly contradictory policies of the incumbent government led by Prime Minister WELFARE STATISM Narendra Modi. Modi’s rise to power as prime minister in 2014 From the time Modi rose to prominence in came with great expectations of a slew of the early 2000s as chief minister of Gujarat, economic reforms. The government has the prime minister has been noted for his brought several significant changes in the affinity towards promoting business and e c o n o m i c e nv i ro n m e n t— i n c l u d i n g entrepreneurship; he himself has reiterated introducing a transformational bankruptcy such inclination on different occasions. lawa and pushing through the long-awaited Indeed, under his leadership, the western Goods and Services Tax.b Certain key reforms, state’s economy grew at a faster pace than the however, remain pending including, critically, national average for more than a decade. a game-changing land reform law. Some early During that time, Gujarat also transformed signs of building consensus for land reform from a power-deficit to a power-surplus state, were stalled early in his first term as prime a The Insolvency and Bankruptcy Code (2016) has been a major reform in doing business in India which has simplified a maze of time-consuming regulation into one time-bound law. b The Goods and Services Tax has simplified numerous layers of taxation between federal and state law in India into a short list of countrywide taxes designed in slabs for various categories of goods and services, thus, decluttering the country’s labyrinthian taxation system. 2 ORF ISSUE BRIEF No. 318 l OCTOBER 2019 The Econmic Mind of Narendra Modi minister following criticisms by the opposition in corporate taxes, responding to foreign funds that the government’s proposal was anti- having sold nearly $5 billion of Indian stocks poor.3 The other critical, and long-pending, since June 2019. task of labour reform is also impeded and is While such a swift turnaround suggests unlikely to see the light of day anytime soon.4 that the Modi government has its ear to the The government has been hesitant to address ground, what still surprises many free-market issues of land acquisition, or labour, especially supporters of Modi is the state-driven focus on those involving wages and retrenchments the delivery of public goods in his first term, because they often become mired in political and an even more ambitious plan in the protest and carry the risk of being used against current second term. In fact, some of his the party during elections. targets are distinctly borrowed from ideas of the welfare state. This brief defines ‘welfare After the government in its first budget of state’ using the framework conceptualised by Modi’s second-term in office announced a hike the theorist Asa Briggs in 1961: “A welfare in the surcharge on income tax (the so-called tax on the super-rich), and a continuance of state is a state in which organized power is the long-term capital gains tax introduced in deliberately used (through politics and 2018, foreign institutional investors (FIIs) administration) in an effort to modify the play sold more than $1 billion in Indian equity of the market forces in at least three directions shares in July 2019. Widespread criticism of - first, by guaranteeing individuals and families tax harassment followed, including from a minimum income irrespective of the market prominent entrepreneur supporters of the value of their work or their property; - second, BJP like investor Mohandas Pai who spoke of by narrowing the extent of insecurity by “tax terrorism”.5 There has been a sustained enabling individuals and families to meet push-back on a tax on angel funds and jail term certain ‘social contingencies’ (ill health, old age for failing to meet mandatory spending on and unemployment) which lead otherwise to corporate social responsibility (CSR). individual and family crisis; and - third, by ensuring that all citizens without distinction Following a barrage of news reports of of status or class are offered the best standards sinking corporate profits and fleeing investors, available in relation to a certain agreed range of Prime Minister Modi gave an interview social services.”7 reiterating his commitment to entrepreneurs as “growth ambassadors”.6 The finance In his first term, the Modi government ministry announced a series of roll-backs embarked on a mission to build toilets for including on the surcharges on foreign every household in India and announced by portfolio investors, long-term capital gains, the end of its term earlier in 2019 that around the removal of the controversial angel tax on 90 million of them had been built.8 In the same start-ups, and jail terms for CSR rule period, around 80 million gas cylinders were violations. As more worrying economic data handed out to help women, especially in rural on slowing growth appeared, the Modi India, escape indoor air pollution – which kills government also announced a major reduction more than four million each year9 around the ORF ISSUE BRIEF No. 318 l OCTOBER 2019 3 The Econmic Mind of Narendra Modi world – and more than 350 million LED bulbs10 government – by reducing the government-to- were distributed. Around 100 million people citizen interface via technology with local have received e-cards that would help them bureaucracy, which is often a point of access cashless treatment scheme under the corruption. What the prime minister has Ayushman Bharat – Pradhan Mantri Jan done is to attempt to smoothen the strife at the Arogya Yojana (AB-PMJAY), the national touchpoint of delivery, for instance, petty health insurance scheme.11 corruption while delivering a service given by the state to the citizen. However, the overall To enable the efficient delivery of these role of the government has widened in scope. goods and services, the state has pushed the One of the early realisations of the first-term adoption of the Aadhar platform for identity Modi government seems to have been that verification; the system has since registered the Indian citizen may in fact not be seeking about 90 percent of Indian citizens. Moreover, less government in a society where few other its flagship United Payments Interface has institutions offer even nominal guarantee of surpassed the combined number of monetar y security; it wants better 12 transactions in credit and debit cards. government, with a clear path of transactional delivery. People want to know what exactly Through this entire process, what Modi they will receive from the government, and has strived to create is a direct benefit how.