Modinomics 2.0 Vs Nehruvian Fascism

Jawaharlal Nehru, who was India's Prime Minister from 1947-1964, unarguably presided over the most dismal period in India's economic trajectory, in more ways than one. That is not surprising, given Nehru's love for regressive socialist policies, under the veneer of a supposedly progressive persona. Between 1947 and 1964, the CAGR for Japan’s GDP per capita was 7.9%, for the former USSR, it was 4.4% and for India, an abysmal 1.68%. India's record was not only poorer than communist countries like China, which in those days was a midget economically and nowhere close to being the economic giant that it is today, but even lower than much smaller countries like Philippines and Malaysia. Even a non-descript nation like Burma (now Myanmar) clocked a CAGR of 3.16% between 1950 and 1964, much better than India's 1.68%.

Apart from India's average GDP growth of barely 4%, from 1952-1964, even in terms of life expectancy at barely 32 years, India under Nehru, was worse off than even Sub-Saharan Africa, where life expectancy was 38 years. Clearly, the Mahalanobis model of "license raj", one of Nehru's poorest legacies, left India economically debilitated. What's worse, even after his death, the failed Nehruvian model has been propped up for over five decades by a morally bankrupt and a politically short-sighted Congress, at every given opportunity. But not any longer. The meteoric rise of Prime Minister Narendra Modi's meritocratic and inclusive development model, better known as "Modinomics", is here to stay and for good.

The Indian economy grew at 6.7% under an inept Congress-led UPA-2, with emerging market economies growing by 6.43%, during that period. On the contrary, under Prime Minister Narendra Modi's first term, Indian GDP grew at a superior rate of 7.4%, despite the emerging market countries growing by barely 4.52%, in the said period. Also, the flimsy argument by Modi's critics that the excellent 7% plus GDP growth seen between 2014-2019, is only because of change in base year from 2004-05, to 2011-12, is just a lot of lame hogwash, as most large economies globally, including America, change their base year almost every single year and in fact, follow a "rolling year" concept.

The recent 4.2% gross domestic product (GDP) print for the financial year 2019-20 for India, has reignited the Modinomics versus Manmohanomics debate. In particular, the GDP print of 3.1% for the March 2020 quarter, has provided fodder to idle minds who know nothing about economics, to start waxing eloquent on how things were much better, under an incompetent Congress. Well, the pleasant truth is, things are indeed, undeniably, much better today, versus what they were six years back. While the ignominy of a miserable 0.2% GDP growth for the March 2009 quarter belongs to the Congress, the highest GDP growth of 8.2% in fiscal 2016-17, belongs to the Modi government. Before proceeding further, it should be noted that while India's GDP expanded in the March 2020 quarter, albeit by just 3.1%, most large global economies contracted during this quarter.

For instance, the USA posted negative growth of 4.8%, China recorded negative growth of 6.8%, Japan grew by minus 5.2% and Singapore& Germany by minus 2.2% each, during the March 2020 quarter. Indeed, this sharp slowdown globally in the March 2020 quarter, had little to do with the Coronavirus pandemic or the lockdown. The impact of the pandemic will be felt only in the coming few quarters. Equally, what Modi's critics and self-styled economists forget, is the fact that, since 2019, the world economy has been in a rather rough patch due to trade and tariff wars between the USA and China and the great "global auto slowdown", due to the transition to BS-VI emission norms.

For example, while the "IHS Markit's Composite PMI" for Germany, rose to 31.4 in May 2020, from a record low of 17.4 in the previous month, it was still the second-lowest figure since comparable data began in 1998. Again, the number of new unemployment insurance claims came in at 4.4 million for the week of April 18, 2020, in the USA, taking the total number of unemployed persons, to over 27 million.

Needless to add, while India has also been affected by this grinding global slowdown, it has held its own pretty resiliently, than most peers. To, therefore, single out Modinomics, for criticism, is indeed illogical and uncalled for. Coming back to India, besides GDP, the moot question is--What about the quality of growth and its other relevant components? Where the Modi government has done significantly better than Singh’s United Progressive Alliance (UPA) government, is infrastructure. The length of national highways, which stood at 91, 287 km in March 2014, had increased by March 2019 to a solid 135, 676 km, growing at 8.25%, a year. This was versus a modest run rate of merely 5.29%, under Congress-led UPA-2. The number of airline passengers grew by an annual 9.2% in the UPA-2 regime, versus a solid 15.28% in Modi’s first term.

More importantly, Modinomics has managed the growth-inflation conundrum very effectively. Growth with high inflation is meaningless as it hurts the poorest and the middle class the hardest and indeed, it is here that Modinomics scores handsomely over a lazy and tired Nehruvian style, Manmohanomics.In April 2014, before the Modi government took charge, retail inflation, defined by the consumer price index (CPI), stood at 7.72%, with food inflation at 9.2%. In fact, in November 2013, CPI was painfully high at 11.4% and food inflation even higher, at 14.72%. The CPI, however, averaged at just 4.3% in Modi’s first term, with food inflation at barely 1.59% between October 2016 and October 2019. Importantly, food inflation was reined in, despite an average 24% hike in the minimum support price (MSP) for Kharif crops in 2018.

True, in Feb 2020, CPI touched 6.58%, but the cumulative retail inflation in the financial year 2019-20, was pretty benign at 4.7%, after clocking a figure of 3.41%, in 2018-19. Again, core inflation (excluding food & energy), was barely 4% in 2019-20, versus an obnoxiously high 6% plus, in 2012-13, under the UPA-2 regime. Suffice to say, the UPA-2 was nothing more than an extension of outdated Nehruvian Socialism, which has no takers today. 

Moving away from inflation, it is time to take stock of an area that has unarguably been the worst legacy of Nehru's Mahalanobis model– the NPA mess and rampant crony capitalism that it festered. In sharp contrast, be it the recent relaxation of FDI norms, big bang banking consolidation, Consumer Protection Act, amendments to the Chit Fund Act 1982, operationalising the Benami Transactions (Prohibition) Amendment Act, 2016, the Insolvency and Bankruptcy Code (IBC) or the Fugitive Economic Offenders Act, 2018---the Modi government has, in the last 6 years, brought sweeping economic reforms to uproot corrupt and wilful defaulters. Thanks to the IBC, the average resolution time has drastically reduced from 4.3 years under a lethargic Congress regime, to barely 1.6 years now, well in line with OECD countries. The recovery rate under IBC has also improved tremendously from 26.5% to 71.6%, in this period, with India's overall dispute resolution ranking jumping from 108 to 52, under Modi. The takeover of Essar Steel, by Arcelor Mittal, via the IBC, despite the Ruias trying every trick in the book to retain their flagship conglomerate, is a befitting ode to Modinomics.

Prime Minister Narendra Modi's impeccable credentials with zero tolerance towards corruption, is a work ethic that will leave a rich legacy for generations to come by. That the erstwhile Manmohan Singh regime kept dithering on even something as basic as merging the Forward Markets Commission with SEBI, for ten long years, before it was eventually brought to fruition by the Modi government, is ofcourse, another story.
Talking of foreign direct investment (FDI), it rose by 13%, the sharpest pace in the last four fiscals, to a record of $49.97 billion in 2019-20, versus $44.36 billion during 2018-19.India's debt service ratio improved by leaps and bounds, from just 5.9% under an inept Congress led dispensation in 2013, to a resounding 8.5% under the Modi government, in 2018. Also, the current account deficit (CAD), in 2012-13, was a scary 4.9%, reflecting a dangerous balance of payments (BoP) position.However, in 2017-18 and 2018-19, the CAD figure was very healthy at just 1.8% and 2.1% of GDP, respectively.The fact that as of September 2019, short-term debt as a portion of overall debt stood at just 19.6%, from an extremely uncomfortable 23.6% in 2013, is indeed the best vindication of the fact that Modinomics has married high growth with low inflation, without compromising on external stability. For Nehruvian leftism, India's economic interests were always secondary.

The current slowdown in India is cyclical and not structural in nature, because fundamentals of the economy are in fine fettle.While comparisons are often odious, India continues to decisively outperform peers. The recent sluggish pace in India, comes against the global  backdrop of 17 months of a protracted US-China trade war, a technical recession in Singapore with GDP growth rate of barely 0.1% in the September 2019 quarter, Venezuelan bankruptcy last year, double dip recession in the world’s eighth largest economy, Brazil in May 2019, continued turbulence in the UK in 2019, around Brexit, a recession in Italy, steep slowdown in Japan amidst a trade war with South Korea and most importantly, industrial recession in Germany, that has been battling negative bond yields since September last year and ofcourse, its slowest growth rate, since the 2011 European crisis. German 10 year yields continue to be negative at minus 0.45%, currently.

The September 2019 PMI number for Germany, the fourth largest economy globally, dropped to 49, the first time since April 2013 that Germany’s PMI fell below 50. The explicit and implicit reason behind talking about September 2019 numbers is to highlight the fact that, much before Covid, the world economy had already started sliding towards a vicious slowdown. Hence, ignorant critics of Modinomics would do well to appreciate that, despite a protracted global slowdown, well through most of 2019 and now in 2020, India managing even a 4.2% GDP growth in 2019-20, is nothing short of praiseworthy.

It needs to be mentioned here that, passenger vehicle sales in India crossed the three million milestone for the first time in 2016-17. Maruti Suzuki took 37 years to sell 20 million vehicles in India, with the first 10 million vehicles taking 29 long years to sell. Interestingly, the last five million units were sold in barely three years, between 2016-17 and 2019!This is yet another instance of how a decrepit Nehruvian fascism, followed religiously by the Congress for decades, was India's undoing. It took someone as tall a leader as Modi, with a determination that can move mountains, to put the nation's "Make in India", initiative, onto the fast track, eventually. For instance, from being a net importer in March 2020, to becoming self reliant by producing over 1 crore PPE kits, by May 2020, India's trailblazing journey in combating Covid, has been exemplary.

Speaking of tough but desired decisions, by opting for demonetisation and not, rampant deficit financing like the US or Japan for that matter, Prime Minister, Narendra Modi, in one fell sweep, averted the liquidity trap and the problems that Obamanomics was fettered with.Deficit spending certainly increases money supply, but may or may not increase growth, as was evident in Japan’s lost decades. Demonetisation on the other hand, increases the velocity of money, which means, money exchanges hands more frequently, within the formal channels.Thanks to  demonetisation, the number of UPI transactions in February 2020, hit a record high of 1.32 billion, with a value of Rs 2.2 lakh crore.

Modi's misguided critics who have been quick to dismiss demonetisation would do well to know that the number of people paying an individual income tax of greater than Rs 1.5 lakh has increased from 13.8 lakh in AY13 to 34.9 lakh in AY19, reflecting how demonetisation dramatically improved tax compliance, by radically improving the attitude of large swathes of the Indian population, who realised, under Modi, "honesty is still the best policy". Under Nehru's Congress, honesty has always been negotiable.

Fear mongering about efficacy of goods and services tax (GST), is also incorrect, as GST has strengthened tax compliance, with the indirect tax-to- GDP ratio going up to 5.4% post-GST, from 4.4% in 2014-15.From over 495 forms that had to be filled in the pre-GST era, that number is down to an average of barely 12 forms, re-defining ease of doing business (EODB).In 2019-20 alone, over Rs 1 lakh crore worth of GST related benefits were passed on to the end consumer, due to rationalisation of the tax structure, with only a handful of "demerit" goods and "sin" items falling in the 28% tax bracket.Effective peak rates came down from almost 31% under a lethargic Congress led UPA-2, to just about 18% and lower, with Modi at the helm.

In terms of fiscal prudence too, the Narendra Modi regime wins hands down, with an average fiscal deficit figure of only 3.7%, for the 2014-15 to 2018-19 period, with primary deficit last year, at just 0.2% of GDP. This is a huge improvement from the 5.7% number in 2011-12 and 4.9% in 2012-13, under an utterly incompetent Manmohan Singh, who floundered between wanting to be a good economist and an astute politician, but ended up being neither.That Sonia's "kitchen cabinet" ruled the roost, riding roughshod over Dr. Singh, is yet another testimony to how the dynastic, Nehruvian economic model, was built on the immoral premise of "family over country".True, as a one-off, fiscal deficit for 2019-20, came in at 4.59%, versus an estimated, 3.8%.Equally, this deviation was needed and almost inevitable due to the pressing need to give a fillip to domestic growth, in the wake of a fall in private capex and a protracted and painful global slowdown, for many months now. Largely though, fiscal consolidation without sacrificing growth, has been the hall-mark of Modinomics, versus reckless and unproductive spending by preceding, Congress led dispensations, that still cling on to the last vestiges of a jaded Nehruvian model.

Reduction in corporate tax rate from 30% to 22% and for new companies to 15%, allowing private sector in commercial coal mining on a revenue sharing basis with no end use restrictions, 100% FDI via the automatic route in defence manufacturing, single brand retail & real estate broking services and privatisation of power distribution companies (DISCOMs) in union territories (UTs), underpin the essence of Modinomics 2.0, which has consummately blended free market economics, with the concept of a "Welfare State", that is not overarching.

Speaking of direct taxes, "Budget 2020" ushered a new income tax slab regime with reduced rates, for those foregoing 70 tax exemptions and deductions under a "new simplified tax regime". This new tax system that came into effect from April 1, 2020 is optional and will co-exist with the old tax regime, but is pathbreaking, as it gives the tax payer the freedom to choose and plan, his tax outgo and cash flows.Individuals with a net taxable income of up to Rs 5 lakh per annum will be able to avail tax rebate of Rs 12500 under section 87-A of the Income Tax Act in both, the existing and new, tax regimes. Effectively, this would mean that individual taxpayers with net taxable income of up to Rs 5 lakh, will continue to pay zero tax in both tax regimes and, this is certainly a huge bonanza for many.

In the first year of his second term, Modi's landmark steps have been many--the decision to implement Rs 102 lakh crore worth of infrastructure projects via the national infrastructure pipeline (NIP) , lowering employees’ state insurance act (ESIC) contribution from 6.5% to 4%, which benefits 3.6 crore employees and 12.85 lakh employers, a monthly pension of Rs 3000 to over 42 crore small traders and shopkeepers in the unorganised sector after they attain 60 years of age, under the "PM Shram Yogi Maandhan Yojana", condensing over 58 archaic labour laws into four codes, passing the "Code on Wages Bill" 2019, which will benefit over 500 million workers across the country and ofcourse, the recent historic decision to defang agricultural produce marketing committees (APMCs) and amend the "Essential Commodities Act" of 1955, to enable farmers to sell their produce to whomsoever they wish to sell to, without any inter-state barriers or any price or quantity related restrictions, are measures that showcase how good politics and good economics, can peacefully co-exist.

More recently, measures like Rs 3 lakh crore of collateral free loans to micro, small and medium enterprises (MSMEs), making definition of MSMEs both investment and turnover based, removing distinction between manufacturing and service oriented MSMEs, removing exports from the purview of turnover for MSMEs, Rs 50, 000 crore equity infusion fund, Rs 20, 000 crore of subordinated debt and Rs 4, 000 crore worth, distressed asset fund for MSMEs, liquidity support of Rs 6, 750 crore by bringing providend fund rate down from 12% to 10%, reducing the benchmark Repo rate to 4%, the lowest in 20 years, Rs 2 lakh crore concessional credit for farmers and fishermen via Kisan Credit cards, hike in MSP for 14 kharif crops by 50-83% for the current fiscal year, concessional loan of Rs 10, 000 per person for over 50 lakh street vendors, throwing open 6 new airports for privatisation via the public-private partnership (PPP) route, allowing private sector in space exploration and ofcourse, decriminalising certain offences under the Companies Act, have been commendable.

The Modi government has launched "Swayam Prabha", free-to-air education channels, which consists of a group of 32 DTH channels that provide educational content, to those who do not have access to the internet. The other component in the "PM eVIDYA" package is the "DIKSHA" portal (One Nation, One Digital Platform), which will provide quality educational content to researchers and students.

Unarguably, with just 7.9 people in India getting infected for every million, with the Coronavirus, versus a global average of 62 for every million and, with the lowest Covid mortality rate in the world at just 2.87%, India's track record under Modi, has been exceptional.Be it "Ayushman Bharat", the largest healthcare scheme globally, which has given free treatment to over 1 crore people since its inception, the "PM-Kisan" initiative which aims to give Rs 6000 per annum to over 14.5 crore farmers, or the "PM Ujjwala Yojana" that gave free gas connections last year, to over 8 crore households, the Modi government has given last mile connectivity a whole new meaning.More than Rs 52606 crore was directly transferred to the bank accounts of over 41 crore beneficiaries, in barely last two months of the "Covid lockdown", with more than 48 lakh migrants being transported to their home towns, in over 3736 trains.The Congress has always believed in absolute power with zero accountability and during the lockdown, it yet again got back to doing what it does best--refusing to take onus of the hapless migrants in Congress ruled States, despite public health being a "State subject" under Article 246, List-2, Seventh Schedule, of the Constitution.

In the last one year, under the "PM Kisan" scheme, over Rs 72, 000 crore have been deposited in the bank accounts of more than 9.5 crore farmers. To make available piped drinking water for over 15 crore rural population, the 'Jal Jeevan Mission' has been initiated.To ensure better health care for more than 50 crore cattle, a massive campaign for livestock vaccination, is underway. Tuberculosis will be completely eradicated in India, by 2025, well ahead of the global deadline of 2030.

It has been decided to constitute National Traders Board to resolve issues concerning business enterprises. About 7 crore women associated with self-help groups (SHGs) have been given financial assistance. Recently, the loan amount available without guarantee for SHGs has been doubled to Rs 20 lakh from Rs 10 lakh.Keeping the education of tribals' children in mind, a campaign is under way to build more than 450 "Eklavya Model Residential Schools". Twenty two new AIIMS have come up in last few years under the Modi government, with 30, 000 new MBBS seats and 15, 000 new post graduation seats being added.

Contrary to irresponsible, Nehruvian style, Machiavellian politics, that was sneaky, cunning and unscrupulous, the distribution of 7 kg food grains per person under "PM Garib Kalyan Ann Yojana" during the lockdown, to help migrants & daily wage earners not covered, as well as those covered under the National food security Act (NFSA), tantamounting to 80 crore people, is unprecedented. Also, atleast 3 crore marginal farmers have already availed Rs 4.2 lakh crore of loans at concessional rates, during the lockdown.Clearly, Modi has many firsts to his credit, including "PM Jan Dhan Yojana", the largest financial inclusion scheme in the world with over 38 crore account holders, "Swachh Bharat" mission, the largest sanitation scheme globally, with over 11 crore toilets built and ofcourse, the direct benefit transfer (DBT) scheme, that till date has directly transferred cash worth Rs 8.91 lakh crore, to various beneficiaries. Under an inept Congress led UPA, money meant for the poor was pilfered by wily middlemen but under Modi, the policy framework has been overhauled to ensure, Nehruvian style, "crony capitalism", that bred corruption and nepotism, do not stand a chance!

It is true that like the rest of the globe, India will slowdown, with the IMF predicting a 1.9% GDP growth for India in 2020-21, while Fitch Ratings and S&P say, India's growth may contract by 5%.Equally, Fitch says India's recovery will be dramatic and its GDP will grow by a solid 9.5% in 2021-22, while S&P says, India's growth will be the sharpest at 8.5% in 2021-22. Also, while the IMF projects a positive growth in 2020-21 for India, it estimates US and Europe to grow by a negative 5.9% and 7.5%, that year, clearly proving that relative to global peers, damage to India, due to the Covid pandemic, will be far lower.However, India's recovery, will be much sharper and faster.

It would be apt to conclude by saying that, in 1991, India had to mortgage 46.91 tonnes of gold, with the Bank of England, to raise a measly sum of 400 million dollars, as we did not have money to even finance three weeks of imports.Today, under the indefatigable Prime Minister Narendra Modi, with an all time high foreign exchange reserves of 490 billion dollars, India can finance over twelve months of imports.After overtaking France to become the 6th largest economy in 2019 and then surpassing the United Kingdom to become the 5th largest in 2020, India is set to surpass Germany and become the world's 4th largest, in the next five odd years.The Covid pandemic has tested our grit as a nation.Equally, it has further cemented the strappings of a self reliant India, on the lines of "Vocal for local".

Clearly, Modinomics has undone the inept and embarrassing travails of a Machiavellian Nehru and the erstwhile, decadent, Congress-led UPA government, that faltered between nepotistic Nehruvian Leftism and redundant, Fabian Socialism."In matters of style, swim with the current;in matters of principle, stand like a rock", said Thomas Jefferson, ages back.Indeed, the ability to push through hard reforms without being xenophobic and more importantly, an uncompromising attitude in matters of quality of governance, transparency and probity, are eventually the very things that put Modinomics, miles ahead of the competition, if any. RIP...Nehruvian fascism!

Ms Sanju Verma is an Economist, Chief Spokesperson of BJP Mumbai and, Author of the Best Seller, "Truth & Dare--The Modi Dynamic".