Modi’s plan for economic revival is a game-changer
The focus has been on the supply-side. Expect measures, within bounds of fiscal prudence, to boost demand
The first anniversary of the National Democratic Alliance government, popularly referred to as Modi-2, may have been somewhat subdued due to the lockdown as a result of the coronavirus disease (Covid-19). But the achievements of the last 12 months were succinctly encapsulated in Prime Minister (PM) Narendra Modi’s recent letter to the nation. At the outset, he referred to the ~20 lakh crore economic package that he dedicated to the nation on May 12 and stressed his desire to make India self-reliant.
There comes a time in a nation’s life when momentous decisions are taken in the interest of not just the current generation, but generations to follow.
The year 1991 was a defining moment for independent India, when the then PM, PV Narasimha Rao, opened the country’s zealously-guarded doors to the wider world. It was a decision taken out of compulsion. India was impoverished, out of money and vulnerable. Fear and suspicion were deeply embedded in India’s psyche. We were suspicious of strong foreign forces recolonising us through giant multinational companies
A slew of bold decisions and policy announcements in Modi’s address to the nation on May 12 will go down in the nation’s history as more momentous than those taken in 1991.
Modi’s steely political will to make India self-reliant is as courageous as it is visionary. Some of the far-reaching announcements included the push for structural reforms in key areas such as agriculture, defence, coal and public sector enterprises. Linking the benefits to states with their performances was among the highlights of the package. While their positive impact will take time to kick in, there is no doubt that these structural reforms will boost growth.
Some in the country expected an instant fiscal stimulus beyond what the country could afford at the moment, or perhaps a reduction in the Goods and Services Tax and income tax rates. They also wanted to see the government’s effort directed exclusively to dealing with the emergency-like situation that we find ourselves in. They gave examples of the United States (US) and United Kingdom’s stimulus packages.
Modi’s ideas are all-encompassing. The measures he took ensured that the supply side became robust. Immediately after the lockdown, the government announced a big relief package of ~1.7 lakh crore for the bottom 20% of the population. This was followed by a series of measures to provide relief to the poor and farmers. They included cash transfers of over ~52,000 crore through Jan Dhan accounts and allocation of an additional ~40,000 crore under the Mahatma Gandhi National Rural Employment Guarantee Scheme to create jobs for those living on the margins of society. The micro, small and medium enterprises (MSMES) sector, the backbone of our economy which contributes significantly to the Gross Domestic Product (GDP), is the worst hit by the pandemic. The Modi government has taken targeted measures to boost the MSMES, including with the support of a sovereign guaranteed loan of ~3 lakh crore through equity and subordinated loans. The government deserves appreciation for the path-breaking step of changing the definition of MSMES.
What is also commendable is that despite a huge economic package, the government has not tried to punch above its weight. The Reserve Bank of India has also been proactive in supporting the government’s initiatives and has taken many unconventional measures such as the Targeted Long-term Repo Operation to create the right amount of liquidity available in the system for banks, non-banking financial companies and industry.
With the economy in motion again, we have the supply side in place. I am certain some more stimulus measures, within the bounds of fiscal prudence, will be taken to boost demand, which will help the economy accelerate.
We have to remind ourselves that the pandemic is still wreaking havoc on the world. But a day will surely come when all this is behind us. That, many believe, will signal the beginning of a new world order built on the collapsed edifice of the international order that emerged in the aftermath of World War 2.
Where will India be? This is the most important question on the minds of policymakers. Focusing on the pandemic alone would have been a populist but shortsighted move. Modi has wisely recognised the gravity of the current situation and made bold decisions which will help us maintain our position as a leading global player
The PM’S clarion call for self-reliance is a game changer. Imagine the force, energy, skills and strength a self-reliant nation of 1.3 billion people will bring to bear on the global polity. If the goal of self-reliance is achieved, we will be in a position to perhaps even compete with China in the near future.
Modi’s call to self-reliance is in our national interest. In a post-pandemic world, many countries will look to strengthen production and supply chains and promote homegrown products. Self-reliance will come only with a mindset change and some amount of sacrifice and patience. A self-reliant India, he argued, would be in a much better position to contribute to the world
But self-reliance does not mean an entire reset of the economy or a throwback to the swadeshi model. It is our own “India First” policy. When we become truly self-reliant, we will be one of the world’s leading economic powerhouses.