MODI’S PLAN TO REBOOT INDIA
Narendra Modi has spelt out his economic vision. The industry feels it is just what India needs but critics remain unconvinced.
Four months before BJP’S National Council Meeting in New Delhi on January 19, Narendra Modi’s team went into overdrive. The prime ministerial aspirant was to unveil his economic vision at the meet and the team had its task cut out: Seek views from industrialists, economists, the public as well as senior BJP leaders L.K. Advani, Arun Jaitley, Sushma Swaraj and Yashwant Sinha. Some 42,000 suggestions poured in.
Modi, claims a BJP leader involved with the exercise, “sifted out what he thought were the best and asked his team to budget what was feasible and deliverable”. Thus was crafted his Comprehensive Economic Vision to steer India out of the “high inflation, low growth” trap.
The outline of this vision had begun taking shape much earlier. Soon after Modi was named BJP’S prime ministerial candidate in September 2013, the business-friendly Gujarat Chief Minister broadened his engagement with India Inc. “He wanted specific inputs, measures that’d create jobs and boost investment. He didn’t want Planning Commission-type staid and failed views,” says an industrialist who met him in December. He recalls that in the same meeting, someone had told Modi building 100 modern cities was not practical. “If Malaysia, China and Thailand can do it, why can’t we?” he retorted.
The economic blueprint is still a work in progress as BJP chalks out a strategy on tax reforms and fine-tunes its FDI policy—it supports FDI in defence and infrastructure but has reservations about retail; BJP- ruled Rajasthan rejected FDI in retail on February 1. Modi, who has successfully wooed big businesses into his state, has echoed the party line on retail FDI, saying it will hurt small shopkeepers. His economic philosophy advocates minimal governmental interference with business, repeatedly stressing that the government has no business to be in business, and should rather play the role of just a facilitator. “For India to progress, it is important to focus on good governance,” Modi said at the Delhi meeting.
Governance, for him, rests on three pillars—clarity in policies, transparency in decision-making, and steadfast implementation. Modi plans to scale up the Gujarat model, that burnished his image as a man of development, for the nation. At its heart is development of urban infrastructure to create jobs for millions leaving villages. “Our cities are overburdened, their infrastructure can’t take any more pressure,” says BJP treasurer Piyush Goyal, who helped Modi chart out his vision. The 100 new smart cities will come up as twin cities or in remote areas that lack infrastructure but have harnessable human skills, not unlike Gurgaon or Navi Mumbai, says Goyal.
The plan is easier sketched than
executed. The cost, for one, is enormous. Neither Modi nor Goyal have given a figure but, if this is any indication, an 80 sq km hi-tech city in Korea is planned at $264 billion. Many, however, say this can be overcome via public-private partnerships. “Government has to earmark zones and provide basic infrastructure. Investors will then build offices, schools, hospitals,” says Niranjan Hiranandani, a Mumbai-based developer. N.C. Saxena, current member of National Advisory Council and former member of the Planning Commission, believes money can be raised through better taxation. India’s tax-to- GDP ratio, Saxena points out, is one of the lowest in the world: 15 per cent compared to around 30 per cent in China and Brazil. BJP recently examined a proposal put across by Pune-based anti-tax group Arthakranti to replace all taxes, except customs duty, by a 2 per cent banking transaction tax that could collect Rs 40 lakh crore against Rs 10 lakh crore tax now. However, the proposal has not found acceptance among senior party leaders.
The other issue is inflation. BJP believes inflation can be controlled by regulating goods supply and not by curtailing demand through RBI’s tightening of money supply. Modi’s plan is to update farm data by creating a “mechanism to measure it in real time so we can decide what is to be imported or exported.” This has worked before, says Goyal. “In 1998, when Vajpayee came to power, inflation was in double digits. In his six years, he addressed those issues quickly,” he says. “When BJP lost in 2004, inflation was a low 3-4 per cent.”
Tomake this possible, India must attract huge foreign investment. For this, Modi plans to leverage five Ts—tradition, talent, trade, tourism and technology—to boost Brand India. In 2013, India lost nearly Rs 1 lakh crore in investment to delays, corruption and policy confusion. FDI fell 21 per cent to $36.9 billion in 2012-13 compared to $46.6 billion in 2011-12.
Still, critics remain unconvinced. They oppose the ideas as being far from India’s realities. The cross-country bullet trains proposed by him are expensive to build—a journey that costs Rs 755 by the Duronto will cost Rs 2,500. A plan to provide broadband connectivity to over 200,000 gram panchayats is already in place. Interlinking of rivers, at $120 billion, is not just expensive; it will also impact environment and displace a large population. As for higher education, India is already spending a lot on it. Finance Minister P. Chidambaram says Modi is avoiding critical economic issues. “Why has he said nothing on fiscal deficit, current account deficit or monetary policy?” He also wants to know why Gujarat and Madhya Pradesh opposed Goods and Services Tax and how FDI in multibrand retail would lead to job losses.
Yet, it seems, supporters of Modi’s vision outnumber its critics. “They’re a welcome change from Congress’s Nehruvian socialism,” says Ajit Gulabchand, CMD, Hindustan Construction Company. “He deserves a chance as he provides a good alternative.” Follow the writers on Twitter @MGArun1 and @BhavnaVij