Behind the curve

The authors make a sincere attempt at recounting the Modi government's various economic policy initiatives in these five years

As its title suggests, the book, written jointly by three economists, focuses on recovery, reforms and resilience seen in the Indian economy during the first five years of the Narendra Modi government from 2014 to 2019. Given the fact that the book has been published now when India's growth recovery is in serious doubt, reforms have all but disappeared and the economy's resilience is shaky, the claims and assessment in this book on India's economic prospects would naturally become debatable.

The authors, however, make a sincere attempt at recounting the Modi government's various economic policy initiatives in these five years. In doing so, they dwell at length on the government's strategy to manage the macroeconomy, launch initiatives to strengthen agriculture, renew industrial and trade policies, revive the health of the financial sector, tackle black money through demonetisation and unveil the goods and services tax (GST). If you are looking for a book that summarises and places in context the key economic policy initiatives of the Modi government, your search should end here.

However, when it comes to assessing the impact of the government's policies on the economy or forecasting the trajectory of economic growth as a result of those policies the book seems to suffer from a flawed analysis. Consider the following: "One can thus infer on the eve of the General Elections, the Indian economy is far more stable in terms of inflation as well as deficit levels than it was exactly five years ago. In terms of growth, there is a marginal improvement, which is likely to get further consolidated and there is definitely a turnaround in investment per se as well as in investors' sentiments, both domestic and foreign." The authors are right in their assessment on the inflation front, but they clearly failed to read the fiscal stress that had already built up in government finances by that time.

On economic growth, the five years of the Modi regime did see an improvement over the previous comparable period. But the authors clearly failed to read the tea leaves when they projected that growth would be boosted in the following months and investments were turning around with an improvement in the sentiments. A cursory look at the state of the economy at present will tell you that neither have investments turned around, nor have the sentiments of investors improved.

Take for instance the chapter on agriculture. It notes how the Modi government brought about a shift in its approach to agriculture by focusing more on income transfers to farmers instead of focusing only on agricultural output. Indeed, the Modi government in the couple of years before the general election did increase the minimum support prices and announce an income support scheme for farmers.

But what about the more fundamental issues of increasing basic investments in agriculture? Yes, agricultural marketing schemes have been launched, though their adoption by various states has been patchy, but the question of better technology and farming practices to improve productivity has been left largely unaddressed. The need to draw more people away from farming by retraining them and creating job opportunities in sectors such as manufacturing and construction is as critical an input for improving the viability of Indian agriculture as other schemes like income transfer.
 

There are many sections in the book where the authors have made many sensible suggestions. For instance, while dealing with the question of jobs, they bemoan the lack or non-availability of regular survey-based data on jobs, without which no proper assessment of the economy can be made. They rightly point out that there can be no substitute for survey-based employment measurement since the reliance on payroll data for assessing jobs growth has serious limitations.

Similar candour and forthrightness are noticeable when the authors explain how the rollout of the Insolvency and Bankruptcy Code helped in tackling the banks' non-performing loans problem. The authors recognise that the launch of the GST did not address many of the design issues that afflicted the new indirect taxes regime, but are hopeful that these glitches would be addressed over time.
 

But the chapter on demonetisation shows the authors' guarded and ambivalent approach to the Modi government's economic policies. They note that demonetisation was a well-intended move, but are of the view that it is a bit early to conclusively pass judgement on its actual impact on growth, reduced dependence on cash, increased digitisation and improved tax compliance.

The highlight of the book is the last chapter, where the authors with remarkable clarity and precision outline the six major reformist steps that the government must initiate if the Indian economy's growth potential has to be realised. Three of these steps pertain to strengthening the institutional framework. Thus, they want a statutory economic council of states to be established to drive consensus on the next generation of economic reforms.
 

Similarly, the authors want an independent budget analysis wing to be set up to strengthen the fiscal responsibility and budget management framework and an investment monitoring and facilitating agency to accelerate the flow of investments. The other three recommendations are for empowering the national statistics commission, prioritising administrative reforms and framing strategies on how India should deal with the global economy to improve Indian industry's competitiveness.  

There can be no quarrel over the merit of these recommendations to revive the Indian economy. But many a bone could be picked with the authors over the manner in which they analysed and assessed several of the Modi government's economic policy initiatives in the last five years. 

Recovery, Reforms and Resilience in India: An Assessment of Modi Macroeconomics

S S Bhandare, C S Deshpande and Mangesh Soman

Konark Publishers

Pages: 184 +XVI; Price: Rs 800