From welfarism, Modi must now shift to structural reforms, writes Rajdeep Sardesai

Prime Minister Narendra Modi has a well-deserved reputation for throwing up catchy phrases and acronyms, which is why his economic policies have often been loosely branded as Modinomics. And yet, now in his sixth year in power and as his government prepares another budget, the question could well be asked: What really is Modinomics?

Recall how, when the prime minister was first sworn in, his cheerleaders were quick to liken the rise of a right of centre government to the onset of a Thatcherite/Reagan like revolution with Modi being projected as a potential Indian equivalent to the 1980s icons of free market economics . As it has turned out, the Modi brand of economic policy has often appeared more old-style Nehruvian socialist in intent than conventional right wing economists would have imagined.

When he came to power, Modi did make all the right noises. “Maximum governance, minimum government”, “Make in India/Stand up India/Start Up India” were the buzzwords promising to unleash the latent energies of Indian entrepreneurship. The reality though does not suggest any significant scaling back of government. Modi’s growth mantra has relied on a public spending driven investment push with half-hearted attempts at PSU disinvestment.

In his first term, Modi was forced into a push back after he was attacked for being a suit-boot ki sarkar by his political opponents during a failed bid at pushing through amendments in land acquisition laws. From late 2015, the Modi government embarked on a conscious policy shift to focus on large-scale welfarist programmes that would imbue the leadership with a pro-poor image. The November 2016 demonetisation decision was the culmination of this image makeover where the prime minister sent out a message that he was engaged in a moral crusade to “purify” the country by teaching the moneyed dhana-seth class a lesson. Politically, it worked wonders with the Bharatiya Janata Party (BJP) winning crucial elections in battleground states like Uttar Pradesh. But did it work in economic terms? An investment and growth slowdown, falling agricultural incomes and rising unemployment would suggest that Modi’s political victory has also sown the seeds of an economic loss of momentum.

Perhaps, in 2014-15, Modi was, as a first-term prime minister, insecure about his immediate political future. As a consummate practitioner of realpolitik, he could see the benefits on focusing fiscal resources on better home delivery of basic necessities like LPG gas cylinders, sanitation and housing for low income groups. But worthy schemes like Ujjwala, Swachh Bharat and Pradhan Mantri Awas Yojana cannot be a substitute for urgent structural reform solutions, even if they might bring in the votes. While, for example, reformist impulses like the successful targeting of cooking gas subsidies for middle classes and the major indirect tax reform through Goods and Services Tax deserve to be applauded, the more politically challenging reforms in key areas like land, labour and banking were deferred for a future date.

That time has come now. In his first term, Modi could get away with placing disruptionist politics above rational economics. The global economic tail winds courtesy benign oil prices were firmly with Modi and yet, at times he chose knee-jerk adventurism like demonetisation over more urgent reform. In Modi 2.0, it’s the domestic political winds that are firmly blowing in his favour. Not since Rajiv Gandhi in 1984 has a government enjoyed such an unassailable majority both within and outside Parliament. Within a year, even the Rajya Sabha will not be able to block long-pending economic legislation.

Rather than invest his political capital in floating trial balloons like “one nation, one poll”, the prime minister needs to bite the bullet on reviving the investment cycle. This won’t be easy. Investors still look at the Modi government with suspicion, uncertain whether the prime minister will stay the course with consistency in policymaking or invoke his brand of populist nationalism where immediate political calculations can lead to a certain ad-hocism in decision-making at times. There are other unanswered troubling questions: For example, will the Reserve Bank of India be allowed to remain autonomous or merely be seen as subservient to government diktat?

That Modi is neither a Thatcher nor a Reagan-style market-driven policy maker is now well established. But could he become an economic visionary in at least the Narasimha Rao mould? Rao, as the leader of a minority government, may have been forced into reform by the unprecedented financial crisis that confronted the Indian economy at the time; Modi as the Supreme Leader has no such compulsion apart from a burning desire to cement his place in history. Which is why it is time for a “new” India to know what Modinomics really stands for.

Post-script: Which neta has had the most mercurial rise in Indian politics in the last decade? No, not Modi, not even Amit Shah, but arguably Nirmala Sitharaman, who from being a newly-inducted BJP spokesperson 10 years ago is now the finance minister. The question is: will the country’s economic revival match Ms Sitharaman’s rapid political growth, or will North Block only be an appendage to an all-powerful Prime Minister’s Office?

Rajdeep Sardesai is a senior journalist and author

The views expressed are personal