Pro-Poor Micro, Pro-Markets Macro: Defying Dogmas, Modinomics Is Emerging As A Clever Strategy For Governments To Adopt

One of the most satisfying chapters to read in 2020-21 Economic Survey is about the progress made by the Indian state in expanding access to ‘the bare necessities’ like housing, water, sanitation, electricity and clean cooking fuel to its citizens over the last few years.

Between 2012 and 2018, not only has India made great strides on this front, but the disparities in access to these basic needs between the states have also declined. Moreover, the fact that improved access to the bare necessities has had a positive impact on health indicators is a cherry on the top.

The BNI is constructed using 26 indicators on five dimensions — water, sanitation, housing, micro-environment (household drainage system, presence/absence of flies/mosquitos in house), and other facilities (kitchen, bathroom, ventilation, LPG, etc). [Read the survey for more details]

Here is the change that has taken place in rural and urban India respectively.

This is a stupendous performance which wouldn’t have been possible without Prime Minister Narendra Modi’s key projects — Swachh Bharat Mission, Pradhan Mantri Awaas Yojana, Saubhagya scheme and Pradhan Mantri Ujjawala Yojana.

These schemes by the Centre were targeted at India’s poorest section of the society and aimed at delivering concrete tangibles to them. While the survey focuses its energies on their impact on improving the lives of millions of people, the results of 2019 general election proved their electoral potential too.

The Modi government opened 34 crore banks accounts for the poor who got direct benefit transfers eliminating the middlemen — a big source of corruption.

More than 9 crore toilets were constructed, over 7 crore households received cooking gas connections, 15 crore Mudra loans were disbursed and around 3 crore beneficiaries were enrolled in national health insurance scheme — all before the Lok Sabha election. Then there was an announcement of Rs 6,000 annual cash transfer to over 12 crore farming households in the interim budget before the polls.

These direct interventions in people’s lives were the main reason why 27 crore people voted to re-elect Narendra Modi as Prime Minister. Of course, it would be farcical to ignore the role of Modi’s record on national security, particularly Pakistan (surgical strikes and Balakot air strike) and China (standing up to it in Doklam).

His image as a Hindutva vanguard among the larger Sangh and the BJP cadre provided solid grounding even though his first term had put all the issues dear to his core support base on the back burner. However, his open display of religiosity and frequent temple visits did make up for lack of action for the time being.

Modi’s clever blending of soft Hindutva, hardcore nationalism and pro-poor image delivered 303 seats for his party. What shouldn’t be forgotten in all this is Amit Shah’s role who didn’t join the government but worked to expand the base of the party as its president.

It seemed that Modi had studied the reasons for the BJP loss in 2004 more intelligently than anyone else and reached a conclusion that it was due to poor perception of Vajpayee-Advani duo on national security, Hindutva, perception among poor people and total disregard for strengthening the party to win elections.

It’s not that Modi was only focusing on welfare for the poor. He was also trying to push reforms albeit with caution. Nonetheless, his government managed to implement the goods and services tax (which drained most of its energies and political capital) and also pass the crucial Insolvency and Bankruptcy Code.

But all this was not enough to satisfy the Himalayan expectations from him by his cheerleaders who had seen reflections of Ronald Reagan and Margaret Thatcher in him.

And after the first budget of his second term, they had all given up on him. They had to reconcile with the fact that at least Modi was now delivering on Hindutva agenda. Abolition of Article 370 in Jammu and Kashmir, passing Citizenship Amendment Act and the Supreme Court awarding Ram Janmabhoomi case in favour of the Hindu side more than made up for lack of action on economic reforms.

But they were wrong to give up on Modi who was about to unleash the reform blitz. First, the corporate tax rates were slashed to globally competitive level. The privatisation of major public sector units like Bharat Petroleum, Air India, Shipping Corporation, Concor, etc, is already underway.

Now, two banks and one general insurance company has been added to the ever growing list. The labour laws on hiring and firing were relaxed. The three farms laws, demanded by agricultural experts and farm unions for decades, were passed.

In his first term, Modi didn’t choose to be an incremental reformer while prioritising delivering bare necessities to crores of people because he was a socialist at heart but because he understood India’s political economy better than anyone. And he reaped rich dividends as a result.

If he is on a reform spree now, it’s not because the lost pro-market soul in him has awakened; it’s because he is no longer afraid of his party being branded as a suit boot ki sarkar. Having established his credentials as a pro-poor messiah, he can afford to be bolder on the reform front.

This is not the first time Modi has changed tack and reinvented himself. In fact, that has been one of the important constants in his life. He was Hindu hriday samrat in 2002 Gujarat assembly election. By the next election, he had transformed himself into a vikas purush.

By 2012, he had developed the Gujarat model based on which he was seeking a mandate from Gujaratis to go to Delhi. Post 2014, he transformed himself into a pro-poor Prime Minister. And now, it’s reformist Modi who is on a mission to create an Atmanirbhar Bharat.

Those who are accustomed to boxing one’s views into strict orthodoxies may see cognitive dissonance in Modi’s economic worldview. But Modi has defied the prevalent dogmas and shown a third way. He is pro-poor, pro-welfare and a socialist in his microeconomics and pro-markets or capitalist in his macroeconomics. While the former has delivered for him electorally in spades, the jury is out on the latter for it would take some time before the reforms start paying off and reflect in form of high growth.

The fact is Modi is the only Prime Minister to openly champion economic reforms yet enjoy massive support among the poor. This has been made possible thanks to his clever handling of the political economy.

This balancing path paved by him is what the doctor ordered for a country like India which is badly in need of reforms to create jobs and increase the size of the economy but whose masses are still seeped in the same socialist mindset which considers profit a dirty word.

In fact, this seems to be the only sustainable way — delivering concrete tangible benefits directly to the poor thereby creating enough political capital to push pro-market reforms on the side. The growing size of the pie will in turn allow the Indian state to help more poor people in a more significant way.

In the short run, the government throwing away fiscal conservatism should provide enough room to binge on micro-welfarism championed by Modi.

The real challenge for the prime minister is now to navigate the minefield of his political enemies — foreign and domestic — which populate influential fields of media, academia and popular culture. These actors will try to exploit the sentiments of determined minorities who will be affected by Modi’s policies, like the rich farmers and middlemen in Punjab and Haryana are being rallied to stand in the way of farm reforms.

Bank or PSU unions affected by privatisation may be next. Many of these potential mutinies will need to be nipped in bud and require more deft political manoeuvring, going ahead.

Modi has his work cut out for him.