A Second Term For Modi? Yes.

With the general election process set to begin in less than a month from now, it is a good time to evaluate the performance of the National Democratic Alliance (NDA) government over the last five years and ask if it deserves a second term. Has Narendra Modi done enough to deserve a second shot as Prime Minister of India?

You can also read this article in Hindi- मोदी के लिए एक दूसरा कार्यकाल? जी हाँ।

The beneficial results of policy interventions seldom accrue within the ambit of one electoral term. As a general rule, one should give most incumbents a second term as long as they are seen to have made strong efforts to improve the country’s economic standing and solve its people’s problems. The thing to judge in the first term of any government is whether the process of change has begun and is heading in the right direction, and whether it deserves another term to complete the job it has begun.

The United Progressive Alliance (UPA), despite doing no reforms in its first term, was lucky enough to have been lifted by a global economic boom as soon as it came to power in 2004. Its high-spending policies were seen as irresponsible with hindsight, but it did lift more people out of poverty than almost any government previously. The electorate rightly gave it the benefit of doubt and a second term — which it messed up thoroughly.

Narendra Modi and the NDA got a poor inheritance — a legacy of crony capitalism, a sharply slowing economy, the twin fiscal and current account deficits, the twin balance-sheet problem, and high inflation — and still managed to introduce major reforms that will deliver over the medium to long term. Having delivered from this low base, there is already a prima facie case for giving it a second term.

However, we still need to evaluate if it deserves a second term for the specific things it did right, and the ones it did wrong, to arrive at a more informed opinion in areas ranging from economics to internal and external security and diplomacy, among other things.

It is best to start with the government’s failures first. That, at the end of nearly five years, we still are not even halfway to solving many of our basic problems like farm distress, lack of jobs, and law and order is something the NDA must take some of the blame for. True, these problems were not created by it, but anyone who enjoys power for five years should be able to say this problem has abated to some level. That cannot be said easily.

The NDA can point out that it got two years of back-to-back droughts, and a situation of falling rural wages and rising rural unemployment. But it compounded the problem in 2016, the first year of a rural recovery on the back of a good monsoon, when it launched demonetisation of high-value notes. This impacted the cash-based rural and informal sector the most and delayed relief to the farm sector. Palliatives like neem-coating of urea, increasing MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) allocations and offering a better crop insurance scheme did not amount to much, forcing state and central governments to offer ruinous pre-election non-remedies like massive hikes in minimum support prices and farm loan waivers as panacea. As at the start of 2019, we still have no long-term plan to alleviate rural distress. That must count as Modi’s big failure.

On jobs, the NDA got lulled into a false sense of comfort as gross domestic product (GDP) growth rates started showing spikes almost immediately after it came to power in 2014. It took the government nearly three years to realise that growth has come without too many additional jobs. Even this realisation dawned only after demonetisation was shown by private data agencies to have taken a toll on jobs, and agitations were launched by many landed castes for job reservations. This indicated that farm distress was as much about lack of jobs as poor incomes from unviable farming in small plots of land. In 2017 and 2018, the government moved to offer subventions for employers willing to take on more employees, and in 2018 it extended fixed-term labour contracts to all industries beyond textiles. But the impact on net job creation is yet to be visible.

On the plus side, the Modi government has rightly stressed formalisation of jobs, both by encouraging more companies to come under the umbrella of the Employees' Provident Fund Organisation (EPFO) and easing labour laws on apprenticeships, but the short-term impact of formalisation — a necessary condition for creating better quality jobs over time — may be negative for jobs growth. Formalisation raises wage costs, and hence slows down jobs expansion.

The big failure of the NDA is not that it has not created jobs — that would be an unfair assumption — but that it has not even tried to estimate the nature of the jobs challenge by obtaining accurate data on unemployment. If a government has to depend on less-than-reliable private estimates of unemployment, it ought to have bankrolled a better jobs survey much earlier. The latest National Sample Survey Office (NSSO) unemployment data may not be complimentary to the NDA, but the only counter to it is better data. What stopped Modi from putting in the right resources to get this information that would have helped it evolve the right job-creating policies?

Apart from farms and jobs, the NDA was also late in recognising the gravity of the banking crisis. It was well-known to economists that banks had loaded up on bad debts and were window-dressing the bad news when the Modi government made to power. But the government addressed the issues wrongly. Recapitalisation and write-offs should have come upfront, and bank consolidation and privatisation next. But instead the Modi government opted for constituting a Bank Boards Bureau, which achieved nothing. Two years wasted away, and the problem of bad loans was addressed only in 2017 with the enactment of the Insolvency and Bankruptcy Code (IBC) and huge recapitalisation of weak public sector banks. It has come too late for the Modi government to show results in its first term. On the plus side, one must admit that this issue is being addressed correctly, and should show results from fiscal 2019-20 onwards.

These failures are being rectified, and do not take anything away from the larger successes achieved by the government elsewhere: in particular, the introduction of the goods and services tax (GST), the IBC, the clean-up of the subsidy delivery system using Aadhaar IDs and direct cash transfers, greater financial inclusion by extending banking facilities to nearly 100 per cent of households, etc. One can say that these reforms are yet to deliver big, and GST is far from its final steady state, but we are getting there. At the very least, we can say that GST has removed a handful of other taxes and freed our highways from being clogged with smoke-belching trucks idling at check-nakas and octroi posts.

The IBC is steadily eradicating the phenomenon of crony capitalism by forcing big businesses to pay for their mistakes or crookery. If private sector losses were earlier nationalised and the profits privatised, in the IBC era, businessmen are losing their best businesses and paying for their sins of omission and commission. Banks are being cleaned up, consolidated, and recapitalised, and they are no longer being incentivised to hide their losses under financial subterfuge.

On the macroeconomic front, despite recent fiscal slippages due to the offer of election-related freebies, the fisc is in reasonably good shape, and inflation completely tamed. This was something the UPA never managed to achieve, despite its boat being lifted by the global economic boom. With private capacity to invest retarded by the double-balance-sheet problem, the Modi government has done well to channel high revenues from oil taxes to building highways and rural roads, among other things. Private investment should revive as the IBC process starts delivering old companies to new owners and banks recover some of their dues, leaving exports as the only major area of worry. Clearly, this revival depends on freeing agriculture to export more and improving the competitiveness of Indian manufacturing. Agri reforms is a job for Modi’s second term.

Another reason to question the Modi economic record is his failure to see privatisation as key to preserving state resources. White elephants like Air India, BSNL and many banks are eating into resources that ideally ought to go towards building social and physical infrastructure. Modi has not been warm to the idea of privatisation of public sector entities so far, but appears to have realised the futility of feeding perennial white elephants like Air India from taxpayer funds. The Air India privatisation effort in 2018 failed due to poor scheme design, and the process of restarting the process will not gather steam till a new government takes over.

On the social side, universal financial inclusion is now closer to reality with the Jan Dhan banking scheme. Contributory old age pension schemes are available to all, medical insurance benefits are being extended to the poorest half of India through Ayushman Bharat, and power has reached the last village and will soon light up the last home. Cooking gas has reached 80-90 per cent of households, thus weaning citizens away from burning wood or demanding subsidised kerosene. Even better, for the first time in Indian history, a prime minister has made toilet-building for homes a personal priority, and the World Health Organization estimates that the elimination of open defecation, once Swachch Bharat is 100 per cent implemented by October 2019, will save three lakh children from premature deaths due to diarrhoea and protein-related malnutrition.

On the external front, India’s global profile has never been higher, and Indian diplomacy has managed to catapult the country into the exclusive FMCT (Fissile Material Cutoff Treaty) club. However, there is much work to do, as China continues to block our entry into the Nuclear Suppliers’ Group despite US support. The worry is the China-Pakistan nexus, and its implications for Indian security.

The advent of Donald Trump and his protectionist policies appear to have forced China to reduce its anti-Indian posturing after the Doklam standoff, but India needs to continue strengthening its military preparedness and diplomatic efforts to contain Chinese expansionism. On Pakistan, the Modi government has maintained a more aggressive stance of retaliating for acts of terrorism, but so far the results are underwhelming. But this is not a pure Modi failure, but one involving all Indian governments so far. Policies cannot be driven by grand gestures and goodwill alone. They need more teeth, and long sustaining power.

On Jammu and Kashmir, after a flawed attempt to partner Peoples Democratic Party’s (PDP’s) Mehbooba Mufti to form a government in the state, the Centre is now back on track. It is correctly prioritising the reduction of terrorism before trying to normalise politics in the state. Much remains to be done, but withdrawing support to the soft-on-separatism PDP was a good first step. In the North-East, the Bharatiya Janata Party (BJP) has done more than any other government in the past to bring it into the mainstream.

The recent anger in the North East over the Citizenship Amendment Bill is misguided and short-sighted. This bill is necessary to ensure that persecuted minorities from Bangladesh (not to speak of Pakistan) are given a fast track to Indian citizenship, and needs to be pursued in a Modi second term. The only assurance the North East needs is that the burden will be shared by the rest of the country. Illegal migrants cannot be only Assam’s problem.

If given a second term, the Modi government needs to focus on many reforms that received little attention so far. These include: creating a transparent and politically neutral law and order machinery, making the Central Bureau of Investigation more transparent and accountable; cleaning up political funding; reforming the judiciary, especially the process of judicial selection and accountability; devolving more powers to the states; and reforming two key factor markets, land and labour, so that more jobs can be created.

The Modi government’s performance in its first term, and its learnings from its own failures and half-successes, make it imperative to reward it with a second term so that the country’s agenda can be taken forward. If the electorate rejects Modi, it will condemn the country to another few years of trial and error, delaying the recovery that Modi has worked so hard for.

It is for these reasons that Swarajya endorses the NDA under Narendra Modi for a second term in power.