Questioning the success of Modi’s economic policies

April 23, 2019 17:13
Prime Minister Narendra Modi remains a very strong candidate, but some of his economic policies have not been very successful. Photo: Reuters

The election marathon in India has begun. Divided into seven phases, the election will last until May 19. Prime Minister Narendra Modi remains a strong candidate. His biggest rival is the Indian National Congress, which includes descendants of the Gandhi family.

This sort of rivalry between nationalists and the elite class are also commonly seen in the United States and Europe.

The party in power, Bharatiya Janata Party, is hardly in an enviable position, having lost three places in the previous regional elections at the end of last year.

Also, Modi’s economic policies have not been very successful. Some of them have actually produced adverse effects.

Take the move to abolish the old 500 and 1,000 rupee banknotes in November 2016. As Modi’s government pointed out, the old banknotes were too easy to forge, and they are often used for terrorist activities, bribery, money laundering and drug dealing.

Abolishing the old banknotes could raise the efficiency of tax collection and support plans for a cash-less economy, Modi’s administration said.

However, the drastic decision to introduce the measure overnight has led to panic and chaos, as crowds rushed to convert their old banknotes into new ones. Not long after the new banknotes were issued, fake replicas were found circulating in the market.

In March this year, a BBC report concluded that the whole thing is almost a complete failure.

Another example is the tax reform of July 2017, in which the goods and services tax replaced other levies on the regional level.

Enterprises used to complain about the confusing regional tax system that suffocated their growth.

However, the new tax system has failed to benefit corporations. The tedious and complicated administrative procedures have led to refund delays and widespread discontent.

Last year, A report issued by the World Bank described India's goods and services tax as overly complicated. Moreover, India has the second highest comprehensive tax rate of 28 percent among 115 surveyed countries.

The tax reform has cost Modi a lot in terms of his popularity with the business sector.

The existing Indian legislation on land acquisition is also far from satisfactory. In acquiring land for private projects, for example, the developer has to obtain the approval of over 80 percent of the landowners, while 70 percent approval is required for public-private projects.

According to the legislation, other conditions such as social impact must also be considered. Since he was appointed in 2014, Modi has repeatedly tried to change this, but his proposals were all rejected by the parliament, forcing him to shelve his plans.

In terms of agricultural development, the government once promised to double farmers’ incomes, but as predicted, this is easier said than done, and many farmers were disappointed.

Their discontent was mainly due to an oversupply of agricultural products, which has led to a drop in prices. According to figures from the US Department of Agriculture, India has surpassed Brazil in sugar production, making it the world's biggest country of origin for the commodity.

As a result, the ICE sugar future has dropped to the lowest for the first time in 10 years. Last year, Modi’s government proposed a subsidy for cane sugar exports in an attempt to pacify farmers and producers, but it has triggered a protest with the World Trade Organization from countries such as Australia and Guatemala.

While India’s economy is far from ideal, it remains the country with the fastest economic growth globally. And this is something the masses can understand. This is also one of the reasons why Modi remains popular despite all the policy setbacks.

In April, the Asian Development Bank released its latest projections for India’s GDP growth, adjusting it to 7.2 percent for 2019-20, which is lower than last year's 7.6 percent, amid a drop in investment demand.

China’s GDP growth is expected to be 6.3 percent for the same period.

This article appeared in the Hong Kong Economic Journal on April 16

Translation by Jennifer Wong

[Chinese version 中文版]

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Associate professor and director of Global Studies Programme, Faculty of Social Science, at the Chinese University of Hong Kong; Lead Writer (Global) at the Hong Kong Economic Journal