Great expectations for Modi’s new term

Asia World

Author: Uma Lele, Institute of Economic Growth and International Association of Agricultural Economists

Indian Prime Minister Narendra Modi’s resounding victory in the world’s largest democracy in the May 2019 election was expected, but not with the large margin he received.

A farmer removes weeds from his wheat field in Upleta town, Gujarat, India (Photo: Reuters/Amit Dave).

A farmer removes weeds from his wheat field in Upleta town, Gujarat, India (Photo: Reuters/Amit Dave).

Opposition parties were in disarray with no vision or program for India other than wanting to defeat Modi. The Indian National Congress party leader Rahul Gandhi lost his seat in the state of Uttar Pradesh, the seat of his great grandfather, grandmother and father. He only kept a seat in parliament and position as leader of the weakened opposition by contesting a second seat in the state of Kerala and now has announced his resignation as leader of the party. While he and his mother will maintain their seats in the parliament, this will be an opportunity for the Congress party to elect a new generation of democratically elected party leaders.

The Nehru–Gandhi dynasty, revered for its role in bringing hope and stability to India’s independence and post-independence periods, had lost its way. By contrast, even among those who do not agree with Modi’s ‘Hindutva’ (Hindu Nationalism) approach, voters have seen him as an honest man of humble origins with a large ambition for India. Unlike his predecessors, the Modi government has been less prone to scandals. Modi is seen to bring the stability needed to pursue an active development program in a country of 1.2 billion people.

Expectations to deliver are high, but so are the challenges. Between 8 to 12 million new productive jobs need to be created annually for a third of the population below the age of 30.

Modi’s former economic advisor Arvind Subramanian has raised doubts since leaving office about whether Indian growth is as high as reported. He argues that a slower growth rate has straddled both the Modi and previous Congress party governments. The IMF and other Indian experts have also acknowledged that Indian GDP numbers have issues.

Even before the elections, farmers throughout India had been protesting low incomes and slow growth. Recognising that agriculture growth has stalled, Modi launched an initiative to double farmers’ incomes by 2022. But the government has dithered on genetically modified crops and other policies in response to domestic opposition.

India needs to accelerate its structural transformation. It has fallen behind its Asian neighbours such as China, Indonesia and Vietnam. The manufacturing sector is yet to respond to the ‘Make in India’ campaign or focus on the substance of improving the ‘Ease of Doing Business in India’ index. The lagging agricultural total factor productivity growth needs to be accelerated and agricultural production diversified more rapidly and stabilised in the face of climate change. Regional disparities need to be narrowed — per capita income in Goa is nearly 15 times that of the poorest state of Bihar.

Half of the population depends on agriculture for a third to half of their income as farm size has declined and rural areas are urbanising rapidly. Despite the ‘Green Revolution’, India remains food insecure by many measures — a fifth of the population still lives in poverty earning US$1.90 per day; 15 per cent (196 million people) are under-nourished; and infant (32 per cent) and under-five (40 per cent) malnourishment rates remain high.

The impacts of climate change are already evident through more frequent and severe floods and droughts, leading to loss of yields. Addressing soil degradation and water scarcity are urgent challenges to increasing the resilience of Indian agriculture. Only 2 per cent of the cropped area is under sustainable agriculture and the Indo–Gangetic Plain is experiencing rapid resource degradation. Australia is collaborating with India to address conservation agriculture issues.

Yet India is a country full of paradoxes, with a promising future. It has an admirable space program, it manages the largest democratic elections fairly, and has the largest universal digital ID system in the world that allows inclusive and cost-effective service delivery.

The Goods and Services Tax (GST) passed unanimously in parliament. Bringing the entire country under a unified indirect taxation system, effective 1 July 2017, has improved tax collection and boosted the development of the Indian economy by removing indirect tax barriers between states. The GST is giving the central government more resources to allocate to states, and tax collection will improve over time.

It is yet to be seen how the new Modi government will respond to achieve its ambitious US$5 trillion economic target by 2024. So far the Modi vision has focused more on giveaways and less on economic growth.

Subsidies to agriculture, which constitute 4 per cent of GDP, need to be replaced by productivity-enhancing investments in research and development. India has historically subsidised agriculture to keep urban food prices low and stable. One of the first acts of Modi’s first administration was a bill to increase clarity on land rights to boost both agricultural and industrial investments, but the reform failed because of vested interests.

The government left states to address the problem but there has been little progress, although it has also embarked on an overdue consolidation of the ministries of agriculture, panchayati raj (local governments) and rural development.

Under India’s constitution, agriculture, forests and water are state domains and, barring a few exceptions, state governments have not responded to the challenges of agricultural and industrial development well.

The central government has new tools, but there is currently debate about whether replacing the Planning Commission with the National Institution for Transforming India has weakened the role of the central government in allocating resources for development planning and monitoring the effectiveness of centrally allocated resources.

The government needs to come up with a considered position on whether another form of development planning and an independent monitoring and evaluation office to routinely assess development effectiveness of expenditures are needed. The agenda on Modi’s plate is large, and his responsibility larger still with a weakened opposition, if he wishes to meet voters’ high expectations.

Dr Uma Lele is a Visiting Researcher at the Institute of Economic Growth and President-Elect of the International Association of Agricultural Economists, Delhi.

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