EPISODE #9 MODINOMICS TAKES CENTRE STAGE
Nirmala Sitharaman’s bold budget has left this government’s unique imprint on the history of economic policy in India.
Hi Everyone,
A very happy Monday to you.
Last week was very eventful.
First, Jeff Bezos quit as CEO of Amazon and retreated to the backroom. In typical Bezos style this pronouncement was communicated in an email to employees and also shared on the company’s Blog. In this age of subterfuge and insecurities of C-suite denizens, full marks to Bezos for transparency and the decision to quit when on top. Also loved his parting message on the mantra of innovation: unshakeable self-belief.
“Keep inventing, and don’t despair when at first the idea looks crazy. Remember to wander. Let curiosity be your compass. It remains Day 1.”
Beginning 1997, Bezos used to write an open letter to the company’s shareholders. Sharing the first and the last one in 2020. If you haven’t already please do check it out.
The other BIG development of the week was the presentation of the Union Budget. Clearly, Finance Minister Nirmala Sitharaman’s third essay hit the bulls eye. She actually answered the query I had posed in last week’s post as to whether this was going to be her moment. Most of us are being distracted by the ‘shock and awe’ moment being experienced by the stock markets: reclaiming Mt 50K.
But this Budget is much more than just a love fest with the Sensex. This is the topic I propose to explore and place in a historical context for all of you. In short Modinomics just claimed a spot on the high table.
Sharing a somewhat similar claim by the brilliant economist Sajjid Chinoy of JP Morgan in a post-budget interview to BloombergQuint. Sajjid too argues this is a paradigm shift.
Finally the Reserve Bank of India (RBI) too had its day in the sun. It has introduced the options to directly own G-secs or securities floated by the government of India. As this explainer argues this move is really BIG. It will, among other things, broaden and deepen the debt market. The political economy of the move is that a regular citizen can actually own a piece of government action—a government they elected—thereby deepening their stake in Indian democracy. And of course the financialisation of savings away from traditional instruments like gold—G-secs are as secure.
And thank you Mohd Aram for the picture.
Once you read this post, please, please do share a comment or drop me an email with your thoughts or ping me on twitter at @capitalcalculus. It is key to growing this newsletter and a conversation among all of us. A big shout out to Kapil, Rajit, Balesh, Yugainder and Vandana B for going the extra mile to share their thoughts on my previous column. Would be nice if more of you joined the act. And, many thanks to readers hitting the like button; more the merrier 😊.
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Read on
THE NEW BUDGET LEXICON
Last Monday Nirmala Sitharaman presented her third Union Budget—coincidentally all of them in the new term of the Bharatiya Janata Party (BJP)-led National Democratic Alliance at the helm. By all counts it was a success. Even the otherwise voluble critics were stunned into silence.
It is tempting to get overwhelmed with the euphoria sweeping the stock markets, especially with your own investments matching the strides of the Sensex. But this would be an oversight. As the adage goes, a case of missing the woods for the trees.
Most of the budget details have already been discussed in the media. I too have, in the course of the last one week, written for three different news platforms to argue my point of view. Those of you keen for a deep dive on the Budget please do click the links I share below.
The first piece published in the Dubai-based Khaleej Times summed up this year’s Budget as the first instance in recent memory wherein public policy overpromised and overdelivered.
The second piece was published in the Open magazine, a Delhi-based weekly. I teamed up with Haseeb Drabu, an old India hand (having served both in government and the private sector), brilliant economist and the former finance minister of Jammu and Kashmir, to do the cover story for Open in which we claim this to be a seminal budget, like four others before it, which hits a fundamental reset on the Indian economy.
The final piece in the budget trilogy (if I may use the term) was my monthly column for the Economic Times. In this I flesh out the example of the big push to disinvestment of the public sector to argue how Sitharaman has undertaken a fundamental reset of the Budget lexicon and in the process inked her legacy.
Modinomics
After the much controversial demonetisation of high value currencies the economic policy of this regime led by Prime Minister Narendra Modi had begun to acquire a moniker: Modinomics. Initially its usage was more like a pejorative; derisively suggesting that this regime was clueless on fixing the Indian economy.
It is my case that all this changed with Sitharaman’s third Union Budget. Her budget has unequivocally left this government’s unique imprint on economic policy. The high priests will be loath to admit it though. But that doesn’t deny the fact.
If you look back at 72 years of India’s economic history, there are broadly four such defining eras. And each, given the nature of Indian democracy with the PM being the first among equals, is linked to the then political leadership. This is because in India any economic change, especially the budget, has to pass the smell test conducted by the PM. Yes the authorship is always that of the FM.
The first one was Nehrunomics. This was the period when an India, having escaped the clutches of colonial rule, was looking to build the economy from scratch. The fundamental ideology then was that the commanding heights of the economy would be occupied by the public sector. Many, mostly with the benefit of hindsight, question this choice. But remember, Jawaharlal Nehru, like Modi, was elected as the PM of India and empowered to make his choices.
However, the contradictions of this command-control regime, drawn from the then planning model pursued by the Soviet Union, began to catch up. But for a cruel turn of fate, India may have said goodbye to this regime under the brief leadership of Lal Bahadur Shastri. PM Shastri was pragmatic and leaned towards market forces; or at the least did not want to put all his eggs in the public sector basket.
His abrupt demise and the entry of Indira Gandhi on the stage forced another rejig. There were two phases of Indiranomics. One in which she pursued populism in the 1970s to mitigate the ill effects of Nehrunomics. The second phase was when she was restored to power in 1980. By then she had realised that denying market forces their play was severely damaging the economy. But her pivot had to be subtle as her politics was dyed too deeply in being pro-poor.
Exactly how the term reforms by stealth got coined. But let the truth be told. The blueprint for the big push for reforms which happened 11 years later was hatched in the Sixth Five Year Plan penned by Gandhi’s regime.
The third phase is of course Raonomics. While bulk of the credit for the 1991 reforms goes to FM Manmohan Singh (deservedly so), the real architect was Rao. The big move on de-licensing of industries was undertaken by the Industry Ministry, which was under Rao’s direct charge. Also, much of the fine tuning of the package was actually undertaken in the short-lived regime of Prime Minister Chandrashekhar. The common thread was Amar Nath Verma, the powerful bureaucrat who worked with the V P Singh, Chandrashekhar and Rao administrations. It was Verma who ensured the blueprint, in the making for several years in the government’s backroom, was brought to the notice of Rao.
Now we add Modinomics to this mix. Its biggest contribution has been the boldness and willingness of PM Modi to use his hard earned social capital in pushing, which on the face of things, are unpopular reforms. He has had the courage to walk the talk on fundamental change—something that has been debated in Lutyens Delhi from the 1980s.
Yes, he has also buried the notion of reforms by stealth. Like in the new farm laws, PM is risking a fresh backlash for the budget proposal to privatise or shut a raft of ‘non-strategic’ central public sector enterprises. Yet, if the latest ‘mood of the nation’ conducted by India Today holds up, then the momentum favours the incumbent regime.
To sum up then, each of these eras have forced a paradigm shift by stoking structural change. While some moves may have backfired, there is no doubt that all of them were key building blocks in the evolution of economic policy. And this is the political economy of change in a democracy like India.
Recommended Reading
I started this week’s post with a letter from Jeff Bezos. Only appropriate that I end it with another annual letter: this one from Bill and Melinda Gates.
They have rightly put the spotlight back on the covid-19 pandemic, which originated in Wuhan, China, and argue, “The world has an important opportunity to turn the hard-won lessons of this pandemic into a healthier, more equal future for all.”
“When it comes to COVID-19, we are optimistic that the end of the beginning is near. We are also realistic about what it’s taken to get here: the largest public health effort in the history of the world—one involving policymakers, researchers, healthcare workers, business leaders, grassroots organizers, religious communities, and so many others working together in new ways.”
Till we meet again next week. Stay safe.
Excellent summary of socio political economic transition !
Comprehensive coverage of economic policy in India. Nehru's five year plans, Indira's nationalisation of banks, liberalization by Manmohan Singh and make in India of Modieconomics; infrastructure and indigenous manufacture of defence equipment are the giant steps. The write up sparked a chain of thought. Keep us posted Anil. Truly enlightening !