Modi's Economic Reforms in India: Editors' Overview

• Published date: 01 January 2019
• DOI: http://doi.org/10.1111/aepr.12254
• Author: Shujiro Urata,Colin McKenzie,Takatoshi Ito,Kazumasa Iwata
• Date: 01 January 2019

Modi’s Economic Reforms in India: Editors’

Overview

Takatoshi ITO,

1

Kazumasa IWATA,

2

Colin MCKENZIE

3

†and Shujiro URATA

4

1

Columbia University,

2

Japan Center for Economic Research,

3

Keio University and

4

Waseda University

JEL codes: E01, E52, E58, F13, F21, F23, I31, L26, N00, O00, O10, O14, O17, O18, O50, O53,

Q01, R11, R12

Accepted: 12 November 2018

1. Modi’s Economic Reforms in India

India is now regarded as a very promising emerging market economy. Continuing eco-

nomic reforms are credited to be a source of robust economic growth. In the modern

history of the Indian economy, the year 1991 is commonly identified as an epoch,

transforming the Indian economy from a planned economy to a market-friendly econ-

omy. Reforms were needed to rescue the Indian economy from a balance of payments

crisis. The 1991 reforms moved the economy away from favoring the public sector to a

more market oriented economy, with a much larger role for the private sector, with a

liberalization of import controls and a much greater opening up to foreign direct

investment (FDI).

Prime Minister Narasimha Rao and Minister of Finance Manmohan Singh, from

June 1991 to May 1996 are credited with carrying out liberalization programs, some of

which were advised by the International Monetary Fund (IMF) and the World Bank.

Prime Minister Rao belonged to the Congress Party which had previously carried out

economic policies in the planned economy tradition. In that sense, the regime change

was a surprise, even though part of the changes were forced on India by the IMF.

After three successive short-lived administrations between May 1996 and March

1998, Atal Vajpayee of the Bharatiya Janata Party (BJP) ruled from March 1998 to

May 2004. Prime Minister Vajpayee’s administration was succeeded by Prime Minister

Manmohan Singh, who led the government from May 2004 to May 2014. Manmohan

Singh was Finance Minister in the epoch making government that implemented the

1991 reforms. At this time, the Congress Party was leading the United Progressive Alli-

ance. Montek Singh Ahluwalia, the author of the second paper in this issue

(Ahluwalia, 2018), was Deputy Chairman of the Planning Commission.

Narendra Modi, who belonged to the BJP, was elected to be Prime Minister in May

2014. Many foreign observers regard Prime Minister Modi as another epoch-making

†Correspondence: Colin McKenzie, Faculty of Economics, Keio University, 2-15-45 Mita, Tokyo

108-8345, Japan. Email: mckenzie@z8.keio.jp

© 2019 Japan Center for Economic Research 1

doi: 10.1111/aepr.12254 Asian Economic Policy Review (2019) 14, 1–23

prime minister who is pushing for markets with less distortions. He introduced a

Goods and Services Tax (GST), and eliminated some of the State sales taxes; he is pro-

moting more infrastructure investment; and he led a demonetization that replaced old

bank notes with new bank notes. His diplomacy is emphasizing an alliance with the

USA, Japan, and Australia.

Under the Modi government, the economic growth rate has risen, and the Indian

growth rate is now above the Chinese growth rate, although the level of India’s per

capita income is still much lower than China’s.

2. Summary of Papers and Discussions

This section summarizes the papers presented at the Twenty-Seventh Asian Economic

Policy Review Conference held in Tokyo on 7 April 2018, the comments by the

assigned discussants, and the general discussion of each paper.

2.1 Jha on Modinomics’design, implementation, outcomes, and future prospects

Raghbendra Jha (2018) discusses the design, implementation, outcomes and prospects

for “Modinomics”in India. Preceding Narendra Modi’s election as Prime Minister in

May 2014, the term “Modinomics”was used to describe the economic policies that the

incoming Prime Minister was expected to adopt to ensure that India returned to the

high growth trajectory that it had enjoyed in the early 2000s. This higher projected

growth would be more inclusive because, through good governance, the benefits of

such growth would reach large sections of society, maintain macroeconomic stability,

and be environmentally friendly. This was described as a policy of “everyone’s partici-

pation, everyone’s progress,”that is, participatory development.

Jha highlights the remarkable continuity of economic policy since the 1991 reforms.

He does not see Modninomics as involving any drastic change in the direction of eco-

nomic policy, but rather Modinomics is primarily about better implementation. How-

ever, two policy measures, the Insolvency and Bankruptcy Act (IBA) and the structure

and multiplicity of tax rates under the GST, were fine-tuned to suit the prevailing con-

ditions. The IBA was used to address the commercial banks’accumulated nonperform-

ing assets, which had burgeoned in the aftermath of the global financial crisis (GFC) of

2008–2009. The GST was enacted to comprehensively overhaul India’s indirect tax

structure and to make India one integrated market.

This participatory development was portrayed as a multi-faceted strategy, broadly

based on Modi’s successful tenure as Chief Minister of Gujarat state (2002–2014). The

various components of this strategy can be grouped under three broad headings:

(i) the restoration of trust in government and the public policy process; (ii) the creation

of conditions for rapid economic growth with macroeconomic stability and increased

participation by the masses; and (iii) implementing deep structural reforms designed to

place the economy on a higher more inclusive growth track for the medium term.

Modi’s Economic Reforms in India: Editors’Overview Takatoshi Ito et al.

2© 2019 Japan Center for Economic Research