Modinomics: Design, Implementation, Outcomes, and Prospects

• DOI: http://doi.org/10.1111/aepr.12236
• Author: Raghbendra Jha
• Date: 01 January 2019
• Published date: 01 January 2019

Modinomics: Design, Implementation,

Outcomes, and Prospects

Raghbendra JHA†

Australian National University

This paper presents an analysis of the key elements of Modinomics, defined as “everyone’s par-

ticipation, everyone’s progress.”It investigates the reasons why Modinomics was necessary, the

key elements of Modinomics, and how this policy was implemented. It argues that India’s eco-

nomic policy has had continuity since the economic reform package of 1991, so Modinomics

has involved a high component of better implementation. Nevertheless, there have been some

major policy changes as well. The paper discusses the deep structural reforms of demonetization

and a Goods and Services Tax as well the new Insolvency and Bankruptcy Act. The paper exam-

ines the record of economic growth under Modi as well as new welfare and employment pro-

grams to make economic growth more inclusive. Finally, the paper examines the medium and

long-term growth prospects for India.

Key words: demonetization, economic growth performance, GST, Modinomics, welfare

programs

JEL codes: O00, O10, O50, Q01

Accepted: 21 June 2018

“I want to run the government professionally. Secondly, the biggest crisis in the country is

lack of trust, crisis of stagnancy, where we need to give some momentum. If we start all

this everything will fall into place.”

Prime Ministerial Candidate Narendra Modi in an interview on April 17, 2014.

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1. Introduction: What Is Modinomics?

Preceding his election as Prime Minister (PM) of India in May 2014, the term “Modi-

nomics”was used to describe the economic policies that the incoming PM 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

I am grateful to my discussants, Toru Nishihama and Mohamed Ariff, and other participants in

the JCER conference on the Indian economy for their helpful comments on an earlier draft. The

usual caveat applies.

†Correspondence: Raghbendra Jha, Arndt-Corden Department of Economics, College of Asia

and the Pacific, Australian National University, Acton, ACT 2601, Australia. Email: r.jha@anu.

edu.au

24 © 2018 Japan Center for Economic Research

doi: 10.1111/aepr.12236 Asian Economic Policy Review (2019) 14, 24–41

society, maintain macroeconomic stability, and be environmentally friendly. This

approach was summarized in the widely used election slogan “sabka saath, sabka vikas”

(“everyone’s participation, everyone’sprogress”). Panagariya (2018), first deputy chair-

man of the newly formed Niti Ayog, the agency that replaced the Planning Commission,

considers this slogan to be the essence of Modinomics. Complementary slogans are

“Maximum governance and minimum government”,“Decentralization and cooperative

federalism,”and “Enhanced Connectivity”be it digital/rail/road or air connectivity. In

essence, then, Modinomics implies a strategy of participatory development.

Modinomics did not involve any drastic change in the direction of economic pol-

icy. Indeed. India has had remarkable continuity of economic policy since the 1991

reforms. Modinomics is primarily about better implementation. However, two policy

measures were fine-tuned to suit the prevailing conditions, they are the Insolvency and

Bankruptcy Act (IBA) and the structure and multiplicity of tax rates under the Goods

and Services Tax (GST).

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When Modi became PM this participatory development was portrayed as a multi-

faceted strategy, broadly based on Modi’s successful tenure as Chief Minister (CM) 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 macro-

economic 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.

This paper is an analysis of the key elements of Modinomics. It investigates the rea-

sons why Modinomics was necessary (Section 2); the key elements of Modinomics and

how this policy was implemented (Section 3); and the structural reforms under Modi

(Section 4). Section 5 overviews new employment and welfare programs. Section 6

examines the medium- and long-term prospects for the Indian economy and concludes.

2. The Necessity of Modinomics

During Manmohan Singh’sfirst term as PM (2004–2009) the Indian economy per-

formed well. Contributing to this were good economic management of Singh’s govern-

ment, the momentum provided by the reforms of the preceding Vajpayee government

(1998–2004), and the robust growth of the world economy.

During Singh’s second term in office (2009–2014), India’s economic performance

started to slip. Contributing to this were the food price crisis of 2007–2008, the Global

Financial Crisis (GFC) of 2008–2009, and the drought of 2009. During Singh’s second

term, some policy errors were made. I now discuss some of these errors.

In 2012, the Income Tax Act was amended to grant the government power to tax

deals with retrospective effect. This was used to raise a total tax demand of ₹200 billion

on UK’s Vodafone for its 2007 purchase of Hutchison Whampoa Limited’s Indian

assets. Predictably, this tax had an adverse effect on both domestic and foreign invest-

ment. Second, in the aftermath of the credit freeze following the GFC, the government

Raghbendra Jha Modinomics

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