Modi and Economic Policy

In his first 100 days…

1. Public spending under assault to benefit the rich.

Despite rhetorical campaign promises of impending prosperity under a Modi administration, the past 100 days establish clearly that the key difference in economic policy from the preceding United Progressive Alliance (UPA) government is one of degree and not of kind. This is evident in the budget which signals a further withdrawal of the state from social investment, increasing privatization, and placing corporate interests at the center of all economic policies.  Simultaneously neglect of the agrarian economy persists while rural India reels under the impacts of two decades of neoliberal policies that have resulted in mass dispossession, immiserization and a wave of farmer suicides.

The Modi administration has announced its intentions to slash expenditures that benefit the vast majority of the poor (in the name of fiscal responsibility) even while it does its best to transfer massive amounts of public funds to the rich (in the name of stimulating growth), easing the corporate acquisition of land even as millions face threats of eviction and dispossession as a result. Overall, the economic outlook is grim for the vast majority of Indians who face deprivation and marginalization while the rich have many reasons to celebrate.

2. State assets tagged for fire-sale.

The Modi budget uses the much criticized neoliberal formula of privatization to generate revenues. This budget seeks to raise $13 billion from selling state assets, which is more than four times what the previous United Progressive Alliance (UPA) government was able to raise in the prior budget year. While Modi’s campaign claimed that its policies would be completely different from those of the UPA government, according to several commentators, most of Modi’s budget was a rehash of the outgoing government’s budget. While seeking to curb spending, the Modi budget had no problem discovering two billion rupees to build the world’s largest statue while allocating only three billion rupees for programs for Women’s Rights and Safety.  While critiques that highlight the problems of privatization and of the insidiously named “Public Private Partnerships” are gaining currency in the Global North, the Modi administration has given the green light for 49% Foreign Direct Investment (FDI) in defense and up to 100% for high-speed rail, in the latter case, if it is implemented as a public-private partnership. The Modi government has also publicly announced its intentions to abolish the Planning Commission, thus effectively concentrating power in the Finance ministry and the Prime Minister’s Office.

3. Corporate subsidies spared while public subsidies slashed.

While numerous discussions of cutting subsidies littered the campaign trail, only those subsidies that flow to the 70% of Indians who live on less than $2/day have been cut, unevenly impacting those already considerably disenfranchised. Corporate subsidies and tax credits for the wealthy, on the other hand, have not experienced cuts. While the election manifesto of Modi’s Bharatiya Janata Party (BJP) discussed curbing corruption, the Modi budget did not introduce concrete steps to combat black money. The budget mentions plans for setting up of Real Estate Investment Trusts (REIT’s) and Infrastructure Investment Trusts, both of which are instruments designed primarily to attract foreign investment in land and infrastructure. Alongside the government’s intentions to ease land acquisition in favor of industries, such initiatives will further exacerbate the threats of forcible eviction and lack of compensation faced by millions of ordinary working Indians.  Moreover, since REIT’s primary function as a tool of tax reduction is acknowledged by even the most fervent supporters of neoliberalism, REITS will further encourage speculation while  decreasing tax revenues. The Modi budget is rife with tax credits for corporations and the wealthy, including 10-year tax-holidays for power generation and distribution, and continuing foreign dividend taxation at 15% concessional rates. By the budget’s own admission, “Net Effect of the direct tax proposals to result in revenue loss of Rs. 22,200 crore”.

Previously, in Gujarat…

1. Low wages, extreme income disparity and growing public debt

Wages in Gujarat were lower than the average rates throughout India. And though Gujarat’s per capita income is 20% higher than that of the rest of the country, rural wages are 20% lower and urban wages are 15% lower, evidence of pervasive inequality.  Furthermore, compared to other states in India, wages of male casual labour in Gujarat are at the bottom of the scale in terms of the real incomes they generate. What often goes unmentioned about the Gujarat model is that recorded growth has been contingent on growing debt. The state’s debt increased from Rs 45,301 crore (USD 7.475B) 2002 to Rs. 1,38,978 crore (USD 22B) in 2013.

2. Privatization

When it comes to privatization, Modi’s Gujarat definitely led the way. The Modi government set up several mechanisms such as Public-Private Partnerships, Special Economic Zones and Special Investment Regions; such privatization has had a negative effect on human development and has been a disaster for the environment as has been well documented in the press as well as in official reports. The recently released Comptroller and Auditor General (CAG)  report also castigated Modi’s Gujarat for financial irregularities. (For more detail on Special Economic Zones see Environment section of this report.)

3. Corporate Largesse

During Modi’s reign in Gujarat, multinational conglomerates like the Adani Group, Tata and Reliance accumulated massive profits, destroyed the environment and used concessions from Modi to drain the  state of its resources. For e.g. Adani was given land in Mundhra at a maximum rate of 45c/sq.m. and in turn they leased land to Indian Oil at $11/sq.m. which is a profit of 2444%. Modi’s more than comfortable  relationship with corporations is so widespread that Adani Group and Reliance stock soared when election results began indicating a Modi win. (For more detail on destruction of the environment to support corporate development in Gujarat see Environment section of this report.)

Read more…

  1. Government of India. Key Features of Budget 2014-2015. Accessed September 17, 2014.
  2. Bagchi, Amiya. “Onward March towards Privatisation and Insecurity.” Macroscan. Accessed September 17, 2014.
  3. “CAG Report Slams Gujarat’s Development; Details Grave Financial Irregularities | Latest News & Updates at Daily News & Analysis.” Accessed September 17, 2014.
  4. “Gujarat CAG Report 2014 Copies Are Now Online, Access Them Here | DeshGujarat.” Accessed September 17, 2014.
  5. Government of India, Ministry of Finance. Report of the Committee for Evolving a Composite Development Index of States, September 2, 2013.
  6. “Have Workers in Gujarat Benefited from ‘development’? | Business Line.” Accessed September 17, 2014.
  7. “How an American Lobbying Company Apco Worldwide Markets Narendra Modi to the World – Economic Times.” Accessed September 17, 2014.
  8. “India’s Ambani, Adani Gain $1.3 Billion in a Day on Modi Win – Bloomberg.” Accessed September 17, 2014.
  9. “Mirror, Mirror on the Wall, Which Is the Most Dynamic State of Them All?” Accessed September 17, 2014.
  10. “Narendra Modi’s Track Record in Gujarat Is Not the Runaway Success He Claims – Quartz.” Accessed September 17, 2014.
  11. “Requiem for an Unfinished Dream at Sanhati.” Accessed September 17, 2014.