Modi’s Second Term Economic Development Roadmap

Akshara Baru, Asia Society Policy Institute

Republished with full permission of the author. Originally published by Asia Society. Click here to view the original article.

In 2019, India witnessed the Bharatiya Janata Party (BJP), led by Narendra Modi, win an unprecedented and rather unexpected majority in the general elections. Securing a larger majority than in 2014, both in terms of the number of seats in the Parliament and the absolute percentage of votes, the party won a clear mandate in its second term.

Modi wasted no time utilizing that mandate to pass tough and divisive policies. In the first months of his second term, he enacted several controversial decisions, including revoking the special autonomy of the state of Jammu and Kashmir, criminalizing the practice of ‘triple talaq’, facilitating the implementation of the controversial National Register for Citizens list in the state of Assam, and passing the Citizenship Amendment Bill which critics argue discriminates on the basis of religion.

With these initiatives dominating much of the political conversation, the government’s development agenda has been overshadowed. Yet, it will certainly be a priority for Modi in the second term. After all, the government credits its massive election victory to public support for its first term economic development accomplishments.

So what can we expect from Modi on this front in the new decade?

It is fitting to revisit Modi’s economic development record during the first term, as he is likely to build on that work. Modi uses his Independence Day speeches to announce key policy objectives; therefore, this piece will analyze the most significant announcements made by the Prime Minister in his 2014 and 2019 speeches. It benchmarks the announcements made in 2014 against the government’s policies and achievements in the first term to predict what the second term development agenda is likely to be.

Modi’s First Term

Clean India Mission (Swaach Bharat Abhiyaan)

In his 2014 speech, the Prime Minister flagged increasing access to clean toilets for women and girls as an urgent policy objective. In tandem with his announcement, the Clean India mission began in 2015, with the vision of achieving universal sanitation coverage that would include universal access to toilets across urban and rural areas in India before October 2019. Even though the target was quite ambitious for a country with a mere 38.7 % in 2014, the Government of India managed to achieve its goal by declaring India Open Defecation Free in 2019. Government data reveals that the government constructed over 100 million toilets in 5 years, covering close to 0.6 million villages.

However, concerns relating to usability, usage, and waste disposal in the toilets continue to persist. The most pressing concern is limited piped water connectivity for (Individual Household Latrines) IHHLs. The Ministry of Housing and Urban Affairs 2018 report reveals that 54% of urban households and less than 20% of rural households in India have a water connection. Research also shows that there is limited toilet usage, particularly in rural areas. In many rural areas in North India, 40% of people still continue to defecate in the open. Therefore, though the scheme should be celebrated for significantly furthering India’s sanitation landscape, a lot needs to done before India can claim a clean, hygienic, and open defecation free India.

Make in India and Skill India (Pradhan Mantri Kaushal Vikas Yojana)

Another flagship scheme that Modi announced in 2014 was the Make in India program, which sought to boost the manufacturing sector in India by transforming India into an attractive investment destination. India has made significant strides with its World Bank’s Ease of Doing Business Index rank, moving from 142 in 2014 to 63 in 2019. Six new industrial corridors were developed and India also received some large foreign investments in manufacturing. Prime Minister Modi engaged in extensive economic diplomacy, heralding Make in India around the world in front of major companies to attract foreign direct investment (FDI). And yet, the scheme failed to match its ambitious goals of making India a global manufacturing hub, increasing the contribution of the manufacturing sector in India to 25% of the GDP by 2025, and creating 100 million jobs. Data shows that there was little difference between the FDI inflows from 2009 to 2014 and from 2014 to 2019.[1] Further, with the unemployment rate at a 45-year high of 6.1%, the investments India did get do not seem to be converting into job creation quickly enough. 

India is plagued by quantity over quality when it comes to human capital, with the lack of skilled labor and adequate employment opportunities for college-graduates a major challenge. Modi announced the Skill India mission to complement Make in India by training 10 million youth by 2020. However, the scheme gained limited traction. In its 2018 report, the Parliamentary Standing Committee on Labor noted a ‘lack of requisite efficiency’ in achieving the required objectives. The achieved targets under the program fell short in enrolment by 64%, placements by 90%, and certification by 74%. More troubling is the fact that surveys by the World Economic Forum found that a majority of respondents were unaware of the skilling programs run by the government in their area.

Financial Inclusion Scheme (Pradhan Mantri Jan-Dhan Yojana)

Modi also announced one of the world’s biggest financial inclusion programs in his 2014 speech. Since its inception, the initiative has been successful in opening around 380 million bank accounts. Today, 80 percent of adults in India have access to a bank account, which has significantly reduced the inefficiencies in cash transfers to beneficiaries. However, the objective of financial inclusion goes beyond merely providing access to bank accounts. Concerns such as limited usage of the bank accounts, and other issues such as availability of credit, insurance and payments to the beneficiaries, and the vast differences in the benefits across states and within communities, continue to persist.

Modi’s speech in 2014 presented a clear economic development roadmap that his government then tried to implement in his first term. To its credit, the Modi government was successful in ending the inertia across diverse sectors of development. Since the government set ambitious targets, its accomplishments have laudable but mixed. As the Modi government works toward new objectives in its second term, it is essential to recalibrate its old goals, which remain critical for India’s development.

Looking Ahead – Modi 2.0

In his August 2019 Independence Day speech, Modi explained and celebrated the policy decisions he made immediately after his reelection, including on Kashmir, many of which had been longstanding objectives for the BJP. With a larger majority and a renewed impetus post-election, Modi also unveiled a new set of economic development promises for his next term. The underlying theme that will drive the government is making India a $5 trillion economy by 2024. While the overarching vision is typical Modi in its ambition, the Prime Minister also described a few concrete challenges in his speech that are likely to command the government’s attention during the second term. This includes water conservation (of a theme with Clean India), the elimination of single-use plastic, improved healthcare access, and housing for all. If one wants to understand Modi’s economic development priorities for his second term, these are the areas to pay attention to.

Water Conservation

Modi used his Independence Day address to pledging an investment of $52 billion toward water conservation and access. The government established a new Ministry of Jal Shakti (Water) at the start of the new term, bringing together the existing Ministry of Water Resources, Ministry of River Development and Ganga Rejuvenation, and Ministry of Water and Sanitation to develop a more integrated approach to water concerns in India. Two flagship initiatives – Jan Shakti Abhiyaan (JSA), a mission to leverage citizen participation for water conservation, and the Jal Jeevan Mission (JJM), which seeks to provide water connection to all households by 2024 – have been fast-tracked to boost access and conservation of water. Providing households with water connections will be crucial to the success of the government’s Clean India Mission as well.

With over 1500 water-stressed blocks in 256 districts the Modi government is right to focus on this vexing challenge. The schemes as currently outlined may not be enough. For instance, the JSA scheme currently lacks clearly-defined goals and targets. The government will need to develop a comprehensive policy framework for water management to reduce waste and increase efficiency, as experts reiterate the need to complement sustainable practices with more technical policies such as deploying water meters and managing groundwater extraction. Finally, if the government aims to provide between 43 and 55 liters of water per day per person, as reports have suggested, it will need to make significant infrastructure and financial commitments, far beyond current levels.

Eliminating Single-use Plastics

Another commitment made by Modi in his speech, which he reiterated at the United Nations General Assembly in September, is making India free of single-use plastic. Though this would be a significant step toward environment conservation, the government is already facing implementation roadblocks. Reports suggest that the government has shelved a plan to ban single-use plastics by 2020. Business concerns of plastic producers in an already struggling economy are likely the reason. The government has instead issued a directive to state governments encouraging them to propose their own lists of products that could be banned from usage.

Eliminating single-use plastics will depend on whether the government is able to address the concerns of the producers, who are mainly small- and medium enterprises. It will also need to strengthen implementation by introducing a more uniform framework that benchmarks the progress being made by the states. The Modi government has maintained a steady rhetoric about environmental protection and conservation through its commitments on cutting down on carbon emissions, increasing renewable sources of energy production, and now eliminating single-use plastics. Modi is clearly trying to steer India toward more environmentally sensitive policies and practices. How far it will get, is to be determined.     

Health Care Access

In his 2019 speech, Modi reiterated his government’s commitment to Ayushman Bharat, the health care access scheme launched in 2018 to provide quality healthcare to vulnerable communities through two components – health insurance and the creation of health/wellness centers across rural India. The insurance component gained outsized attention as the world’s largest insurance scheme (referred to as Modicare). One year since its launch, it has been successful in helping economically vulnerable communities to access facilities and services. However, critics express concern over the increased dependence on private hospitals under the scheme due to the limited availability of technology and expertise in government hospitals. Further, the lack of adequate funding and the government’s inability to attract the requisite private partners, due to low compensation rates, remain troubling. Though the Prime Minister has committed to establishing 150,000 healthcare centers across rural areas by 2022, reports reveal that only 8,000 (about 5%) have so far been opened.

Experts are also concerned by the government’s emphasis on insurance and limiting the finances and scope of health centers, which provide primary healthcare. By disincentivizing quality primary healthcare for the sake of secondary and tertiary healthcare, the Modi government may be handicapping its journey toward universal healthcare access. Healthcare has been an issue of significant attention in India, with factors such as India’s low expenditure on healthcare at 1.4% – 1.5% of the GDP often criticized. Looking at the 2019-2020 allocation, the healthcare budget did not see a major revamp, with estimated expenditure toward primary healthcare decreasing in comparison with the expenditure toward secondary and tertiary healthcare. The government will not be able to make significant inroads toward its stated goal of universal healthcare until it invests in primary healthcare.

Housing for All (Pradhan Mantri Awas Yojana)

India will be in the 75th year of its independence in 2022, and Modi reiterated his government’s 2016 commitment to provide housing to twenty million economically vulnerable families in rural India by 2022. The Ministry of Housing and Urban Affairs, which handles the urban component of the scheme, notes the need of 11.2 million houses, of which the Ministry has already approved 75% (8,368,861[DE1]  houses), with a quarter of the approved houses already completed (2,613,799 houses). The numbers are reassuring even for the rural component, with approximately 50% of the 20 million houses being approved and over 80% of those already completed. At this pace, the Modi government appears to be on track with their commitment toward Housing for All, a great accomplishment. It will be interesting to see if these houses come with supportive infrastructure such as piped water connectivity and electricity, in line with the government’s other initiatives.

The Big Dream: A $5 Trillion Economy

The overarching vision of Modi’s 2019 address was the dream of making India a USD $5 trillion economy by 2024. Currently, India is a USD $2.7 trillion economy. To almost double the size of the current economy in five years will be difficult given the current slowdown in the Indian economy. While the government has been working toward creating an investment-friendly ecosystem, including corporate tax cuts and privatization of PSUs, it recorded a 6-year-low growth rate of 5% in the second quarter of 2019. The cumulative output of the eight core industries is on a decline at a -0.5% in August 2019.

These concerns, coupled with a high unemployment rate of 6.1%, a dearth of skilled labor, reduced consumption, a crisis-ridden banking sector, and a rapidly expanding deficit, will be major roadblocks for India to reach its goal.

The government’s decision to exit the Regional Comprehensive Economic Partnership (RCEP) trade pact will not help it along its goal. India’s decision to leave, after years of negotiation with 15 other countries, including China and all of the countries of ASEAN, was reportedly due to political concerns. That the government was unwilling to enter a deal that would benefit the economy in the longer term despite its strong political standing, sent negative signals to its trading partners. The Indian government has long sought foreign investment while shirking foreign trade. To get anywhere close to $5 trillion it will need to stop being in denial that in today’s highly integrated global economy you cannot adequately do one while ignoring the other.

With Indian voters increasingly attuned to macro-economic realities, shepherding a stable and fast-growing economy will not just be the Modi government’s central administrative challenge, but also its primary political challenge. The results of the recent state elections in Haryana and Maharashtra have reflected this reality. This is likely why Modi is talking about a $5 trillion economy, in addition to focusing on specific economic development challenges. He will need more than the social services wins of his first term to get there. India is at a crucial juncture in its growth story. Steering the country toward development, while preserving its democratic and pluralistic values, is imperative. Modi’s successes and failures over the next five years will set the tone for India’s future on the global landscape.   

Republished with full permission of the author. Originally published by Asia Society. Click here to view the original article.

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9 months ago

A good analysis of post-general election India! It will be interesting to see which direction Modi takes India in over the next five years.

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