India's Economic Policy in last Decade - From Neoliberalism to Modinomics
In a previous post, i explained two main structural problems of India - Wastage & misutilization of our labor force & human resources. And acute shortage of core Assets to run a sustainable economy. These are two long standing problems since many decades and Governments have done little to decisively solve these problems. In another post, i explained how Modi Government has aggravated the Covid-19 induced economic depression by Austerity policies and lack of central assistance to states. In this post, i am reviewing India's economic policy in last decade and the policy blunders made by past UPA Govt as well as present Modi Government. India's economy was in secular decline since last 6 quarters and Covid-19 further aggravated the economic crash with 23.9% quarterly GDP contraction. To make the matters worse, India has now embarked on self destructive & Isolationist Trade policy to so call "decouple" from China. Before getting into Trade policy and recent decisions of Modi Govt, lets look at past 6 years of Modi's rule in India.
Legacy issues of past UPA Government - Brief summary of India's economic problems before 2014 - UPA Government shot itself in the foot by foolish Austerity policies & hardline Neoliberalism starting in 2010 - Budget cuts, RBI interest rate hikes, Bank NPAs, policy paralysis and external shocks crippled economy but it was fixable
India was ruled by UPA Government before Modi, lead by liberal Prime Minister and Economics Professor Manmohan Singh. UPA Government made many mistakes in its final years that crippled Indian economy. But to understand the context, we have to look back some of the circumstances that lead to those mistakes. After 9/11 attacks, emerging markets saw arrival of capital from US & Europe as Federal reserve cut interest rates. ZIRP in post great recession era also benefited emerging markets and countries like India. The impact of great recession did not immediately reached India as India's banking system didn't had much exposure to US banking system. But India had its own kind of problems. First is the structural problems in economy that have been around since many years. UPA Govt did little to address these problems and in second UPA regime of 2009-2014, Govt just forgot about these problems and adopted a hardline Neoliberal policies. Secondly, UPA Govt failed to timely act against issues like cyclical downturn in economy, Bank NPAs, Agriculture sector distress, collapsing demand in economy and much needed regulatory reforms. This is what is described as policy paralysis of UPA 2 Government where it failed to formulate & implement economic policies in its tenure.
Manmohan Singh Govt didn't have a concrete policy to address Structural problems in economy and Infrastructure Deficit of country. It depended upon FDIs, private sector & PPP (public private partnership) model for Infrastructure development. Some of the areas benefited from these policies but mostly this model of development didn't go far in reaching the desired goals. There are some fundamental flaws in this model which i will explain in more detail in dedicated article. Over the time, many PPP projects failed due to profitability, revenue sharing disputes with Govt, lack of capital, poor planning and implementation. This was aggravated by cyclical downturn in economy, corruption and policy paralysis of Government. These were called Stalled Projects (read 1, 2 & 3) which were mostly in Infrastructure sector. While PPP projects were going bad, unregulated private sector projects in various sectors were also going downhill most notably in Real Estate as some of the biggest builders defaulted. All these issues together compounded the NPA problem which manifested into serious levels by 2013-14.
The Bank NPA problem was shunned in its early years by UPA but it got worse by 2013. Still all these problems were quite manageable. What Govt needed was minimally invasive surgery of Banks & financial institutions to treat NPA problems. The stalled projects had to be reviewed carefully, infusion of capital into feasible project & junking of non feasible projects. But all these decisions were needed to be taken competitively and timely. Unfortunately, there was pressure on political Government to not to deal with NPA problem because some Indian Oligarchs may loose their fortune if Govt started fixing banking sector. Hence instead of timely dealing with Bank NPAs, we created a long term problem of evergreening of loans.
There was another problem with with economy - the hardline stance of RBI to control the inflation. Its well known that inflation is a structural problem in India rather than a monetary problem. But RBI during 2010-2012 made aggressive interest rate hikes primarily claiming to control the inflation. Between Jan 2010 and Jan 2012, RBI hiked interest rates 13 times, going from 4.25% to 8.25%. The nonsensical reasoning for RBI's interest rates was that Interest rates itself do not address the underlying issues causing inflation, but it produces a shock in economy that will force Government to take policy decisions to solve real underlying issues. On fiscal side, Government started adopting policies of Deficit reduction & austerity when there was absolutely no reason to do it. In early years of 2008-09 recession, UPA Govt allowed the expansion of Deficit and gave a modest fiscal stimulus. But soon they got into obsession of Deficit targeting & cutting expenditure. Kelkar fiscal consolidation committee was tasked to guide the enforcement of FRBM rules to Govt budget. Committee was headed by former IMF director Vijay Kelkar.
Former IMF director, Vijay Kelkar was one the key Architects of UPAs Fiscal consolidation plan. Later Kelkar became an adviser for Modi Govt on PPP revival & other economic issues.
There were certain external factors that lead to exceptionally high inflation in India which rattled the Government in 2010-2011. While domestic structural problems in India are the main cause of inflation, commodity speculation also contributed to India's inflationary problems in early years after great recession. The 2011 food price volatility also had an adverse impact on India. Instead of rationally observing and acting on real causes of inflation, Manmohan Singh Government and RBI took an over simplistic approach to controlling inflation - Fiscal Austerity & Interest rate hikes. 2010-2012 RBI rate hikes coupled by Government budget tightening put a brakes on India's economic growth. Whatever, the problems were in UPA 2 times, at least the economic growth was in the motion. When economy came to a halt in 2013, all the problems got compounded - Collapse in investment, Rise in Bank NPAs, more stalled projects and ultimately rising unemployment and collapse of Demand. Economic growth is about momentum, it has to be kept in motion. Once it comes to a halt, its very difficult to get it moving and bring it back to past speed.
Modi presented himself with a committed Neoliberal Agenda - Modi wanted to emulate China's export oriented economic growth model but Modi had no actual knowledge of China's economic model - After getting into power, Modi declared that Socialism is Dead and he will be a great reformer - Begins Austerity drive, mass privatization and deregulation - But produced no results and benefits to economy & country - Early years of Modi Govt was like continuation of UPA 3
Inaugural Make in India summit in 2016 where Modi invited multinational corporations, foreign leaders & billionaires to launch Make in India campaign. The campaign was envisioned to emulate China's export oriented growth model.
After BJP won elections in 2014, Modi presented himself as an Anti-Nehru and Anti-Socialist leader. There is no socialism in India. In fact, Government participation in economy is quite low which can be seen from size of Government labor force and welfare spending on social programs. But India does have many public sector enterprises in sectors of Banking, Telecom, Airlines, Oil & Gas, Power production & water distribution, Space research, Fertilizers & food commodities etc. When Modi said that he will end Nehru's Socialist legacy, Modi meant mass privatization of these private enterprises. Many of the things have now been privatized and many are on the docket. For Modi's dismay, the privatization drive hit roadblocks due to mass protests & strikes by national trade unions.
Austerity drive has been a constant feature of Modi's rule. Modi & his Finance Minister Jaitely at that time imposed a Jobs moratorium which declared that no new jobs will be created in central Government departments. This was touted as Mantra of "Minimum Government and Maximum Governance". The deregulation of economy was also touted as the biggest step in economic reforms. The opening of various sectors like Retail, Energy, Insurance and Defense for Foreign direct investments was done on fast track basis despite mass public protests & dissent by Political opposition. One of the economic themes of Modi was integrating India into Globalized economy (there is a great irony to this, we will get to it in a moment).
Since its early years, Modi and India's Finance ministry were busy pandering to rating agencies. Finance ministry was holding regular meetings with officials of rating agencies to upgrade India's credit ratings (read 1,2 & 3). Modi also invested a lot in PR campaigns of "Make in India" both nationally and internationally. While Govt was cutting budget in austerity drive, it was still spending heavily on PR campaigns. When Modi's policies failed to deliver results, Modi urged people to stop looking for jobs and become job creating entrepreneurs themselves.
Private investment failed to revive with Modi's much touted Neoliberal policies.
But with all the Neoliberal reforms by Modi Government, the net result was ZERO. Hardly any jobs were created, what economists described as Jobless growth economy. Modi also launched various programs like "Make in India" and "SEZs - Special economic Zones" which were originally hallmarked as emulation of Chinese model of bringing global industrial centers & manufacturing hubs to India. But all these schemes and programs were a flop as hardly any global industry came to India. Private investment remained depressed while Government continued to cut its capital investment, thus further weakening the economy. The reason why multinational corporations have no interest in setting up its factories in India deserve a separate discussion dedicated on the subject. But one of the major reasons why multinational corporations aren't interested in India is the Structural problems in India as i described in my earlier post.
China's economic model is based on state driven economic development where Govt aggressively participates in economy and also incentivize private sector to grow & expand. China's economy is like a Dual engine which is driven by the Government and supplemented by a strong private sector, of both Chinese as well & foreign multinational corporations. China has removed all structural bottlenecks in economy by massive investment in Infrastructure - Transport, Energy, Water distribution, Human resource development etc. Chinese Government itself spent on Infrastructure & Human resource development without dependence on FDIs and private capital. Another hallmark of China's economic model, which actually derives from its Political system, is its purely technocratic state apparatus which is light years ahead of India. China's national policy is NOT decided by the "markets" but by the Chinese technocrats and through Central planning.
Modi's economic policies were based on withdrawal of Government role from economy and let private sector take the guiding role. Modi's basic economic policy was just continuation of failed economic policies of final years of previous UPA Government. Many people thus called early years of Modi Govt as UPA-3, implying that Modi's rule is just like a third tenure of UPA Government.
Modi makes a radical change in 2016 - Insanity of Demonetization and chaotic GST - Restructuring of India's Central Bank - Massive economic crash followed by huge unemployment and de-industrialization - Modi is like ignorant idiot Trump, having no knowledge about Economics, Monetary policy, Banking & finance, Trade & industry and other critical areas of country
Demonetization was insanity, followed by chaotic GST (Goods & services tax). On November 8, 2016, PM Modi in midnight declaration extinguished 86% of Indian currency overnight. India is a country with as much as 90% monetary transactions in paper currency. Demonetization was huge shock to economy which destroyed economy in minimal time. How can an economy function without a legal tender? The biggest economic shock started in rural sectors, Agriculture, small businesses and MSMEs. This economic shock had ripple effect which reached all the way to the organized, core & mainstream sectors of economy like retail, FMCG, Auto, Banking, Infrastructure etc. Yashwant Sinha, India's former Finance minister, has documented the catastrophe of India's Demonetization policy in his book. In early months after Demonetization, there was economic carnage everywhere as Government imposed unprecedented Capital Controls in economy. Many experts described it as self imposed bankruptcy of country. The Capital Controls enforced to implement Demonetization were unprecedented and unseen in entire modern history of the world. To coverup the economic decline, Modi Government changed GDP calculation methodology several times. This inflated GDP growth by upto 2.5% and provided window dressing on India's terrible economic situation. If Demonetization wasn't bad enough, then came the chaotic GST which further aggravated damage to the economy. Imagine a tax reform, where Government has to tweak tax code hundreds of times in a matter of few months!!
When past liberal Government lead by PM Manmohan Singh left office, the command of India's Central Bank was in hands of garden variety liberals like Raghuram Rajan & Viral Acharya. I would equate these liberals to Professor Paul Krugman. Raghuram Rajan himself was careerist Academician being a Professor of Finance at University of Chicago Booth. These liberal economists controlled India's central Bank with usual anti-fiscal Deficit theories. One of the reason, Manmohan Singh appointed Raghuram Rajan was to solve India's long term Bad loans problems what is notoriously known as NPA (non performing assets) crisis of India's banking system. The NPA problem was caused by many different reasons - economic slowdown post great recession, corruption in banking system, policy paralysis of the Government. Raghuram Rajan was trying to contain the NPA crisis by firewalling banks, debt restructuring and stricter regulatory supervision and norms. Liberal economists like Governor Rajan and Deputy Governor Viral Acharya were strongly against Demonetization policy. Rajan being an Academician knew that Demonetization would be a train wreck for Indian economy but he had no power to stop the policy against authoritarian Modi Government. Rajan & other Central Bank officials, developed many disagreements with Modi Government on several policies. Disagreements which Modi did not tolerate well.
India's most wanted fugitive Nirav Modi defrauded National Banks for Billions of Dollars. In this Photograph, taken days before Nirav Modi flee the country, he can been with Prime Minister Modi and Government delegation at Davos.
One of the reason why Modi disliked Raguram Rajan was his actions precisely on fixing NPAs. Raguram Rajan wanted to fix banking system. But problem with banking system was strongly connected to corruption. Actually a lot of Oligarchs who were among the biggest national bank defaulters were close associates and friends of PM Modi. One such notorious Oligarchs, Anil Ambani is among the biggest bank defaulter of India. He's a bit like Donald Trump, having failed many of his business ventures in Telecom, Infrastructure, Energy etc leading to massive defaults to Indian Banks as well as international banks. Its also interesting to note that Anil Ambani has also swindled Chinese national banks for hundreds of millions of dollars due to various defaults.
Raghuram Rajan was pushed out of RBI. Modi replaced Rajan with his handpicked new Governor. The banking system was in such a mess that the new Governor resigned shortly followed by other resignations in Central Bank as well as India's economic advisory committee. India's Central Bank was in a deep crisis and lost all credibility by 2019. But that wasn't the real problem. The real problem was unstoppable economic decline, growing unemployment and failing banking system.
While economy was in a land slide, Modi Govt continued to project their China dream. That is bringing big multinational companies into China by deregulation, privatization, shredding of labor laws & environmental norms etc. As Trump started imposing Tariffs on Chinese imports, Modi Govt further boosted that this is a perfect opportunity for India to reap benefits of US-China trade war. Modi Govt claimed that due to tariffs, multinational corporations will look for alternate destinations to relocate their industry and India is a perfect place to do so. Hence Modi Government continued on its earlier path - more deregulation & privatization of economy. But this time India's economic situation was far worse. Government had hard time finding buyers for Government assets. The Government disinvestment targets failed to reach anywhere.
Modinomics - A newspaper cartoon depicting Modi's economic policies in contrast to Neoliberal Policies of former Prime Minister Manmohan Singh.
Prime Minister Modi is often compared with 14th century King of India, Mohammad Bin Tughlaq, by many intellectuals. Tughlaq was a cruel, whimsical and unstable King of India known for his foolhardy outrageous Policy declarations.
By 2018-2019, Indian economy started a secular decline but Government was busy covering up the true data on unemployment and GDP. While economy was bad, Banking system was getting worse. India, after a very long time, again witnessed some of the biggest bank frauds in its history. Nirav Modi & Mehul Chowksi, rumored to be close friends of Modi, defrauded National banks for billions of Dollars and flee India. They continue to evade Indian authorities to this date. India never saw Bank runs and collapse of Banks since long time but now it happened under Modi with collapse of Yes Bank and PMC bank. Many co-operative banks were put under RBI conservatorship. Non banking Financial institutions like ILFS also got bankrupt & collapsed. Many State banks were merged to clean up balance sheets. National banks were given bailout & liquidity injection to keep them running. Banking system failure was a result of Cronyism and lot of cronies are personal friends of PM & ruling party. Modi is also planning privatization of national banks but is facing stiff resistance from Banking labor unions.
PMC Bank collapsed due major financial scam. People rush to withdraw their savings as RBI imposed withdrawal limits to stop run on the bank. Many small private co-operative banks and NBFCs (non-banking financial institutions) have collapsed due to frauds & corruption.
Modi's Communal Politics and socially divisive policies - National shutdowns, Public protests and Internet outages - Socially unstable & volatile environment is bad for economic activity and investment - Lawless states like UP will never attract any investment
If Modi's Mohammad Tuglaq policies aren't bad enough, there is another toxic policy mindset of Modi connected to Polarization, Social division & communal politics. Communal Politics is one of the key methods by which Modi has established his religious populism dictatorship so every once in a while, Indian nation is fed with regular dose of Communal policies in one form or another. Policies like Abrogation of Article 370, Division of Kashmir, Citizenship Amendment Act, National Register of Citizens, Anti-Love Jihad laws, Beef ban etc are some of the example of such policies.
Kashmir Bifurcation and shutdown caused immense damage to Kashmir State economy. Presently, we are seeing the devastating effects of Covid-19 lockdowns on national economy, but Modi enforced these kind of State shutdowns in Kashmir after abrogation of article 370. The economy of Kashmir completely collapsed, many businesses got bankrupt, farm sector got ruined and there was tremendous human costs of lockdown. The Kashmir lockdown was even more draconian than Covid-19 lockdowns because Internet, Telephones and Communication were shutdown in Kashmir. Even till this day, Mobile internet remains blocked in Kashmir. While economic losses were bad enough, the human loss in Kashmir was ever more severe.
Internet Communication is lifeline of today's Businesses and Commerce. How can Businesses operate without internet? But this logic doesn't appeal to Modi Government. Internet shutdowns are not limited to Kashmir but also applied randomly across States & cities in wake of public protests. India is now on top of the list of nations blocking Internet, even bypassing countries like China, Turkey & Iran.
While China & India may well both be dictatorships. There are many differences. The most prominent difference is political system of two dictatorships. But there is also a difference in social policies & social structure of both countries. Chinese Government doesn't practice divisive communal politics which compromises its social stability. Whereas communal incidents and riots are common in India. Indian society is fragmented deeply with various religion, castes and tribes which political forces exploit for electoral gain.
Rallies of Religious militant organizations are quite common in India. Photo - Reuters
Delhi Communal Riots this year resulted in 53 deaths & hundreds injured. Thousands of homes, shops, vehicles etc were torched by rioters. Its well known that BJP orchestrated these riots in wake of Delhi State elections loss.
India's Junior Finance Minister has no education & expertise in economics but he's well known for his fiery Communal speeches.
Why would a Multinational company wanna invest in country with such break down of law and order, communal violence, social instability and uncertainty? Modi's communal policies are completely in contradiction to Modi's invitation to multinational corporations of giving a stable investor friendly economic environment in country.
Why private investment not happening in economy? - Many more reasons for Economic decline - Lack of Government credibility & accountability, opacity in policy decisions, cronyism & special favors to Modi's friends - Modi's policies are only to benefit a small group of favorite Oligarchs while killing rest of the private sector specially small companies & MSMEs
Whereas Modi talks about free market and letting private sector taking the initiative in economy, Government actions are completely opposite. Private sector has a significant role in participating in nation's economic development but private sector requires Government to take certain initiatives for providing suitable environment for efficient functioning and profitability. I mentioned in earlier article that Indian economy requires major Government spending & investment to address structural issues. On other side, Government should also regulate economy and provide a level playing field for private sector. But Modi Government is all about favoritism to selected Oligarchs (read 1,2, & 3).
Telecom sector is one prime example of how Modi Government tilted regulations in favor of India's richest man Mukesh Ambani, helping him to establish his Telecom company from the ground. The establishment of Reliance Jio as the leading Telecom company in India came at a cost of Bankruptcy of Private telecom companies like Vodafone-Idea and State telecom companies like BSNL. Laws regarding Spectrum licensing, AGR dues, Predatory pricing of services and many other regulatory decisions by Government heavily favored & benefited Reliance Jio. Vodafone-Idea have invested nearly $50 Billion dollar in telecom business and may be driven to bankruptcy in coming decade. Imagine a company investing Billions of Dollars in national economy and forced to bankruptcy by Government. Is this a suitable business environment for private sector to make investment in economy? The crisis of national telecom company BSNL is even worse. While the world is adapting to 5G technology, India's National company BSNL is forced by Government to use only 2G & 3G technology. Of course, BSNL will never able to sustain profits and compete against other private companies with obsolete technology. Its speculated that Government is bankrupting state enterprises deliberately in a planned manner.
Favorite Oligarchs of Modi. Clockwise from top left, Diamond merchant Mehul Chowksi who defrauded National Banks of Billions of Dollars, Mukesh Ambani - Among the richest person in the world has strong connections with Modi, Gautam Adani, a businessmen connected to Modi since early years of Modi's rule in Gujarat. Spiritual Guru & Businessmen Baba Ramdev
Modi's special favors to selected Oligarchs comes at cost to other private companies as well as state owned enterprises. On top of all other problems, there is very little incentive for private companies to invest in economy given the fact that policy decisions favor only a special group of oligarchs. While the privatization policies are bad enough, what's even worse is handing out Government assets to selected group of oligarchs who are establishing monopolies in economy. This in long run will diminish chances for healthy & competitive private sector in economy and drive out entrepreneurs who may really benefit the economy.
Its well known that Modi Govt has allegiance to a clique of Oligarchs while rest of private businesses, corporations and entrepreneurs have suffered by disastrous governance and policies of the Govt. Many businesses have gone bankrupt, closed down and shrunk under this Govt due to Demonetization, chaotic GST and lack of fiscal relief in Covid induced depression. How much Modi Govt really cares about private sector can be deduced from the Govt debt owed to MSMEs (read 1,2 & 3). While Govt talks about Private public partnership, the private contractors working with Govt have long standing dues which Govt keeps ignoring. Why would a honest private company wanna work on any Government project if it won't be paid for its work?
Covid-19 Induced Economic depression - Tensions with China and crisis at Indo-China border - Modi's self destructive isolationist Trade policy - Modi's "anti-Globalization" position is like a Trumpian lie
Covid-19 induced economic slowdown and foolishly planned lockdown policies were like a Tsunami that swept through last vestiges of growth in Indian economy. The amount of fiscal stimulus to support economy in time of Covid induced depression was microscopic and had little effect in helping the economy. Ill conceived and ill planned lockdown aggravated the economic situation but Govt continued its austerity drive by cutting capital expenditure. States & local bodies were starved of funding as their revenue collapsed but Govt refused to expand fiscal deficit to preserve its Deficit limits and sovereign debt ratings. Salaries and pensions of State & local government employees were sharply cut and payments are getting delayed by several months. But no help came from central government. Salaries of Central Government employees in India are tied to to inflation index. Inflation and specially of food & vegetables is a big problem in India. Monthly CPI is presently at 7.6% but its well known that general inflation is more as many goods & services are not factored in indexes. Modi Govt effectively announced a pay freeze of all Central Government workforce and pensioners. This was done by freezing Dearness allowance which is raising of salaries and pensions according to CPI.
For last 6 years, Modi Govt was trying to emulate Chinese economic model, integration into Globalized economic system, reaping benefits of jobs outsourcing etc. But all these produced no real benefits to economy. After Chinese aggression on LAC & killing of Indian soldiers by PLA in Ladakh, India's foreign minister (MEA) started criticizing Globalization & economic imbalances. Ironically, Modi Govt itself is highly committed to Globalization and inclined towards Chinese model of export oriented economy. Govt has been aggressively pushing labor reforms, deregulation & privatization claiming that its necessary to invite foreign investors to build factories in India. So Modi Govt is speaking from forked tongue - criticizing Globalization because China is reaping the best rewards of it and Modi himself pursuing policies to take all the benefits of Globalization (though failing to attain them).
A Fox & Sour Grapes cartoon depiction of India's efforts to reap benefits of Globalization.
India's foreign minister claims that Globalization hasn't produced the jobs as we wished. This is only partly true because the main killer of jobs is the foolhardy policies of Modi Govt. Even so, Globalization has actually helped countries like India in some ways. Due to low wages and deregulated economy, many jobs from western countries including North America & Europe have come to India through process of outsourcing. In fact globalization is the biggest contributing factor to India's IT sector growth in last two decades. Globalization helped put Indian Corporations like TCS and Infosys on international stage. Most of the business of these Tech companies is to serve international clients. The growth of IT sector has been a bane for American professionals but a great boon for Indian employees. Also western multinationals like Microsoft, Intel, IBM and countless others have been outsourcing millions of jobs to India & other third world countries.
Data Source - Paper. India's IT sector is among some areas of Indian economy that have greatly benefited from Globalization.
Chinese aggression against India has put Modi Govt in precarious situation. Modi has no foreign policy. Foreign policy of India is actually part of domestic political strategy which is centered around Pakistan as the main antagonist. India doesn't have a policy to deal with present global challenges like complexity of new multipolar world where China has risen & American influence has greatly diminished. Modi has no answer to China's Belt & Roads policy and aggressive diplomacy in South East Asia where China is strategically encircling India and poaching off all the traditional allies of India like Sri Lanka, Nepal, Maldives etc and creating regional economic blocs which it will dominate.
Source - India's Capacity utilization trend in last 5 years. India's foreign minister blames Free Trade for India's lag in Capacity development but dodges the point of significant lag in existing capacity utilization which is mainly due to collapse of Demand in Indian economy. Even in the best of times, India's Capacity utilization has barely reached 75% of capacity in last 5 years but it has completely collapsed in Covid induced depression.
To respond to Chinese aggression, Modi has no policy at all. But a PR campaign & window dressing cosmetic measures needed to be taken to show that India is retaliating against China. Indian military including many of Modi's backers are upset with India's helplessness against China. Our military officials are starting to see that India's Pakistan centered defense policy cannot be applied to a powerful country like China. Thus Modi has to create an illusion of economic retaliation to project that he's hurting China in financial way. Of course these cosmetic measures don't change anything. The presence of these Chinese companies in India are just a small fraction of their global operations so banning them won't really hurt them and certainly won't hurt China in any way. China plays power politics on substantive terms - Grabbing territory of India, poaching away India's neighboring allies and carving out its sphere of influence in the region. Modi plays power politics on PR management. Banning some Mobile Apps won't hurt China in any way. Interestingly, Modi cites National security and defense of sovereignty in imposing Ban on Chinese Trade but doesn't show same concern on Facebook's massive investment in India. Facebook is presently under investigations in US & Europe for anti-Trust violations, election interference, user data manipulation and other cyber security issues. Of course one of the reason for Modi's affection for facebook is BJP's connections with facebook leadership which supports Modi's rule in India.
Modi has recently embarked upon a new business of surgical strikes on China which actually is a surgical strike on India's manufacturing and small businesses. Modi is isolating India from regional economic blocs. Modi Govt cites that Free Trade Blocs like RCEP are harmful for India's domestic industry but fact is that many other nations are part of this Bloc including Australia, Japan & South Korea which historically have been strongly against China's imperial foreign policy. So it looks like India is sitting on the sidelines and isolating itself from the region. Another foolish move by Modi is cutting of Chinese trade by banning Chinese trading platforms in India on frivolous grounds of protecting the sovereignty of India.
Modi has repackaged and renamed "Make in India" program which it launched 6 years ago into "Atmanirbhar Bharat" (English translation - Self dependent India). The original Make in India plan got nowhere and failed to bring multinational corporations into India as Modi wanted. The failure of Indian economy is mainly due to structural problems as i have explained but Modi has never worked to address that. Instead, the Govt is busy in PR campaigns and event management thinking that publicity and promotions drive the economy.
India's economic and Trade policy have been far from perfect and Globalized world order does have major problems. But despite all that, it took years & decades for us to integrate into global economy and it did help to build a more formal Indian economy. Recall that how Modi wanted to change India's informal economy to formal one (this was cited as one of the reasons for failed policy of demonetization). India's Trade and commerce took many years to formalize. Two decades ago, Black marketing and smuggling were rampant. There was hardly any oversight over imports in India. A lot of imports were coming through evasion of custom duty and other regulatory process. But now much of the trade with foreign countries including China are under regulatory oversight and under purview of tax authorities. Chinese eCommerce trading platforms like Aliexpress actually provide transparency of trade between two countries as all foreign transactions are now logged by the government (regulated electronic money transfers) and custom duties are levied accordingly. This is much better system than unregulated smuggling of goods two decades ago. Many small businesses, manufacturers and consumers use these trading platform. These trading platforms are to trade what liquidity is to financial system. Without these trading platforms, trade will be highly disruptive. But now Modi is imposing Bans on these Chinese trading platforms to "protect the sovereignty of India".
Make in India was a failure as it failed to bring multinational corporations to set up their factories in India. But in last few years, there have been several entrepreneurs that have launched their small businesses and start ups in India. Many of these businesses import electronic components, machines & equipment, raw materials and other goods from China and other foreign countries through eCommerce trading platforms. This business model is referred as "Assemble in India". Indian manufacturers imports raw goods from China (which are not available in India) and use them to build end use consumer products. But with Ban on Chinese platforms, many of these businesses have to close down. Also banning of Chinese trading platforms has created an uncertainty in Indian economy about future of trade & imports from China. Uncertainty and (unjustified) Capital controls are among the big enemies of economic development.
My take on Globalization & Neoliberalism - Modinomics much worse than Neoliberalism
Globalization, Neoliberalism and Washington consensus are interconnected principles. Without getting into the precise historical origins of the Neoliberal school of thought, lets focus into the time when the Neoliberalism started to become mainstream in world. Its roots in 70s & 80s with Thatcherism in UK and Reaganomics in US. Basically it was decisive withdrawal of Government from economy including in critical strategic sectors and letting "Markets" be the guiding force of the nations. Underlying concept of Neoliberalism is "Government has no business to be in business". It started as cutting of Govt welfare, privatization and deregulation of economy and giving all the powers to private corporations to guide national economy. Subsequently, Neoliberalism developed into more organized and globalized phenomenon specially after the end of Cold War & collapse of Soviet Union. This was the beginning of Washington consensus and Globalization, the exporting of American & British Free market Neoliberal models to rest of the world.
The most basic theme of Globalization and Neoliberalism was that issues like poverty, inequality, environment, social backwardness and living standards of people had no importance in national economy. Simple reason for that is because Private corporations were the guiding forces of national economies who only worked on profit motive. Personal well being of people, the ecology of planet and environment sustainability has no role in direction of economy.
Jobs left the developed western countries and came to China & other developing parts of the world which were also referred as "sweat shops". The labor in countries like China was cheaper because of its authoritarian nature where workers have no rights, people are made to work like machines, the Govt has little concern for environment. Recall the smog cities of China and catastrophic Air pollution. The situation in India is much worse as most of the water resources are now heavily polluted & unusable. Indian cities are among the most polluted in the world and more than half of the population is facing acute water scarcity. 5 Million people die in India every year because of health effects of Air pollution (China has learned some lessons and trying to fix many issues). The social impact of Globalization was huge in western world. The sharp rise in poverty, inequality, unemployment, collapse of wages and decline in living standards of population were the most remarkable effects of Globalization. But these things have no importance in philosophy of Neoliberalism. Another disastrous result of Neoliberalism & Globalization was ruining of human resources and labor force of western world. Since industry & services moved away from western world due to outsourcing, there were no jobs in the western world. Since there were no jobs, there was little meaning to educating and training workforce. The population was reduced to be a consumer without being an actual participant in the economy. The ultimate culmination of ruining of human resources was the phenomenon of Trumpism. Trumpism is a phenomenon where a big section of desperate, uneducated, ignorant and unintelligent population begins embracing Fascism and leaders like Donald Trump.
Its also ironic that Globalization which emerged from western super powers ultimately became one the the reason for their demise. The Unipolar world order with American hegemony is coming to its closure. UK, the biggest Colonial power of 20th century is not even among the contenders in new multipolar world of 21st century. In what can be described as a great irony and ultimate reversal of situation, Former Prime Minister of UK is now a lowly commissar and employee of China's Belt & Roads forum. Similarly, US role is rapidly waning in the world with China's rise and collapse of US in Trumpian era (Trump may be gone but Trumpism continues to live).
I was never a fan on Neoliberalism and Globalization. But since 2016, Modi abandoned the more conventional Neoliberal agenda and adopted a crazy Trumpian philosophy. To give an analogy to western observers for explaining Modi's economic policy. I would say that Modi is like the 2nd & 3rd Term of Trump - A chaos Prime Minister destroying everything. Public institutions, India's federal structure, Economy & Trade, Foreign & defense policy, Secular structure of country, Monetary & Banking system, Civil rights & personal liberties etc etc - Modi is a Demolition man wrecking everything in his path.
Neoliberalism was bad but at least it was based on some order. Look at insanity like Demonetization - in classical terms this could be the most anti-Neoliberal policy. A policy that destroys economy with maximum economic shock in minimum time. The Capital controls in Modi's era are completely opposite of Neoliberalsm. Neoliberalism was about sanctity of central bank and stability of banking system. Look what's happening in India's Banking system. Modi opening vaults of Central Bank to his cronies and perpetuating the cycle of Bank frauds and NPAs. Neoliberalism was about domain expertise, people like Yellen and Bernanke (Indian analogy is people like Rajan & Viral Acharya) supposed to run Central Banks. But under Modi's rule, Neoliberals like Raghuram Rajan, Viral Acharya, Urjit Patel etc have been kicked out and Central bank is ruled by sycophants unprofessional idiots like Shaktikanta Das & Gurumurthy (similar to Trump's stooges & yes men). Even the Neoliberals recommended fiscal stimulus in economy specially post Demonetization and now during Covid induced depression. Yashwant Sinha, India's former finance minister and author of our "Deficit limits Doctrine", himself says that economic situation is so bad due to collapse of demand that Government should start printing & using money in all productive areas of economy. But Modi continues to implement Austerity doctrine even in times of economic depression.
There's also this gloating in India about Modi's attack on liberals & Neoliberalism. I have a very definitive answer to these people. Neoliberalism and liberals are bad. We (me & people like me) were against Neoliberalism & Globalization since long. But as bad as Neoliberalism is, there is something far worse. That is Trumpism as we have witnessed in America. If Neoliberalism is UNFAIR national doctrine, Trumpism represents Darkness & Chaos and that's where India is heading. Interestingly, both Trump & Modi derive their political support from populism. While Trump is based on cultural populism and Kayfabe, Modi is based on religious populism & Hindutva.
What is Modinomics?
Modinomics was a term coined by media to label Modi's "bold" & "disruptive" economic reforms policy. Modinomics is not really based on any economic principles but rather a set of policy decisions, all of it are actually contrary to conventional economic thinking. Modi's policies have three central characteristics - Crony Capitalism and massive corruption, Ignorance & incompetence (of Trumpian magnitude), and some rag tags of Neoliberalism. Former BJP Minister Arun Shourie describes Modi regime as a Private enterprise. A private enterprise run by close friends of Modi who are indulging in massive corruption & frauds in country. In an earlier post, i have described the personal traits of Prime Minister which are remarkably similar to Donald Trump. Arun Shourie and many experts have stated that Modi doesn't have any real knowledge on national issues including economy, foreign policy, trade & industrial policy, Agriculture etc. Modi is like a Trumpian fool who has no capability & skills to make national policies and hold public office. And unfortunately, Modi is surrounded by people who are highly corrupt & destructive. While Modi's policies are bad enough, the sycophants surrounding Modi continue to inject hardline Neoliberal policies and cheerlead Modi's insane policies. Modi himself doesn't have any knowledge about Labor laws, Farm laws & APMC, Trade & Commerce, Banking & financial regulations etc. How does Modi bring legislation & ordinances on these issues? These reforms are formulated & drafted by people surrounding Modi, his friends & sycophant Yes men. Modi just signs the bills with a rubber stamp.
Three main features of Modinomics are - Austerity & privatization, event management & self promotion by Modi, arrogance & callousness. Comparing Manmohan Singh UPA Govt to Modi BJP Govt, we can see many differences. The leadership of past Government had expertise with people like Manmohan Singh, Chidambaram and Raghuram Rajan but it lacked policy actions. More than bad policies of past Government, it was lack of policy action & policy paralysis that caused all kinds of problems. In contrast, Modi Govt has no expertise but it has many policies. But the policies of Modi have no rational basis and hence are destructive & disastrous. In conclusion, if i would summarize one fundamental difference between UPA and BJP Goverment, it would be arrogance and callousness. While the present BJP Government came up with disastrous policies, the more disturbing thing is the arrogance with which it implements and pushes forward with these disastrous policies. Maybe the policy mindset of government is inherited from personal traits of political leaders.
Comments
Post a Comment