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Coalition or not, reforms are key

opinionCoalition or not, reforms are key

What Modi 3.0 needs to do is offer well targeted freebies meant exclusively for the poor but pursue serious economic reforms.

More than a month has passed since the surprising and unexpected results of the 2024 Lok Sabha elections were announced. The BJP failed to secure a majority on its own by winning 240 seats. However, the pre-poll alliance NDA won a comfortable majority with 293 seats.

For almost a month, there has been speculation over the stability of Modi 3.0 since he is now dependent on N. Chandrababu Naidu of TDP and Nitish Kumar of JD(U) for survival. No one knows what will happen in the future, but the government appears quite stable. It is expected for the Congress and its allies to be cock a hoop after the results. However, as the recent Parliament session indicated, the Opposition for some reason thinks the people of India have voted for it to run both the government and the Parliament. One can expect more relentless opposition to whatever policies the government announces and more confrontation over issues.

That’s inevitable. But what is more important is the ongoing process of reforms. By the time Ms Nirmala Sitharaman presents the Union Budget in 2025, India would have overtaken Germany to become the fourth largest economy in the world. A note of thanks is due to P.V. Narasimha Rao, Atal Bihari Vajpayee, Dr Manmohan Singh and Narendra Modi for this achievement; particularly to Narasimha Rao who unleashed the reforms process despite running a “minority” government. Since then, barring some phases of regression, the process of economic reforms has been maintained, even when coalition governments ruled the country in a seemingly unwieldy manner. In that context, it would be churlish to suggest that Narendra Modi cannot run a reform-oriented coalition government with 240 of his own MPs when Dr Manmohan Singh and Sonia Gandhi as chairperson of NAC could run a reform-oriented coalition government with just 145 of their own MPs.

After more than three decades of economic reforms, India remains a uniquely peculiar economy. The tremendous achievement is that extreme and degrading poverty has been almost completely eliminated. When Dr Manmohan Singh presented his first Budget in 1991, more than 50% of Indians lived below the poverty line. Currently, that number is well below 10%. In effect, more than 600 million Indians have been lifted out of extreme poverty. Yet, the contradiction is stark. Despite this, the government is still providing free rations every month to 800 million Indians. Many analysts and critics of the Modi government say that this is a classic case of crony capitalism where high rates of economic growth benefit only the likes of Ambanis or Adanis, while ordinary Indians continue to struggle to survive. Income and wealth inequality is cited as an example of this lopsided development. To compensate for this, almost all political parties have started a race to offer freebies to people. But this could eventually prove to be a race to the bottom. What Modi 3.0 needs to do is offer well targeted freebies meant exclusively for the poor but pursue serious economic reforms.

What do the authors mean when they say serious economic reforms? Firstly, the authors have no expertise or interest in offering jargon-laced commentary and advice. Second, the authors talk of ordinary Indians being the beneficiaries when they say serious economic reforms. CVoter has been conducting nationwide surveys on socio economic issues for numerous years. The authors have noticed two trends that have been persistent. First, a big majority of Indians say that they find it extremely difficult to manage household and family budgets. The reason for that is simple: ordinary aspirational Indians are not earning enough to sustain a middle class quality of life. The second is an overwhelming majority citing unemployment as a serious concern. Serious economic reforms can be meaningful if they address these two issues.

How can that come about? The only solution is a sustained rise in manufacturing as a contributor to GDP of the economy. This failure to build a manufacturing ecosystem has been the biggest failure of India even after economic reforms were launched in 1991. Since then, policymakers have been saying that manufacturing should contribute about 25% to the GDP of India. But it has rarely crossed 15%. Nurturing a manufacturing ecosystem and sustaining it is the only way for the two above mentioned issues to be resolved. Sure, the authors are aware that many “experts” like former RBI Governor and informal advisor to the Leader of Opposition Rahul Gandhi think chasing manufacturing glory is a waste of time and resources. But that is hogwash. Not a single major economy in the world has achieved middle income status (except the oil exporting ones) without creating a vibrant domestic manufacturing ecosystem. There is no way India can be different. Even in this age of robotics, AI and remote work, manufacturing of hundreds of items of regular use ranging from shoes to mobile phones to clothes to cars will remain important. More important, they are the only way to create tens of millions of jobs that pay reasonably well since productivity in that kind of manufacturing is far higher than any agriculture related work or even gig work like working as a delivery partner for e-commerce platforms.

Albeit in a limited way, the Modi government has achieved a degree of success in manufacturing. When he took over as Prime Minister in 2014, the manufacturing of mobile phones inside India was virtually zero with just two odd plants assembling mobile phones. As aspirational Indians bought hundreds of mobile phones, China happily exported them to India earning tens of billions of dollars. The Modi government started and sustained the Production Linked Incentive (PLI) scheme despite severe criticism by the likes of Raghuram Rajan. In value terms, mobile phone manufacturing in India rose from Rs 18 thousand crores in 2014 to Rs 4 lakh crores in 2024. More than 97% of local demand is met by domestic manufacturing and a quarter of the output is now exported. Apple has already announced that 25% of its global output of iPhones will come from India. Millions of jobs inside the mobile manufacturing factories and in allied activities have been created.
How does Modi-3.0 replicate this success story in other industrial sectors? That comes in our next column.

Yashwant Deshmukh is Founder & Editor in Chief of CVoter Foundation and Sutanu Guru is Executive Director.

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