This nearly decade-long period has significantly transformed the Indian economy as Modi made decision after decision that had profound, lasting effects on the economy. Given the sharp split between supporters and critics of Modinomics in India, it could be debatable how well Modi’s measures have worked for the economy. But few would disagree that Modi pursued his reformist agenda with unprecedented zeal.
Below are some of his decisions that transformed India’s economy:
Goods and Services Tax
The GST was the reform of reforms, and Modi carried it out with great success. The taxpayer base has almost doubled since its inception, and tax revenues have also increased. GST revenue rose 12% year-on-year in April to an all-time monthly high of ₹1.87 lakh crore. Most major states have reported GST growth in excess of 20% compared to the same period last year, indicating broad growth across sectors and states. In March 2023, 90 million e-waybills were generated, up 11% from 81 million in the previous month.
The India Stack
Modi is likely the first Indian PM to make such heavy use of technology for his welfare programs. His government’s Unified Payment Interface (UPI) has revolutionized the Indian economy by enabling digital payments even in villages. Behind the vast digital payments infrastructure that has emerged in India is India Stack, a suite of open APIs and digital public goods aimed at unlocking the economic potential of identity, data and payments at population scale, such as Aadhaar, UPI, Digilocker and more recently the CoWin vaccination platform.
The core idea of India Stack is to reduce transaction costs so that 1.3 billion people can access socially and economically important services and these services can be provided by both the private and public sectors. It enables private innovation based on public infrastructure. India Stack has created a set of open protocols or standards that are implemented by the institutions concerned. The UPI has helped private sector companies embrace business models based on digital payments.
India’s technology-enabled governance is now admired around the world. India has developed world-class digital public infrastructure to support its Sustainable Development Goals, a path that entails lessons for other countries embarking on their own digital transformation, the IMF said in a recent working paper, noting That digitization has aided the formalization of India’s economy has helped Aadhaar transfer payments directly to beneficiaries while reducing losses.
Direct power transmission
Direct Benefits Transfer (DBT) was another revolutionary system used by the Modi government for financial inclusion of the masses of India. In the 1980s, then-Prime Minister Rajiv Gandhi said that for every rupee sent by the center government, only 15 paise goes to the poor. The DBT has changed that. With the help of the JAM (Jan Dhan + Aadhar + Mobile) trinity, the Modi government managed the feat of transferring subsidies directly to the people through their bank accounts.
The direct transfer of subsidies reduces leakage and delays while providing transparency and accountability in the process, saving the 85 paise that was previously missing from a rupee. Financial inclusion not only helps in benefit disbursement but also increases market size and financial inclusion of India. India saved $27 billion on key central government programs through DBT by moving fast and fighting corruption, the government said in March.
On average, over 90 lakh DBT payments are processed daily in India to send money directly to the accounts of eligible beneficiaries of state schemes, the government said last year. From 2013 to last year, more than 24.8 million rupees were transferred through DBT mode.
The Insolvency and Bankruptcy Code
Before the Insolvency and Bankruptcy Code (IBC) came into force in 2016, companies that were in bankruptcy proceedings took a disproportionately long time to liquidate. Almost half of the cases lasted more than ten years and 15% more than 25 years. The IBC provided for a market-driven and time-bound settlement of distressed assets. The IBC made it easier for banks to recover their defaulted loans. It provided a one-step mechanism for troubled companies to resolve their bankruptcy efficiently and in a timely manner. It was a necessary reform when India’s PSU banks were saddled with bad loans.
However, the new bankruptcy resolution process has not resulted in significantly better outcomes than older debt collection mechanisms, although it has increased overall institutional capacity. The number of cases coming in through the legacy debt collection channels is growing five times faster than the IBC, but it’s still the most efficient channel available, handling the majority of bad loans. The bankruptcy procedure prescribed by the IBC experienced lengthy delays due to increasing legal challenges and a lack of jurisdiction.
According to IBBI data, the 611 bankruptcies resolved under the IBC through December 2022 took an average of 482 days, excluding the time excluded from the NCLT. The IBC provides a maximum period of 270 days for the settlement of a company’s insolvency. In these 611 cases, the creditors recovered Rs. 2.53 million or 30.4% of their approved claims. It is fair to say that for 516 companies, the recovery was 84% compared to the fair value determined when they were admitted to the process. The government wants to change the IBC to make it more efficient.
Made in India
Modi’s Make in India project aimed to transform India’s traditionally service-oriented economy. Services have contributed more to the Indian economy than manufacturing. The Make in India program was recently bolstered by the announcement of a performance-based incentive program in more than a dozen manufacturing sectors, particularly in the electronics and semiconductor chip industries.
The PLI program incentivizes domestic production in strategic growth sectors where India has a comparative advantage. This includes strengthening domestic production, building resilient supply chains, increasing the competitiveness of Indian industry and increasing export potential. The PLI program is expected to significantly increase production and employment, also impacting the MSME ecosystem.
When Modi launched the Make in India program in 2014, there were many critics who questioned whether India could become a manufacturing power. It required skilled labor and a lot of capital. Nine years later, the “Make in India” plan finally seems to be on track as Apple is establishing its manufacturing unit in India, a powerful gesture to Western companies looking to diversify their manufacturing away from China. It can be said that Make in India was launched in a timely manner. In the eight years since its inception, global geopolitical situations have shifted in India’s favour.
National logistics policy
Logistics costs in India are 13 percent of GDP compared to 8 percent in developed economies, making it difficult for Indian exports to compete globally.
Along with Modi’s massive push to build roads, trains, railways, ports and bridges, a logistics policy aims to revolutionize Indian trade by accelerating the movement of goods across India. Under the recently launched National Logistics Policy, ministries of infrastructure, including railways, highways, ports and steel, will develop sector-specific plans to increase logistics efficiency in consultation with various stakeholders.
The policy aims to reduce logistics costs in India to a level comparable to global benchmarks by 2030; improving the Logistics Performance Index ranking; and create a data-driven decision support mechanism for an efficient logistics ecosystem. India climbed places in the World Bank’s 2023 Logistic Performance Index as investments in soft and hard infrastructure and technology helped the country improve its port performance. India now ranks 38th in the 139-country index, up from 44th in 2018. India’s goal is to be in the top 25 countries by 2030.