By Hemant Karandikar
PM Modi’s handling of India’s economy has already been globally acclaimed. A 30 point jump in World Bank’s ‘Ease of doing business index’ and Moodys’ recent upgrade to our credit rating are but confirmations of the same. Within India, the narrative in most main stream media is controlled by vested political and business interests so they highlight ‘economy’s tanking’ based on selective data (one quarter’s GDP), and anecdotal information on job losses -never mind the pickup in urban and rural consumption (consumer packaged goods and durables, telecom and mobiles, cars, two wheelers, tractors) and buoyant direct and indirect tax collections.
And one is not even talking about the rising stock market, which they say is ignoring banks’ NPA mountain, lack of private investment, and increasing crude oil prices.
If you keep aside the prism of politics, survey of after survey shows PM Modi’s approval rating of 80% and more even after three years in office. Most new governments are well past ‘honeymoon’ and are in the throes of ‘midlife crisis’ at this stage.
Surely, demonetization and surgical strikes against Pakistan are the big factors behind PM Modi’s popularity. Yet, such one off activities don’t explain his and his government’s high level of approval ratings. The answer may be in what is happening below the radars of economists and media.
State reaches the poorest of poor with money meant for them
Instead of abandoning UPA’s Aadhaar program, Modi Government embraced it and launched a massive drive to open Aadhaar linked Jan Dhan Yojana bank account scheme. The program was initially criticized for zero balances putting strain on banking system. To date, 30.60 Crore beneficiaries have banked so far with Rs 67,687.72 Crore balance in accounts. The government expanded the the biometric identity program for plugging leakages in subsidy regime and ensured that subsidy benefits reach the intended people. (Former PM Rajiv Gandhi had said that only Rs 15 reached the poor out of every Rs 100 spent on subsidies – 85% leakage!) While Manmohan Singh government forever remained in pilot phase of DBT scheme (Direct Benefit Transfer), Modi Government used the Aadhaar- Jan Dhan Accounts platform to transfer benefits directly to the poorest of poor. State governments came on board and the DBT program was expanded to cover from MNREGA to scholarships. The biometric identity technology was also used to weed out fictitious accounts in public distribution system in states ( 2.33 Cr bogus ration cards deleted) and subsidized LPG cylinder scheme. The subsidized LPG availability for genuine households improved so much that from waiting periods of weeks and months, it became as simple as sending SMS for LPG booking and getting quicker deliveries. Over 10 Lakh better off households gave up LPG subsidy after PM Modi appealed.
Modi Government launched a free LPG connection scheme -Ujjwala -aiming to benefit 5 Cr of below poverty line families by 2019. Freedom from smoke emitting chullahs is the benefit.
Cumulative subsidy savings due to Aadhar based authentication were Rs 50,000 Cr until December 2016. The DBT coverage will go up from 84 schemes to 533 central payout schemes by March 2018.
What we have seen and what will be witnessing in future is one the biggest subsidy overhaul anywhere in the world. When one considers that subsidies are now actually reaching the intended poor beneficiaries – crores and crores of them – one begins to understand why the masses support PM Modi in a big way.
Creation of livelihoods at the bottom of pyramid
Subsidies help and make living more tolerable for the poor, but you need a livelihood to live. Most of the narrative in mainstream media is fixated on GDP growth rates and interest rates. Growth without adequate participation of masses is not only unjust, it is also unsustainable as the boom and bust cycles during Congress rule.
Modi government’s ambitious MUDRA scheme uses the Jana Dhan Aadhaar Mobile (J.A.M.) to encourage individuals to be job creators. Under this scheme, over Rs 4 Lakh Crore of loans have been disbursed to over 9.6 Crore micro enterprises since 2015. The loan are given for business, transport vehicles, loans for starting personal services like saloons, tailoring shops, repair shops, courier services, food processing or textile related activities. The loan amounts vary from Rs 50,000 to Rs 5 Lakhs and up to Rs 10 Lakhs under various schemes.
A survey by SKOCH has found that the MUDRA scheme has generated over 5.Crore direct and indirect jobs in first two years. It is very heartening that this has happened by funding the unfunded -nearly half the beneficiaries belong to under privileged classes, 20% are from SC, 5% from ST, and over 70% are women.
Jobs at being created at the bottom of pyramid while large and medium private industry struggles with a hangover of loans taken and excess capacities created during the previous boom cycle. The Modi government has stepped in during last three years with public investments in infrastructure building which again has been adding jobs – for example road construction – at lower skill levels.
Jobs and livelihoods are definitely being created at the bottom of pyramid with its own unique multiplier effects through higher demand for daily consumption items and services.
The next phase of Bharatnet project to provide broadband connectivity to gram panchayats will give further boost to rural economy.
A huge transformation at the grass roots
The dramatic and massive demonetization of 2011 brought hidden and mostly illegally accumulated cash out in the open. The contraction of black economy will play out in years to come through follow up actions like benami property seizures and Income tax surveys and tax collections.
There is a second welcome benefit. Demonetization gave a thrust to digital transactions at the bottom of the pyramid. The middle and upper classes anyway have access to credit cards and net banking. Initiatives like UPI (United Payment Interface) and BHIM apps and e-wallets rode on the massive Jan Dhan Bank platform and empowered the poor in conducting transactions among themselves overcoming the barriers of distance and access. A craftsman can sell her products and receive payments from anywhere in her bank account.
Such faster transactions bring efficiencies and growth.
The combined effect of subsidies reaching the poor, clean fuel for households, and creation of livelihoods is that the economic environment the poor has been improving by leaps and bounds. This explains the increasing levels of support to PM Modi even after three years and despite tough decisions like demonetization.
Transformation of the top layer of economy
The top always grabs headlines. Therefore, we know that elimination of political corruption at the top, improvements in ease of doing business through major and micro level changes in laws, rules, and procedures, Make in India and Startup India programs, GST and a responsive and effective Modi Government have brought major changes in the formal economy. As industry comes out its capacity overhang and banks come out of their bad loans overhang, growth of the large and medium sectors will rebound.
Global financial institutions like the World Bank, Moodys and Morgan Stanley and global and Indian industry leaders all attest to this.
The middle economy
Indian economy has a mixed middle.
The first middle, the salaried class, has been at the receiving end of inflation, dropping interest rates, house purchases that needed a lot of cash, and day to day corruption. This is the class that earns white money, pays taxes per force and has to feed part of it into black economy under duress.
The second middle is that of realty and jewelry sectors, trade and professional services like doctors, lawyers and accountants. This second middle has ability to hide incomes, evade taxes , and get rules bent through cash transactions. They generate and spend black money routinely.
Both these middles have been complaining about a State that willfully wastes money on subsidies by letting middlemen pocket them. It has been complaining about big time corruption like 2G, Coal scams and day to day corruption.
Modi Government has made sure that India’s middles have less reasons to complain as far the center is concerned. Curbing day to day corruption is mostly in the hands of the state governments and local bodies and a lot action is needed from them. But the fact is that the both the middles have much less reasons to complain.
The GST has surely confronted the richer layers of the second middle with prospects of ‘less hidden profits’ and having to pay taxes. Many won’t be relishing this. But the whole economic climate is changing and they have lost whatever moral rationalization ( tax paid is wasted by government) they had, to evade taxes.
It is easy to understand why the hugely complex GST regime hasn’t met with a big backlash. This is in the same league of the popular support to demonetization.
It has been just three years
India’s economy is changing fast and the world has sat up and taken notice. The poor and those with hunger for improving their lot are putting in hard work. Those who want to seize opportunities are seizing them.
But our Judiciary, Education, Irrigation, Mass transportation, and Law and Order sectors are lagging. States and Local bodies have to pull up their performance. Our political class is still a major generator of black money. That’s why it has been fighting pitched battles against demonetization, GST, and linking of PANs with Aadhaar. It is still is stuck with opposing for the sake of opposing based on ideas like reservations, quotas, communalism that out of sync with the masses. Election after of election is exposing them. Elections in Gujarat and Himachal will be no exceptions.
Our preoccupation with headline grabbing macro-economic indicators like GDP must give way to a more balanced view of our economy. For this we need more surveys and better reporting by our financial institutions. We need a better public discourse.
But we need to understand that ours is not a jobless growth. We have to think beyond traditional jobs and think of livelihoods. Even traditional jobs will see growth once India’s top layer of economy comes out excess capacities.
It has been just three years so there is a reason to hope that the above and many other problems will be resolved.
(The author is a Leadership coach, writer, design consultant, long distance runner, IIT Bombay alumnus)