View: Another big Modi disruption could be around the corner. Is India ready?
View: Another big Modi disruption could be around the corner. Is India ready?By R Sriram, ET Bureau|Updated: Oct 09, 2017, 09.30 AM IST Every crisis is an opportunity for political leadership. It is an opportunity for change, to cleanse the system of bad policies, skewed priorities and bad implementation. It is an opportunity to shake things up and put in place a new system, a new team. One of 20th centuryâs greatest politicians Franklin D Roosevelt recognised this. He used the crisis created by the Great Depression to change America in a fundamental way.
India too faced a crisis in 2013/14. It was not as bad as the Great Depression but it certainly created a crisis of confidence as the growth rate plummeted, inflation soared and the governmentâs finances threatened to go out of control. Narendra Modi, who became prime minister in May 2014, tried to attack the problem in two ways. One, try and lift growth through higher infrast ructure spending while setting right the government finances with a tighter control on fiscal spending.
Inflation has been curbed, infrastructure spending has risen and efforts are being made to solve the bad loan problem and revive investments. But Modi has shown that he has a bigger agenda, one that covers changing social habits while implementing a structural transformation of the economy.
Demonetisation, GST, the push towards bankruptcy, provisioning and recovery instead of bank bailouts, the massive push towards renewables are a clear signal that what PM Modi wants is not just higher GDP and industrial production but also an economy which functions in a dramatically different manner. PM Modi wants an economy where it will become difficult for businesses to escape tax with impunity, an economy that relies more on clean energy, an economy where bailouts are eschewed and errant corporate behaviour punished. But all this comes at a cost, high cost.
Job losses and the painful adjustment to a newer system of wider taxation and transparency has robbed the economy off its sheen. It is possible that this is temporary and that a healthy revival is probably a few quarters away but the lessons of demonetisation and the GST is that disruptions of this scale will inflict short-term pain. But if one goes by PM Modiâs recent statements one senses a determination to push forward with disruptive policies.
The allelectric vehicle push is only getting stronger and so is the move to achieve 175 gigawatts of renewable power by 2022, notwithstanding the havoc it is playing with thermal capacity generation. PM Modi spoke the other day about youth addiction and substance abuse triggering concern about whether his government would adopt restrictions on alcohol sale which would be a very radical move.
Aggressive adoption of electric vehicles is no doubt a good idea but it is going to completely disrupt the existing automobile ecosystem resulting in c losures and more job losses. We have another 13 years before this becomes a reality so businesses have time to adjust but that is no small consolation for people with existing businesses and jobs.
While PM Modi clearly believes in more disruption, what do people of this country think of what he is doing? The best way to capture the public mood is voting behaviour and here the verdict in favour of PM Modi and his party is a resounding vote of confidence. PM Modi no doubt sees this as a vindication of his strategy. He probably sees prosperity and disruptive/revolutionary change as going hand in hand but his task to convince voters of the need for disruption will probably become more challenging. But here again, conventional thinking may be wrong.
We may also be overreacting to a short spasm of pain thinking that this is a precusor to a larger illness whereas it may just be side-effects of a strong medicine necessary to cure the disease. PM Modi clearly believes in a fundam ental transformation of economy and politics as his mission and is probably not going to back down from doing what he thinks is necessary to his plans for a new India.
He thinks that clean power revolution and a government-mandated crackdown on alcoholism/substance abuse is as essential as higher GDP growth and more manufacturing investment. The key issue is will voters like it? If they do, Mr Modi would then have won half the battle.
Views expressed here are the author's own, and not EconomicTimes.com's Read more onNarendra ModiModiInflationGSTGreat DepressionGDP growthEconomic crisis
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