Skip to main content

Four years of Modi Govt Reforms: A Stock Taking

Nov-2018 by Arvind Virmani

In a paper titled, “National Reform Agenda for Growth & Welfare,” the author (Virmani 2014) laid out what a new Govt needed to do. Virmani (2014) analysis was that, “The unshackling of the Indian economy during the 1980s raised its real (PPP) growth rate to 2.1 per cent points above the average of the World economy during 1981-1991 (from (-)1.3% below world average during 1950-80). The rate of growth of the Indian economy accelerated further during 1992 to 2010 to 3.6 per cent points above the average growth of the World economy, because of the 1990s reforms. Since then, the real growth differential has collapsed to 1.2 per cent point. The entire 2.4 per cent point drop in the growth differential can be attributed to domestic causes. There are three reasons: One, an overemphasis on (legal) Entitlements vis-a-vis (actual) Empowerment and a neglect of economic growth & Employment opportunities. Two, deteriorating governance (including corruption allegations), the re-introduction of regressive rules, procedures and administrative practices (a la LPQ raj) and poor macro-economic management. Three, failure to introduce policy, regulatory and institutional reforms, essential for sustaining growth at its full potential.”

The public welfare objective was stated (Virmani 2014) as, “The welfare of the average Indian had increased to about a third (1/3rd) of that of the average World inhabitant by 2010 (in terms of Per capita GDP measured at PPP). It has stagnated at that relative level since then. It is very important to understand that it is this gap between our per capita GDP (at PPP) and the World average, which (along with corrupt governance systems) results in our having higher poverty ratios and worse social welfare indicators than those of better off countries. The fundamental objective of any Indian government must be to close the welfare gap of the Indian people with the rest of the World. The next Indian government should aim to raise the per capita GDP level of India to 45% of global average by 2020 (from 32% today). This will require a restoration of per capita growth to 6.5% (~ 8% GDP growth) and policies to sustain this growth rate. This will generate economic opportunities and jobs for youth and begin to restore the welfare and dignity of the average Indian to the level of the average World inhabitant. If we can sustain such growth for two and a half decades, Indian welfare levels will equal the rest of the world by 2040. With India’s per capita GDP at PPP in 2040, likely to be less than 60% of China’s, we can then reset our objective to one of closing the Welfare gap with China! Though 2040 is a long way off, a peek at the future helps to understand the opportunity and the challenge facing us!”

The present paper evaluates the reforms carried out by the Modi Govt against this benchmark, also pointing out which parts of the 2013-14 agenda were not appropriate, in hindsight.

Download the Paper