Long thread: Poorly argued column on why Modi doesn’t feature in a list of India’s reformist PMs. Since some version of this argument is used by many, counters in this thread, with an argument of what I think is the fundamental misdiagnosis by most (lazy) analyses
First the headlines: 1. Modi IS a reformist PM 2. As a reformer he clearly ranks below PVNR, it is arguable if he is tied with ABV or not; including MMS in the list of reformist PMs is 🙄 3. However Modi’s economic mgmt. has been poor; econ. management is NOT = reforms
So on q1- is he a reformist PM? Just tot up a list- IBC; inflation targeting; GST; RERA; infra financing through InVITS, TOTs and REITs; corporate tax changes. This is before current round where every sector in the Indian economy is opened up for private sector ...
...Agri reforms (APMC; Essential commodities); FDI cap increases; and the planned privatisations. If this doesn’t qualify as reformist I don’t know what does, especially since Gupta frames his argument as a comparative one with other PMs.
Secondly, where does he stack up versus other PMs. PVNR occupies top spot for having made the biggest and mos consequential shift. But ABV vs Modi is not easy to resolve in who ia more reformist. And Gupta only discredits hinself by even including MMS as a “reformist” PM
Now Gupta does the regular dodge of saying the reforms are good, but the implementation is bad. I see this as a self serving argument by many who advocate reforms but then when it doesn’t yield results blame implementation. This is very “no skin in the game” behaviour
If you are an economist or public policy analyst who makes policy recommendations without taking into account what the govt. can implement well, your contribution is as valuable as that of a beauty pageant contestant to world peace.
And Gupta’s argument that it is because we don’t have heroic top notch bureaucrats is again a misdiagnosis. You reform with the bureaucracy you have, not with the utopian bureaucracy of liberal dreams. This is lack of systems thinking and instead a focus on personalities
In fact this is part of the problem of the Modi government! An over-reliance on bureaucrats and personal energy and skill versus systemic change. So not only is Gupta’s critique wrong, it is the exact opposite of what is needed.
That brings me to the crux of the argument. Reforms are NOT synonymous with good governance. The Modi government is BOTH reformist AND poor managers of the economy. And that’s because of the lack of stimulus and demand management, not lack of “reforms”.
The big issue when the govt. took over was the twin balance sheet problem. The biggest failure of the govt. has been in not solving this with alacrity, and letting the sclerosis spread to a four balance sheet problem, and that causing a demand collapse in the economy
We know from the sectoral financial balances approach that growth happens if someone’s balance sheet grows (in a flow sense); with stressed corporate balance sheets, and since you don’t want households to be over-levered, the govt. should have grown its balance sheet...
..that is it should have run *higher* deficits, but instead the govt. with very “reformist” instincts instead tried to comply with FRBM and reduced the fiscal deficit. Also the very reformist govt. decided to do the IBC; while the even more reformist RBI stopped forebearance ..
So we had a total collapse of investment with stressed balance sheets within the government NOT spending much more (creating demand when private investment demand had collapsed), AND taking longer to resolve the existing pile of bad loans due to the IBC process.
Less “reformist” moves which were far more pragmatic - either do greater forebearance (extend and pretend) and grow out of the problem, or do very quick large scale recapitalisation rather than the case by case legalistic IBC procedure.
The very “reformist” inflation targeting also added to this, dampening nominal growth as a way to reduce debt. Now, does it mean the reforms are bad? No- reforms are good, but they are NOT a solution to a problem of demand drop due to deleveraging, stimulus is.
Reforms don’t lead to short term growth boost, in fact many reforms (like the ones I listed above) in fact harm a demand boost. For example IBC would mean more prudent capital budgeting- but that also slows investment demand. What the economy needed and still needs is a stimulus
Even in the current economic package post Corona, one can see that fiscal deficit fetish has governed govt. thinking. Again we had a slew of very good reforms, but insufficient to non-existent demand stimulus appetite.
A lot of this is also due to absorbing some slogans from “reformists” which are not well thought out. For example “Fiscal deficits are bad”. Now, when you have an economy that is deleveraging, it isn’t. And we know that because inflation and CAD have both been benign throughout
So that’s the fundamental failure of the govt. - not lack of “reforms” (or the dodge of good reform, bad implementation). Lack of attention to demand & the lack of conviction to carry out necessary stimulus since they wanted to be fiscally “responsible”- a reformist goal (end)
