Modinomics: Why India is Rising

India is changing. For years the BJP has been banging drums, tolling bells, and blowing conches to signal a New India. A mammoth mandate in 2019 was an early smoke signal for the fire that had erupted in the Indian market, but now a flurry of foreign praise answers the call of the drums, bells, and conches previously labeled as empty and enemy propaganda. Ironically, the newly found foreign admirers just a few years back cried wolf as they predicted India to turn into a hellscape due to what they saw as economic mismanagement, not listening to “experts,” religious tensions, some random picture they saw on the internet, or any other reason a comprador elite would pass on from the home country. What changed?

There are plenty of articles about India’s rise, but very few about why. The reason for this is that they would have to associate with someone untouchable in their ivory towers. The government primarily responsible for this rise is not only the arch-nemesis of the narrators of India to the West but also has a terribly difficult time presenting their case in a manner that doesn’t involve frothing at the mouth. There have been many mistakes made along the way. There are many critiques worth their weight. But one has to start acknowledging that something special is occurring in India. Let’s explore why.

The Shoulders of Giants

Artha or wealth was one of the 4 purusharths or primary aims of life instilled in ancient Indian thought. Indian merchants and sailors would span the ocean named after their land creating a trade network parallel to the Silk Road to the north. Luxury and legend defined the Indian brand whispering and wafting into bazaars and agoras in the olden times. Commerce was king in historical India, but the Republic of India inherited a different pursuit and prophet.

Socialism was in vogue as the economic vanguard of decolonialism. India’s first Prime Minister, Jawaharlal Nehru, a staunch internationalist, would herald this ideology. But what is fashionable does not necessarily feed. India’s growth would pitter and patter as later economists would bigotedly deride this period as a “Hindu” rate of growth, no doubt pinning the pitiful performance on the people rather than the premier. Nehru’s daughter, Indira Gandhi, would continue this socialist splurge so far as to declare India as “Socialist” in the Indian Constitution during her declaration of Emergency. This signal would be followed by the signage of acts resulting in the nationalization of private businesses, expanding the state into more parts of the economy, and increased taxes with slabs maxing out at 97.5% of one’s income.

Reprieve from the deluge of state intervention would come years later as Saddam Hussein invaded Kuwait. An energy crisis hit India as the chickens of economic mismanagement came to roost. Luckily, India would gain a golden egg from this moment of panic. Forced into economic liberalization, Prime Minister Narasimha Rao would enact era-defining reforms charting a new course for the country. Its citizens would promptly reward him with a crushing electoral defeat as the pill of reforms left a too-bitter taste amongst other misgivings. Yet like all good medicine, these reforms would heal and revive the body politic of India over the years. Soon, another brave reformist Prime Minister, Atal Bihari Vajpayee would take a stab at the cumbersome beast of Indian bureaucracy. Slashing regulations, Vajpayee carried the torch of liberalization from the fallen Rao igniting infrastructure initiatives and kindling investment into education and healthcare. Straying from the path of sops as many of his contemporaries did, Vajpayee strode into the 2004 elections declaring that India was shining. Indians, on the other hand, did not see the sheen and gifted victory to the opposition.

As you can see, reform is not just thankless work in India, it is electoral suicide.

Peanut Butter & JAM

After an initial attempt to fulfill the dreams of out-of-touch Reaganite Neoliberal commentators, Narendra Modi quickly backtracked into Indian socialism during his first term. But he did it with a bit of a twist. So much was this contortion that much of the excess of typical Indian socialism, akin to the toxic 4x reused seed oil at a street food stall, was wrung out handily delivering a much more refined end product.

This streamlining was done through “JAM”:

1. Jan Dhan Yojana – A financial inclusion scheme aiming to give access to bank accounts to every Indian family.
2. Aadhar – A digital biometric citizen ID system that serves as the bedrock of both government and private transactions, KYC, and identification.
3. Mobile – The Government of India focused especially on mobile interfacing of the above 2 and built apps for things like digital payments (BHIM), government services (Umang), and healthcare.

These 3 would become the epitome of synergy and would be akin to financial alchemy as possibilities exploded due to the open APIs available built upon Aadhar and its cohorts. Perhaps the most advanced FinTech stack in the world, India Stack, would be built using these 3 essential parts. While the government launched many of these early on in Modi’s term, what probably, as well as controversially, kickstarted accelerating mass adoption was demonetization.

The same day Trump shocked the world with his 2016 victory, Narendra Modi sent a massive jolt across the country. Without prior warning, Modi announced that ₹500 and ₹1000 notes would need to be deposited into banks and later exchanged for new ₹500 and ₹2000 notes. Lines at banks lengthened while the economy contracted as the massively informal Indian economy leapfrogged into the digital 21st century. The government offered explanations such as curbing corruption, which is debatable, but what did happen was a rapid adoption of banking and digital payments. A FinTech rocket had taken off.

Aadhar required for bank accounts now meant the government had not just a more formal method of collecting taxes, but more importantly, a much more direct method of delivering welfare. This was a real revolution. Direct Benefit Transfers (DBT) would conquer the middle man as no more would the local thug or feudal politician take his standard and hefty cut. Rupees were delivered digitally straight into people’s bank accounts without a single finger touching them and only requiring a fingerprint for accessing them.

Anticipation over a liberalized India would be crushed under a slew of welfare. Unlike many of those who lounge in the cushy ideology of libertarianism, Modi was born into poverty brandishing his tea-seller origins as electoral street cred and acutely understood the bleak conditions that many of his countrymen were in. The late tenacious capitalist and stock czar, Rakesh Jhunjhuwala, christened Modi as a “distilled socialist” who wanted to ‘increase the size of the cake’ before handing out pieces of it. Essentially, giving Indians the opportunity to partake in the market before working on the market itself. Throughout his term, he enacted policies such as free grains for the poor, subsidies to farmers, building free housing, handing out free gas cylinders, enacting monetary healthcare support for the poor, and more.

But this doesn’t mean the government was Stalinate in its view of government involvement in the economy. As more families gained access to bank accounts, many also gained access to credit. In 2015, the government launched the Mudra scheme to provide credit to launch small and medium-sized businesses. This unique bottom-up approach to employment and capital creation presents a dynamic method for galvanizing India’s economy at a grassroots level.

Finally, is the Mobile Revolution in India. Unless you’ve been fasting from the internet, you must’ve noticed the Quorafication of many forms of social media. Indians are getting online for the first time. Mukesh Ambani, one of India’s richest men, made a massive $46 billion bet on the mobile internet market. Granting dirt-cheap data packages via his mobile service, Jio, he ushered in a tsunami of smartphone users into cyberspace. The thoughts, commerce, and connections of hundreds of millions of people became digitized within a few short years and continue.

All 3 of these economic evolutions have birthed multiple chimeric offspring in the forms of businesses and government initiatives unleashing a world of possibilities never before imagined in India.

All Roads Lead to Ram Rajya

Ram Rajya has captured the minds of Indian citizens and sovereigns since its inception in the ancient Ramayana. A utopian ideal of a society where Dharma, morality, safety, and prosperity reign under the benevolent leadership of Lord Rama. Modern Indian politicians frequently harken back to it as a template for the future if they are elected. But as Maslow’s hierarchy of needs shows us, much of these lofty ideals rest on much more concrete material needs. While the current government waves the saffron flag of Hindutva to energize its supporters, what truly moves feet to the ballot and the index finger to the lotus is development. It’s one thing to upgrade the digital and financial sphere of one’s life; it’s another league to upgrade the physical sphere of one’s life. Perhaps the most impactful part of “Modinomics” is a manic and marathon push for infrastructure at every level.

In a house, electricity begins to light the room as you drink for the first time from your brand-new tap water connection. You walk out to see a proper road paved instead of a dirt path. You take the road to a brand new railway station where people are cheering the arrival of a train that looks like it belongs in Europe. You take the train to an airport inaugurated last week where you take the first flight of your life as your gaze meets the haze of the clouds until you finally land thunderously in another part of India you’ve never been to but always wanted to go to.

One person will most likely not experience all the above in one go, but hundreds of millions of people have experienced some “first time” from that story over the past decade. Many Indians experienced not just basic material needs, but the basic human dignity we all take so much for granted. These intangibles make up a future dividend of human capital that India will reap due to the very tangible infrastructure developments that are transforming the nation.

By securing twin wins in welfare and infrastructure, Narendra Modi also secured a reputation for empathetic development that had never been before seen in India. His government would continue eclipsing past regimes of India as his approval ratings would soar into space. This built-up political capital and goodwill of the citizenry would be his sword and shield for him to finally take on the deadly dragon of reforming the Indian economy and keeping his skin while doing so.

Tainu Suit Suit Sarkar

Now comes the true challenge. The ghosts of the Rao and Vajpayee governments haunted the Modi government. A first-term focusing on material basics, infrastructure, and a digital formalization of the economy yielded significant breathing room to walk the deadly rope of reforms. Modi had already backed down in 2015 on land reform laws as the opposition’s accusations of “Suit Boot Sarkar” rattled the veteran politician to wisely change course. Modi would back down again more recently as new farm laws aimed at revolutionizing India’s sclerotic agriculture sector were repealed in what many supporters still deem today as an intensely disappointing and cowardly move. Instead, reform would come in tip-toeing inches rather than heavy boots covering feet.

The government inherited a scalding 10% inflation rate on the back of the previous regime. The banking sector was a mess as non-performing assets (NPAs) ran amok amongst government finances. An Austrian fiscal deficit was practiced to the dismay of many as growth came in at disappointing numbers. Even the monstrosity of Covid and lockdowns barely budged the hawkishness of the government as they were widely criticized due to a relatively stingy relief package. Hayek would humble Keynes the next year as India kept a modest inflation rate compared to not only developing but also developed nations. A macroeconomic foundation was emerging from the ashes.

With the land reforms back on the shelf, the government decided to move in stealth. Firstly, to tackle the toxic NPAs that threatened to choke government finances, the government enacted measures such as the Insolvency and Bankruptcy Code (IBC), an Asset Quality Review (AQR), Debt Recovery Tribunals (DRT), and recapitalization of banks (sorry, no cool acronym here) to clean up the banking sector and India’s financial foundation. These first-term incursions would be followed by long-awaited liberalization and privatization in the second term. Bit by bit, small sections of the government would be deregulated or privatized fairly quietly save the loud liquidation of the iconic and chronic Air India, which announced the seriousness of the government in this effort. Protests would erupt in parliament over Modi selling the nation to his Gujarati co-ethnic capitalist conspirators, but the opposition cribbing over corruption held no sway in voters’ minds compared to their faith in Modi’s gumption. Of course, the previous populist plunge naturally helped.

To capitalize on the increasingly formalized economy along with funding the welfare behemoth emerging, the government enacted the Goods and Services Tax (GST) as a national sales tax replacing various other tax codes. However, many businesses have found the GST still Byzantine as the constant tinkering of tax slabs has been a headache for small business owners. The taxes extracted have proved valuable for India’s newfound fiscal discipline accounting for 28% of the center’s gross tax revenues in 2022-2023.

But the government did not just use its fiscal flush to rain down welfare onto the poor, it also invested in and subsidized local businesses and manufacturing. An East Asian style protectionism developed as well as incentives to nurture these fledgling businesses through initiatives such as:

• Make in India – Focusing on 25 sectors, this initiative seeks to attract foreign investment and companies to create their products in India, thereby making it a global manufacturing hub.
• Atmanirbhar Bharat – On the flip side, the government launched this initiative to focus on manufacturing for Indian companies to reduce imports and build a vibrant local business atmosphere.
• Start-Up India – To promote entrepreneurship and technology companies, the government extended several benefits to start-ups including tax exemptions, access to funding, regulatory support, etc…

All of the above, as well as various other initiatives, are linked to the Production-Linked Incentive (PLI) scheme. The PLI offers companies financial incentives based on their financial performance on metrics such as sales, investment, and employment generation. Nearly 26 billion dollars have been allocated for the PLI scheme across sectors such as textiles, electronics, pharmaceuticals, etc… The end result in all these is a ballooning of startups in India as a silicon Bangalore becomes gilded in addition to the rise of powerful chaebols that advance India’s strategic interests (sometimes controversially with a bit of a wink and nudge from the government) as Adani and Ambani mirror the brute economic might of American titans such as Vanderbilt and Rockefeller. An Indian Gilded Age just might be emerging.

A lot of the above is simply bread and butter economic development policy. Nothing too complex, nothing too fancy. The issue is that India prior either didn’t have a clean enough kitchen to cook in, or it was missing a chef who could cut through the cutthroat environment of the establishment. Now it has both.

Lastly, to insulate and augment all the above was a globe-trotting diplomacy. Securing pacts and petroleum, trade and tech transfers, strategies and securities, the diplomatic corps of India proved that a second set of suits would smile under this government, not just corporate ones. A “Hindu Nazi” government would bring relations to new heights with the Keepers of Mecca and Medina and various other Gulf monarchies. Combined with steadfast relations with the Russians, an energy oasis was cultivated amidst a storm of scarcity. India became an Asian Switzerland standing in between rivals while still extending the arms of friendship to both sides. An ancient term called “Ajatashatru” – the one with no enemies – perfectly encapsulates this transformation of India in the international arena. This evolution consolidated its position to weather economic shocks such as Covid and the Russia-Ukraine war via a smart economic and energy policy nestled by excellent diplomacy.

Many commentators slyly portray the recent Indian escalation as a natural consequence. Of course, it would’ve happened, wouldn’t it? Yet for decades, the Indian economy dragged in the mud. So abysmal was its condition that only recently have people gotten access to toilets. Toilets – imagine how much of a failure of governance it has been that such a basic amenity was a rarity in 21st-century India. India was willed into this position. A process was laid out and followed by a stellar team of ministers from various backgrounds, all while ignoring your favorite economists, experts, exponents, and so on. Narendra Modi was panned at and laughed at in 2017 when he rebuffed the intelligentsia and internationalistas of the world claiming “Hard work is more powerful than Harvard” in a thick Indian accent. Yet now it seems that not just Modi, but the people of India are having the last laugh.

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Lakshmi, the Goddess of Wealth, comes of Her own accord where fools are not respected, grain is well stored up, and the husband and wife do not quarrel.

-Chanakya, Chanakya niti, 3.20