When controversial yet popular Narendra Modi was sworn in as India’s Prime Minister in 2014, he inherited a weak and sputtering economy. Growth had been uncharacteristically low since the 2008 financial crisis, but Modi’s ambitious plans for reform, development, and liberalization promised to recharge India’s economic potential. Would his policies prove effective?
Indeed they would, concluded Arvind Panagariya, who spoke at a February 6 event sponsored by Columbia’s Deepak and Neera Raj Center on Indian Economic Policies. Panagariya—a SIPA faculty member who is on leave while serving as a cabinet minister in the Modi government—was joined by University Professor Jagdish Bhagwati, who presided over the event as director of the Raj Center.
Panagariya set the stage by giving a brief account of India’s recent economic history. Beginning in the early 1990s, India had embraced market liberalization and jettisoned its past policies of government planning and ownership. This proved effective, he explained, as India soon saw GDP growth rates previously unknown for a democracy: over 8 percent per year.
However, this strength did not last. In the years following the financial crisis, recounted Panagariya, India struggled to regain its footing, as growth declined, double-digit inflation took hold, current account deficits reached 4 to 5 percent, and poor lending practices prevailed.
Since Modi took office, though, economic metrics have significantly improved. Panagariya said that growth rates have jumped back up, the rupee is strong, foreign direct investment has been opened up, and budget deficits have shrunk. He attributed much of this success to an extensive menu of reforms encompassing 11 different policy areas, intended to accelerate development and liberalize overregulated industries.
Under Modi’s administration, observed Panagariya, more than 1,100 laws have been repealed, helping to encourage entrepreneurship and decrease regulatory frictions in areas such as bankruptcy, microlitigation, and financial investment. Modi has also been successful at lowering both corporate and personal tax rates, he said.
Panagariya said that building up India’s infrastructure has been a primary focus, with significant work being accomplished on bullet trains, ports, civil aviation, rural roads, energy access, and more. And in the social sector, one of the most important reforms has been to distribute biometric ID cards to citizens, which has helped plug widespread leakages in social programs.
“The government is responsible for doing a lot more than just changing laws and policies,” Panagariya said, underscoring that implementation and administration are also critical factors.
Under Modi, for example, the implementation of a ranking system for states has helped incentivize them to compete in areas such as health, education, and ease of doing business.
At the end of the evening, Panagariya touched on Modi’s most well-known and controversial reform: demonetization. He noted that this was “not a step in isolation” but rather part of a larger strategy. While it’s obvious some things didn’t go as planned, he said, it was a necessary step toward reform. It also sent a strong signal that the Indian government is serious about combating black money. (The term black money refers to untaxed earnings from the black market, sometimes from criminal activity.)
Overall, Panagariya’s lecture described Modi’s policies as far-reaching and ambitious, with many positive effects contributing to a revival of India’s economy.
— Matt Terry MIA ’17
Pictured: Arvind Panagariya // photo by Lou Rocco