Home Contact Us  

India - Articles

Print Bookmark Email Facebook Subscribe
#5329, 18 July 2017

Three Years of the Modi Government

Reviving the Indian Economy: Structural Reforms Needed
Prerana Priyadarshi
Researcher, IReS, & Manager, Operations and Outreach, IPCS

When Narendra Modi took over as India's prime minister in May 2014, he had the mammoth task of reviving the Indian economy which had taken a beating under the United Progressive Alliance (UPA)-II regime. After three years of repairs and reforms, the current account deficit has been reduced to a historic low of 0.7 per cent; forex reserves are at an all time high of US$ 360 billion; the consumer price index (CPI)-based inflation came down to 2.18 per cent in May 2017; and the Gross Domestic Product (GDP) stood at 7.1 per cent in the first quarter of 2017. 

However, the economy is not just about macro economic growth; a closer study of three key sectors of the Indian economy (listed below) reveals another story.  
  • Industry
  • Agriculture
  • Financial institutions 
In September 2014, the Modi government launched its flagship programme, Make in India , to encourage manufacturing of goods, both national and multinational, within India. Toward this, the government simplified manufacturing-related processes and checklists. An Investor Facilitation Cell was set up to guide and assist investors during the entire tenure of their business. Consequently, India’s ranking on the World Bank's Ease of Doing Business list improved from 134 in 2015 to 130 in 2016.

Since then the number (and value) of industrial projects set up in the country has increased by 28 per cent since 2013; foreign direct investment (FDI) has accelerated to US$ 60.08 billion in the last three years as against the US$ 36.05 billion received in 2013-14; merchandise exports have also begun picking up after witnessing a fall of 5.5 per cent year over year (YOY) in November 2016 as against 10.43 per cent in 2013.

However, these numbers do not match the reality posed by the weak Indian industrial activity since 2014. According to India's Central Statistics Office's data, the annual IIP growth rate was 1.1 per cent in financial year (FY) 2012, which has now fallen to 0.7 per cent in FY 2016. Industrial output is showing a slight growth in 2017 owing to the growth in the mining and quarrying sectors and the electricity segment with no contribution from the manufacturing sector. 

Low growth in the manufacturing sector has immensely impacted the jobs in the country. Unfortunately, even the Make in India and Skill India missions have not helped the government achieve its target of creating 10 million jobs. Although 4,06,032 youths have been trained in FY 2016 (till 25 December) under the Pradhan Mantri Kaushal Vikas Yojana, unemployment has risen from 4.9 per cent in 2013-14 to 5 per cent in 2015-16. The number of beneficiaries of the Prime Minister's Employment Generation Programme (PMEGP) has fallen from 4,28,000 in 2012-13 to 3,23,362 in 2015-16 (a 24.4 per cent fall). 

The response to the Modi government’s Pradhan Mantri Fasal Bima Yojana (PMFBY) - an insurance coverage scheme for financial support to farmers in the event of notified crop failure due to natural calamities, pests and diseases - has been positive from states like Andhra Pradesh and Maharashtra, which have allocated INR 1,855 million in the state budget of 2016-17.

Another scheme, the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY), was launched to increase the coverage of irrigation and improve water use efficiency. In January 2017, NITI Aayog laid out a detailed roadmap for implementation of the irrigation scheme, prioritising ongoing projects. The move is expected to fast-track PMKSY - 99 priority irrigation projects and 21 projects with a total irrigation potential of 5.22 lakh hectares were expected to be completed by June 2017 (the data is yet to be released). 

Under the e-National Agriculture Market (e-NAM), the government also aims to link 585 (so far 417 markets from 13 states have been integrated) regulated agri-markets across the country to increase agricultural output and reduce productions costs.

Despite the many initiatives, India’s agri-GDP under the Modi government grew by just 1.7 per cent per annum, which is less than half of what was achieved during the final three years of the preceding UPA government (3.6 per cent). This in turn has hit farmers' income and led to an increase in demand for farm loan waivers. But a waiver is a temporary solution and it can erode credit discipline, make banks conservative towards lending to farmers and deteriorate the state's fiscal position.

Financial Institutions
The Pradhan Mantri Jan Dhan Yojana (PMJDY) (launched in August 2014) has shown impressive results: as of June 2017, 28.90 crore bank accounts have been opened with a total balance of INR 64564.09 crore in accounts. However, in the haste to achieve targets, banks did not perform proper checks, leading to duplicate account holders. 

The government’s Digital India project launched in July 2015 aims to eradicate corruption by ensuring digitisation and formalisation of the economy. Although e-payments picked up after the demonetisation announcement on 8 November 2016, they declined as soon as cash was replenished. Demonetisation contracted cash supply and slowed GDP growth but bore a few benefits such as increased digitisation, greater tax compliance and reduction in real estate prices. The number of persons in the tax net has increased by 91 lakh post demonetisation.

The health of India’s banking sector remains a concern. Non-performing assets (NPA) have been increasing and banks' asset quality has been deteriorating. As per the CARE Rating’s research report, the gross NPA ratio of 13 public sector banks rose by 143 per cent in the two-year period from March 2015 to March 2017. Only 5 of those 13 banks saw an increase of INR 50,000 crore between March 2016 and March 2017. To combat the grim situation of NPAs, India's Ministry of Finance released an ordinance on 4 May 2017 that allows the Reserve Bank of India (RBI) to enforce the Insolvency and Bankruptcy Code (IBC) 2016 on firms that fail to repay money borrowed from banks. Although the RBI's Internal Advisory Committee (IAC) has already identified 12 accounts of corporate borrowers (names undisclosed) for insolvency proceedings under the IBC, it will be interesting to see how the RBI will tackle the indispensable political-corporate nexus. NPAs have weakened growth in IIP because companies stuck with high debts are not keen to invest immediately even after the resolution of bad loans.

In its latest accomplishment, the government rolled out the Goods and Services Tax (GST) on 1 July 2017. Through a single tax system, the GST aims to reduce complexities and compliance cost of various taxes, lowers the tax rate and broadens the tax base, in turn increasing the tax revenue collection. However, proper implementation of the GST is crucial to prevent a setback for the economy.
Overall, through several initiatives and flagship programmes, the Modi government has been able to revive the economy and simplify the rules and procedures to initiate economic reforms in the country. However, it has failed to provide jobs, uplift the farming community and save financial institutions from NPAs. The government will have to structurally address these concerns of the economy.

Print Bookmark Email Facebook Subscribe
IPCS Columnists
Af-Pak Diary
D Suba Chandran
Resetting Kabul-Islamabad Relations: Three Key Issues
Can Pakistan Reset its Relations with Afghanistan?
The New Afghanistan: Four Major Challenges for President Ghani
Big Picture
Prof Varun Sahni
Understanding Democracy and Diversity in J&K
When Xi Met Modi: Juxtaposing China and India
Pakistan?s Tactical Nuclear Weapons: The Inevitability of Instability

Dateline Colombo

Asanga Abeyagoonasekera.
Sri Lanka: Moving Towards a Higher Collective Outcome
The Importance of Electing the Best to our Nation's Parliament
Sri Lanka: Toward a Diaspora Re-Engagement Plan
Dateline Islamabad
Salma Malik
Pakistan's Hurt Locker: What Next?
IPCS Forecast: Pakistan in 2015
India-Pakistan Relations in 2015: Through a Looking Glass
Dhaka Discourse
Prof Delwar Hossain
IPCS Forecast: Bangladesh in 2015
18th SAARC Summit: A Perspective from Bangladesh
Bangladesh in Global Forums: Diplomacy vs. Domestic Politics
Eagle Eye
Prof Chintamani Mahapatra
India-US: Significance of the Second Modi-Obama Meet
Has President Obama Turned Lame Duck?
Modi-Obama Summit: Criticism for Criticism?s Sake?

East Asia Compass
Dr Sandip Mishra
India-Japan-US Trilateral: India?s Policy for the Indo-Pacific
China-South Korea Ties: Implications for the US Pivot to Asia
Many ?Pivots to Asia?: What Does It Mean For Regional Stability?
Himalayan Frontier
Pramod Jaiswal
Nepal?s New Constitution: Instrument towards Peace or Catalyst to Conflict?
IPCS Forecast: Nepal in 2015
Constitution-making: Will Nepal Miss its Second Deadline?

Prof Shankari Sundararaman
IPCS Forecast: Southeast Asia in 2015
Indonesia's Pacific Identity: What Jakarta Must Do in West Papua
Modi in Myanmar: From ?Look East? to ?Act East?
Sushant Sareen
IPCS Forecast: Pakistan in 2015
Islamic State: Prospects in Pakistan
Pakistan: The Futility of Internationalising Kashmir

Looking East
Wasbir Hussain
Myanmar in New Delhi's Naga Riddle
China: ?Peaceful? Display of Military Might
Naga Peace Accord: Need to Reserve Euphoria
Maritime Matters
Vijay Sakhuja
Indian Ocean: Modi on a Maritime Pilgrimage
Indian Ocean: Exploring Maritime Domain Awareness
IPCS Forecast: The Indian Ocean in 2015

Nuke Street
Amb Sheelkant Sharma
US-Russia and Global Nuclear Security: Under a Frosty Spell?
India's Nuclear Capable Cruise Missile: The Nirbhay Test
India-Australia Nuclear Agreement: Bespeaking of a New Age
Red Affairs
Bibhu Prasad
Countering Left Wing Extremism: Failures within Successes
Return of the Native: CPI-Maoist in Kerala
The Rising Civilian Costs of the State-Vs-Extremists Conflict

Regional Economy
Amita Batra
India and the APEC
IPCS Forecast: South Asian Regional Integration
South Asia: Rupee Regionalisation and Intra-regional Trade Enhancement
South Asian Dialectic
PR Chari
Resuming the Indo-Pak Dialogue: Evolving a New Focus
Defence Management in India: An Agenda for Parrikar
Pakistani Taliban and Al Qaeda in Afghanistan: Implications for Asian Security

Spotlight West Asia
Amb Ranjit Gupta
Prime Minister Modi Finally Begins His Interaction with West Asia*
A Potential Indian Role in West Asia?
US-GCC Summit: More Hype than Substance
Strategic Space
Manpreet Sethi
India-Russia Nuclear Vision Statement: See that it Delivers
Global Nuclear Disarmament: The Humanitarian Consequences Route
Nasr: Dangers of Pakistan's Short Range Ballistic Missile

The Strategist
Vice Admiral Vijay Shankar
Jihadi Aggression and Nuclear Deterrence
The Blight of Ambiguity
Falun Gong: The Fear Within

OTHER REGULAR contributors
Gurmeet Kanwal
Harun ur Rashid
N Manoharan
Wasbir Hussain
Rana Banerji
N Manoharan

Ruhee Neog
Teshu Singh
Aparupa Bhattacherjee
Roomana Hukil
Aparupa Bhattacherjee


Browse by Publications

Issue Briefs 
Special Reports 
Research Papers 
Seminar Reports 
Conference Reports 

Browse by Region/Countries

East Asia 
South Asia 
Southeast Asia 
US & South Asia 

Browse by Issues

India & the world  
Naxalite Violence 
Suicide Terrorism 
Peace & Conflict Database 
Article by same Author
Demonetisation: Potential Benefits for the Indian Economy

In Context: Recent Amendments to India's Tax Treaties

The GST Bill: Benefits, Shortcomings, and Ways Forward

Y! MyWeb
Print Bookmark Email Facebook Subscribe
Year 2017
 January  February  March  April  May  June  July  August  September  October  November  December
 2016  2015  2014  2013  2012  2011  2010  2009
 2008  2007  2006  2005  2004  2003  2002  2001
 2000  1999  1998  1997

The Institute of Peace and Conflict Studies (IPCS) is the premier South Asian think tank which conducts independent research on and provides an in depth analysis of conventional and non-conventional issues related to national and South Asian security including nuclear issues, disarmament, non-proliferation, weapons of mass destruction, the war on terrorism, counter terrorism , strategies security sector reforms, and armed conflict and peace processes in the region.

For those in South Asia and elsewhere, the IPCS website provides a comprehensive analysis of the happenings within India with a special focus on Jammu and Kashmir and Naxalite Violence. Our research promotes greater understanding of India's foreign policy especially India-China relations, India's relations with SAARC countries and South East Asia.

Through close interaction with leading strategic thinkers, former members of the Indian Administrative Service, the Foreign Service and the three wings of the Armed Forces - the Indian Army, Indian Navy, and Indian Air Force, - the academic community as well as the media, the IPCS has contributed considerably to the strategic discourse in India.

Subscribe to Newswire | Site Map
18, Link Road, Jungpura Extension, New Delhi 110014, INDIA.

Tel: 91-11-4100-1902    Email: officemail@ipcs.org

© Copyright 2017, Institute of Peace and Conflict Studies.