‘Be vocal about local,’ Prime Minister Modi tells the nation
In a late evening address to the nation, Indian Prime Minster Modi announced a stimulus-cum-reforms package that is 10 per cent of GDP and which promises to change the paradigm of the Indian economy. The fine print of the package, however, will be unveiled over the next few days.
In a dramatic late evening address to the nation, Indian Prime Minister Narendra Modi announced a $290-billion stimulus-cum-reforms package, or 10 per cent of the country’s GDP. The goal: Revive the Covid-19-hit economy by providing critical funding support to small, medium and heavy industries, agriculture, workers and the middle class and reform and resuscitate land, labour, liquidity and law.
This makes India’s stimulus package the fourth largest in the world, relative to GDP, after Japan (21 per cent), the US (13 per cent) and Germany (10.7 per cent).
Modi’s address was reminiscent of US President Franklin D Roosevelt’s New Deal. The underlying message is clear: Not survival but revival. The unspoken declaration is that having resolved the initial crisis of saving lives, the time had come to address the issue of livelihoods.
Turning crisis into opportunity
Prefacing his big announcement with details of how India had turned the Covid-19 crisis into an opportunity – for example, by achieving self-sufficiency in personal protection equipment (PPE) and N-95 mask production from scratch in the space of less than two months – the Prime Minister iterated that the soon-to-be-announced details of the package will fundamentally reboot the Indian economy.
The five pillars of India’s self-reliance are economy, infrastructure, system, demography and demand, Modi said. But his emphasis on self-reliance must be clearly understood in the context of contemporary global economic trends. It does not, most emphatically, signal a return to the failed import substitution and license permit raj regimes that were pursued during the Jawaharlal Nehru and Indira Gandhi years. Instead, it points to a resolve to make India an integral part of global supply chains by rewiring the fundamentals of the economy by following a decentralised model of growth.
Be vocal about local is the message the Prime Minister sent out. In many ways, this is a 1991 redux. Just as the balance of payments crisis of 1991 prompted deep and wide-ranging reforms that changed the way the Indian economy functioned the Covid-19 crisis can alter the way the country’s economy functions.
Modi offered tantalising glimpses of what could lie ahead. He said systems will have to change. He said the proposed reforms will encompass land, labour, liquidity and law. This gives rise to optimism that the reforms announced by states such as Uttar Pradesh, Madhya Pradesh, Gujarat, Punjab, Maharashtra, Rajasthan, Odisha, Karnataka and others in the areas of land and labour could be part of a bigger picture that could change the paradigm of factor markets in India.
However, Modi did not provide any details of his vision, nor did he say how it would be financed. These will have to await the series of announcements that Finance Minister Nirmala Sitharaman will make over the next few days. There is also no roadmap on how this programme will be financed.
So, the suspense of over the details of India’s putative New Deal that can potentially transform the country and its economy will continue to linger till the Finance Minister slowly unveils the package of reforms over the next few days.
** Read the first of a six part series by Manoj Ladwa on how India can push through reforms that can herald a new economic renaissance.
*Follow our in-depth analysis of the Finance Minister’s announcements over the next few days