10 March 2025 : Indian Express Editorial Analysis

1. Economy in search of roadmap

(Source – Indian Express, Section – The Ideas Page – Page No. – 09)

Analysis of the news:

Modi 1.0: Focus on Macroeconomic Stability

• The first term of the Modi government (2014-2019) was primarily focused on stabilizing the macroeconomic environment, learning from the fiscal mismanagement of the United Progressive Alliance (UPA) years.
• The economy had slowed down, inflation had surged, and the country faced a widening current account deficit due to falling savings and high investment levels.
• Additionally, investor confidence was shaken due to retrospective taxation policies, and banking sector stress remained hidden due to bad loans.
• To address these concerns, Finance Minister Arun Jaitley’s first budget in 2014 laid down a roadmap for reducing fiscal deficits, bringing them down to 3% of GDP.
• The introduction of an inflation-targeting framework helped control price rise, and investor confidence was restored through promises of a predictable tax regime.
• Key structural reforms during Modi 1.0 included the implementation of the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), which aimed to improve tax compliance and streamline business exits.
• The Reserve Bank of India (RBI) also undertook efforts to clean up bank balance sheets, ensuring financial sector stability.

Modi 2.0: Addressing Growth Slowdown and Pandemic Fallout

• Despite the corrective measures in Modi 1.0, private sector investments remained sluggish.
• Modi 2.0 (2019-2024) acknowledged the need to stimulate growth and boost investments.
• A major step in this direction was the sharp reduction in corporate tax rates in September 2019, bringing them down to 22% for existing firms and 15% for new investments.
• To further incentivize investments, the government introduced the Production Linked Incentive (PLI) scheme, aiming to boost manufacturing in multiple sectors.
• However, the biggest challenge of Modi 2.0 came with the COVID-19 pandemic.
• The government responded with large-scale economic relief measures, including free food distribution, direct cash transfers, and credit support for small and medium-sized businesses.
• While these measures helped mitigate economic distress, they also led to a sharp rise in fiscal deficits and government debt.
• Despite recent efforts at fiscal consolidation, debt levels remain significantly higher than those recommended by the Finance Commission.
• Nevertheless, several structural challenges persisted. Private investments had still not taken off, goods exports remained sluggish, and job creation lagged behind.
• Wage growth was weak, limiting household consumption and social mobility.
• The economy was witnessing a reverse structural transformation, with more workers moving into agriculture rather than shifting to higher-productivity sectors.

Modi 3.0: Unclear Economic Roadmap and Emerging Themes

• As Modi’s third term nears its first anniversary, there is still no clearly articulated economic strategy addressing the country’s pressing concerns.
• While previous governments had laid out roadmaps for economic reforms in their early years, Modi 3.0’s approach remains unclear on critical issues like job creation, income growth, and India’s transition to a high-income economy.
• Two potential areas of focus have emerged based on government announcements.
• First, the government appears keen on expanding trade agreements, particularly with the US, the EU, and the UK. However, negotiations on these agreements have been ongoing for a long time, raising doubts about whether they will materialize soon.
• The second major theme is deregulation. The Economic Survey highlighted the need for regulatory reforms, and the Union Budget proposed the establishment of a high-level committee to streamline business regulations.
• While deregulation is being actively pursued in countries like the US, Argentina, and Vietnam—with aggressive cuts to bureaucracy and regulations—India’s approach appears slower, with recommendations expected only within a year.

Conclusion

• Modi 1.0 focused on macroeconomic stability and foundational reforms, while Modi 2.0 attempted to stimulate growth through tax cuts and investment incentives, while also navigating the pandemic crisis.
• Modi 3.0, however, has yet to lay out a clear economic vision. While trade expansion and deregulation are emerging as potential focus areas, their impact remains uncertain.
• As India aspires to transition into a high-income economy, the government’s strategy for sustaining long-term growth, job creation, and income expansion needs to be clearly defined.

Check out 8 March 2025 : Indian Express Editorial Analysis