Modinomics 3.0 and beyond: the best is yet to come

Jayant Sinha, Chairperson of Parliamentary Standing Committee on Finance and Member of Parliament

Moneycontrol is setting exactly the right target, which is to ask how India can move well beyond $5 trillion — which of course we know is going to happen and is virtually just a matter of the next two or three years — and really start to focus a little bit more longer-term, which is a five- to 10-year view of how we get to $10 trillion. And to that end, what happens in the Honourable Prime Minister's third term, which is Modinomics 3.0, is really going to set the stage for the $10 trillion aspiration.

It has been my great fortune and privilege to have been associated with Modinomics 1.0 and 2.0 in my role first as the Minister of State for Finance and Civil Aviation and then as Chair of the Standing Committee on Finance in my second term. Of course, we are all eagerly looking forward to Modinomics 3.0 and the policies that will take us to $10 trillion and beyond.

Understanding Modinomics

As I try and highlight this journey that the country has gone through over the last decade or so, I am hoping to set the stage for what Modinomics 3.0 will look like. It's important to understand Modinomics 1.0 and then Modinomics 2.0 to understand how 3.0 can build on it and take it forward.

As I look at these three phases, Modinomics 1.0, 2.0, and 3.0, let me start off first by characterising these three terms with three different words, and then try and explain why I have used those words to describe these three different terms.

The first term, Modi 1.0, was really about strengthening the economy and preparing the economy. The word to keep in mind here is strengthening. The second phase, which we are now ending, Modi 2.0, is the phase that is characterised by Atmanirbharata, and I think of it as resilience and building a resilient economy. What is really exciting about Modinomics 3.0 and the run to $10 trillion is that this next phase, and you have already seen the foreshadowing of it, is going to be about leadership, particularly global leadership.

To understand Modinomics 1.0 and 2.0, all you need to know is 30 letters; if you know 30 letters, you will understand the last 10 years of our economic policymaking.

Phase 1: Modinomics 1.0

Modinomics 1.0 can be understood through 15 letters, and those 15 letters are: GST, IBC, DBT, SBA for Swachh Bharat Abhiyan, and AYB for Ayushman Bharat. These 15 letters describe the pillars of policymaking in Modinomics 1.0. And this was a time when we really and truly had to strengthen the economy. If you remember, in 2014, when our government was formed, we were still viewed as a Fragile Five country: growth had dropped below 5 percent, inflation was running at 10 percent, the currency was wobbly, and we were considered a Fragile Five country. And so we had to strengthen the economy and put in place long-pending reforms that were going to make our economy much, much stronger. And we did that.

GST has been an incredible game-changer. You've seen what it has done to our competitiveness and the way it has streamlined our economy. We got rid of 37 different indirect taxes, and we have introduced the world's most expansive, most efficient indirect tax system through the GST.

Similarly, through the IBC, we changed India's creditor culture completely. Instead of bankers having to run after promoters, now promoters are very watchful that they don't go into default because now the power is with the bankers and creditors when a default happens.

DBT, or Direct Benefit Transfer, through which we provide benefits, cash transfers, MGNREGA payments, and a variety of other kinds of payments directly into people's bank accounts by making sure that we have a bank account for every single individual and family in India, has been an absolute game-changer when it comes to social security and welfare.

Swachh Bharat Abhiyan has contributed to reducing open defecation and the disease burden and provided a whole different way of thinking about the necessary public and private facilities to ensure dignity for all. The Swachh Bharat Abhiyan also showed us that we can get to every single house across India and provide them with the facilities that we need.

Finally, Ayushman Bharat — a universal social security health insurance scheme.

That's how we strengthened the economy — through streamlining, social security, and behavioural change.

Phase 2: Modinomics 2.0

Another 15 letters describe Modinomics 2.0.

PLI for Production-Linked Incentives, which have been an incredible success in bringing manufacturing back to India.

AIL for the privatisation of Air India and the continued growth of aviation. Air India itself has placed an order for 470 planes. IndiGo has placed an order for 500 planes. But the privatisation of Air India also showed the government understands the natural limits of its activities – Air India clearly belongs in the private sector, and its privatisation is a true game-changer. I was able to play a role in that and see exactly how it was done.

AIFs for Alternative Investment Funds. The reason I am bringing up AIFs is because AIFs are a key driver of our start-up economy. The innovation and the 112 unicorns that we have right now — much of that has happened because we have unlocked alternative assets through AIFs. We have built the domestic venture capital and private equity industries, and there are now more than Rs 6 lakh crore worth of assets in AIFs. That's a very powerful driver for the Indian economy.

I don't need to describe UPI as we all know what's happened with digital payments. Finally, GKY for Garib Kalyan Yojana, where we have ensured that 80 crore people are getting free food grains.

These are the 15 letters, the five major pillars of Modinomics 2.0: Production-Linked Incentives, Air India privatisation, Alternative Investment Funds, UPI, and the Garib Kalyan Yojana.

Modinomics 3.0 – the future

We have now set the stage where we have, effectively, a $4 trillion economy that is growing at 7 percent plus and is easily going to get to $5 trillion. The Honourable Prime Minister has already given a guarantee that in his next term, India will become a $5 trillion economy that will be an economic powerhouse and the world’s third-largest economy. So the $5 trillion goal is well in hand.

What are we going to do to get to $10 trillion over the next five or 10 years? Those are the important drivers and policies that we need to think about. And if I were to look forward and speculate on what could be the four to five important pillars of Modinomics 3.0, here’s what I would say:

First: continued digitisation. Of course, we have done UPI, but there's ONDC coming. There are new ways in which we can digitise other sectors, like electric charging. We have seen what DigiYatra can do, for example, in aviation. So, continued digitisation of the economy is going to be a very major driver.

Second: decarbonisation. The greening of our economy and getting on to the net zero trajectory mean decarbonisation is going to be a very major driver over the next five to 10 years.

Third: inclusion. We are going to continue to strengthen our social security platform and make sure that we are able to provide all of the requirements of modern-day living to our people.

Fourth: urbanisation. We are moving towards cities. Cities are growing, enabling us to be more productive. So, urbanisation will continue to be a very important driver.

The fifth and final driver that I see as part of Modinomics 3.0 is innovation. We have reached a critical mass as far as our start-up economy is concerned. We have the world's third-largest start-up ecosystem. We have a thriving venture capital and private equity ecosystem. And these big innovation engines are going to continue to drive our economy and enable decarbonisation and urbanisation to happen.

The best is yet to come

Let me conclude with this: 20 years ago, our economy was a $0.7 trillion economy. Now, we are roughly a $4 trillion economy. In the last 20 years, our economy has grown by $3.3 trillion. The market capitalisation of listed securities has also grown by about $3 trillion. In fact, market capitalisation-to-GDP tends to be slightly more than 1:1.

Over the next 20 years, our economy is going to grow beyond $10 trillion. By 2047, 100 years after Independence, we are likely to have an economy that’s somewhere between $15 trillion and $20 trillion if we continue to grow at 6 percent.

If the GDP-to-market capitalisation remains at the same ratio that it is right now, which is 1:1, then the market capitalisation of our listed securities — and I am sure Moneycontrol viewers will be very interested in this because this is a channel about money and wealth creation — is going to go from $4 trillion to, let's say, $16 trillion. That means the wealth creation we are going to see over the next 20 years is going to be $12 trillion.

So if you think the last 20 years have been terrific and fantastic for India — and India has had, after the US, the second-best performing market in dollar terms, not just in rupee terms — then over the next 20 years, the wealth creation, the growth of the economy, the infrastructure build-out, the real estate assets — all of this is going to be four times of what we have seen over the last 20 years. So the best is yet to come.