Prime Minister Narendra Modi, who is now the longest serving Indian PM, delivered a 103 minute Independence Day speech from the ramparts of the Red Fort. It’s the longest I-Day speech by any Indian PM. The duration of the speech is probably an indicator of the pivotal moment India finds itself in.
In the 11+ years of Modi’s prime ministership, this moment is perhaps the most challenging. There was a once-in-century shock in the form of Covid-19 in early 2020. That however was a global shock and put all countries in the same boat, catalysing a degree of cooperation that is now rare.
India’s external shock, with a difference
At this moment, India faces unique challenges that also have external origins. It’s unprecedented that India has to simultaneously deal with a rocky relationship with the world’s two most dominant powers, the U.S. and China in this case. Earlier, other PMs typically dealt with one difficult superpower at any moment in time.
Another factor that is unusual is that India has deep economic ties with both and neither power has hesitated to use that leverage to attempt extracting concessions from India. The U.S. is India’s largest trade partner, across goods and services, while most supply chains of key Indian exports like mobile phones run through China.
It’s in this backdrop that Modi announced an economic vision that seeks to loosen vulnerable dependencies while also enhancing domestic competitiveness across sectors. Atmanirbharta is not an economically sound concept- even China imports basic food grains- in the current global economic paradigm. But what the idea evokes, particularly on I-Day, is not being rendered economically vulnerable by any other power.
Three factors that need to be addressed
Three aspects of Modi’s speech captured the economic and social dimensions of reforms. They also implicitly highlighted the political challenge ahead in getting the full potential of reforms.
The advent of Industry 4.0, with AI being one of its foundational pillars, has coincided with a crucial phase of India’s demographic transition. The primary challenge is make youth employable at a time when the education is lagging the fast-paced technological changes disrupting the job market.
The erstwhile Employment Linked Incentive Scheme has been rebranded as the PM Viksit Bharat Rozgar Yojana (PM-VBRY). It has an outlay of Rs 99,446 crore and aims to incentivise the creation of more than 35 million jobs over two years- the union cabinet has cleared the allocation.
An essential aspect of the scheme is that it aims to incentivise employers to create formal jobs. The design and subsequent adjustments made after feedback will be crucial in creating a skilled work force that can help India move up global supply value chains. As most new technologies first show up in work places before they percolate to educational institutions, they fastest way to learn is on the job. That, in turn, will feed into moving up the manufacturing and services value chain.
Industrial reforms are key to get a buy-in for farm reforms
Farmers found special mention in Modi’s speech. They are a focal point of trade talks with Western countries, saddled with subsidised farm surpluses, looking to prise open the Indian market. Earlier agricultural reforms have stalled because fierce opposition from sections of farmers.
Some of the opposition stems from anxiety as the average age of Indian farmers has been increasing. Research by economist Vidya Mahambare and her colleagues showed between 2004-05 and 2018-19, the median age of agriculture workers increased from 35 years to 40 years. If we take only the percentage of prime working age population into account, their share among agriculture workers fell from 40% to 23% over the same period. Two of India’s poorer eastern states, Bihar and West Bengal, had just 20.5% and 19.4% of prime working age population engaged in agriculture respectively.
It’s a good sign when younger members of the work force move out of agriculture, but the inadequacy of manufacturing jobs, in particular, and prevalence of informality in the job market creates resistance to a buy-in for farm reforms as tiny tracts of land are viewed as a fallback option when things go wrong. India needs to reform its manufacturing environment to create space for other reforms.
Modi has promised a time-bound GST reform. This has been long pending and it requires great political investment from him to bring states on board to initiate a big adjustment in the GST framework eight years after its rollout. It is important to note that GST was envisaged as integral component of India’s manufacturing reforms by removing tax-induced distortions.
Big political challenge to roll out economic reforms
States in India are critical to the success of most central government initiated reforms. Even schemes such as PLI for electronic manufacturers work well only when state governments complement the centre’s efforts with timely acquisition of land and buildup of necessary infrastructure.
At the moment, India’s federal relationship is under strain, with even the centre’s right to fix annual borrowing limits for states being litigated in the Supreme Court.
Modi’s political capital in contemporary Indian politics is unmatched. It will require a big effort on his part to defuse the tension and bring back the spirit that saw the launch of GST where states voluntarily gave up taxation autonomy over a big part of their tax base. Without this spirit coming back, it will be hard to bring areas such the entire petroleum downstream product chain into the ambit of GST.
Modi in his speech has outlined a vision. As prime minister and the country’s most popular politician he needs to lead India’s economic transformation from the front. That will ensure atmanirbharta from cynical big powers.
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