Indian Prime Minister Narendra Modi came into government one year ago promising to increase India’s economic well-being. How has he done?
His government has certainly made progress. It has dropped the previous administration’s apparent assumption that sufficient growth will materialize out of thin air. Instead, it has tried to make it easier to do business, among other things, which will make for a somewhat more prosperous India.
However, the Modi administration is not following the best economic course. It has made choices that limit India’s ability to perform now and in the future. The government is thus helping India to do better but not helping it to do very well. This explains why many observers feel disappointed.
The path by which India can reach its full economic potential is difficult. It includes dealing with the contentious issue of private land rights, liberalizing the labor market, and creating a much less intrusive state in fiscal terms and otherwise. Defenders of the Modi government can certainly respond that such strong pro-market steps are politically unworkable.But if they are right, a high-middle-income India that is a true global economic power is off the table, indefinitely.
THE MODI PATH
In its first year, the government has both done some good things and benefited from some good fortune. The good fortune is most obvious in the case of falling global oil prices, which has reduced inflation pressure. The best example of good policy is the government’s attempt to greatly simplify India’s tax code and help unify the country’s domestic market with a single goods and services tax (GST).
Simplification is also the goal with respect to starting and operating a business. Modi and his staff have cut the number of government certifications required to do so and made it easier to apply for the remainder. They deserve credit for these policies and others, which will help India see more corporate investment and encourage solid headline GDP growth.
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