Modinomics at Two

The Indian Economy Under the BJP

India’s Prime Minister Narendra Modi gestures as he addresses a gathering during a conference of start-up businesses in New Delhi, India, January 16, 2016. Adnan Abidi / Reuters

Last week, Indian Finance Minister Arun Jaitley presented his third budget since the Bharatiya Janata Party (BJP) government, led by Prime Minister Narendra Modi, came to power in May 2014. Modi campaigned on a platform of good governance, and many of his backers wagered that he would work to transform India’s economy while keeping his party’s social extremists in check. Nearly two years later, the record is mixed.

Jaitley’s presentation of the 2016 budget came after several weeks of political turmoil, during which the worst tendencies of Modi’s nationalist acolytes were on full display. The denouement featured BJP partisans gleefully cheering for sedition charges against students at Jawaharlal Nehru University in New Delhi who had allegedly made “anti-national” statements at a campus rally. Against this backdrop—not to mention this government’s serviceable, if unspectacular, budgets to date—investors were primed for some good news. 

And this year’s budget offered some cause for good cheer. The BJP refused to budge from an ambitious road map for fiscal consolidation—adhering to a pledge to further slash the government’s deficit, a necessary and highly anticipated correction to its predecessor’s spending sprees. The news was particularly welcome given that last year’s budget had detoured somewhat from the plan with a pause in deficit cutting in favor of government stimulus. 

Performers walk at the exhibition centre of the "Make In India" week in Mumbai, India, February 13, 2016.
Performers walk at the exhibition centre of the "Make In India" week in Mumbai, India, February 13, 2016. Danish Siddiqui / Reuters
The new budget, the government hopes, will set the stage for the central bank to slash interest rates, with the aim of rekindling the economy’s animal spirits and boosting growth. The budget also gives a fillip to roads, railways, and oil and gas—core infrastructure sectors in dire need of modernization. And it doubles down on India’s heroic biometric identification scheme (known as Aadhaar), designed to eventually channel leaky welfare benefits directly to citizens’ bank accounts, by promising to introduce legislation to place the program on a firm legal footing. Finally, the new budget reaffirms New Delhi’s commitment to reducing its micromanagement of the regions

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