28 slides @ 40 months: PM Modi wrests back narrative

By | 2017-12-13T11:20:08+00:00 13th December, 2017|

From 2004 to 2014, the highest executive office of India was held by a nominee of the grand old party – an economist who had held every possible position of eminence in the central government in a career spanning over three decades. By an amazing stroke of fate (gushingly described as Sonia Gandhi’s ‘Amazing Grace’ in a front-page banner headline by a leading Delhi based newspaper), Manmohan Singh came to occupy the Prime Ministers’ chair.

Nothing could have prepared the assembled audience, as well as the millions who tuned in to watch the speech on television, about what Prime Minister Narendra Modi was going to say.

After 10 years at the helm of the government of India, Singh delivered his last address to the nation as the PM on the 17th of May 2017. “As I prepare to lay down office, I am aware that well before the final judgment that we all await from the Almighty, there is judgment in the court of public opinion that all elected officials and governments are required to submit themselves to”, he said.

Nearly 40 months later, on the 4th of October 2017, the man who ousted Singh and the Congress party from office, took to the stage at Delhi’s Vigyan Bhawan. He was to address a gathering of company secretaries – one of the most level-headed professionals in any economy. The speech came at a time of a debate on the state of India’s growth prospects. Nothing could have prepared the assembled audience, as well as the millions who tuned in to watch the speech on television, about what Prime Minister Narendra Modi was going to say.

There was no inkling that there would be over two dozen power point slides (28 to be exact) that Prime Minister Modi would showcase during his address. The slides were a “then and now” comparison of major elements of India’s macro-economic data. The span was wide – from consumer price inflation, to the current account balance, the centre’s fiscal position, foreign exchange reserves as well as the interest rate scenario.

There were other slides too – on sales data of a diverse variety of consumer goods, metrics that captured infrastructure, passenger as well as goods transportation capacity. The slides seem to hit home. The hall erupted in cheers at regular intervals as Prime Minister Modi spoke about the economy. Many television channels, who had initially not telecast the speech, were forced to cut in hastily. Social media began to take notice as Modi kept hammering away.

After all, when was the last time that a Prime Minister had chosen to present a report card on the state of the economy in such a manner? For those who had been accustomed to the annual ritual of an anodyne, printed-on-chart-paper report of a post-election coalition led by a professional economist, this was change – welcome and refreshing.

Even as he dwelt on multiple macro-data points, Prime Minister Modi chose to do so with a self-depreciating quip about how “he was not an economist and had never claimed to be one”.

The point though didn’t get missed. Here was a leader over two-thirds into his term, taking on critics and wading into their turf, with a data driven presentation that very few had expected of him. The flourishes were vintage Modi and blessed with “vaikhari” – the Vedic term for the last of the four stages of the spoken word or sound. Hindu philosophy believes that the spoken word is the external expression of consciousness and deeply linked with “kriya shakti” – the power of action.

And that brings us to the action that played out 48 hours after the speech. On the 6th of October, the centre along with states drove through multiple changes in the Goods and Service Tax architecture. The course correction was necessary. A hundred days into this ambitious tax overhaul – Prime Minister Modi had made it clear that whatever needed to be done to sort out the problems would be done.

The problems with the GST are multiple and the Council’s decisions should be viewed as an honest admission of the flaws that exist. Several issues remain and would require deep procedural and rate adjustments. The fact that the process has begun has brought cheer to the economy and market participants.

A little appreciated fact of the GST is the extent to and the way the centre has surrendered its powers and primacy in levying and collecting indirect taxes in India. Taxes on income (of corporations and individuals) continue to remain the absolute power of the centre. However, over time, the centre, in some ways, whittled away at the concurrent nature of indirect taxation with the introduction of the “service tax” in the Budget of 1994-95 by none other than then finance minister Manmohan Singh.

Starting with three services including that of stock-broking, the five per cent rate has since expanded and now is levied based on a negative list (where every manner of a possible service is taxed, unless specifically exempt) with the tax being collected and appropriated by the Centre. States have also been dealt a raw hand through other tax “innovations” through the levy of cess and surcharges.

However, the point that needs to be underlined is that the GST represents a fundamental shift of the fulcrum of power away from the Centre and to a Council that has states embedded in it. In 22 meetings, this body, arguably the most powerful authority created in India in the recent past, has cobbled together a rare consensus – the likes of which cannot even be seen in Parliament.

To my mind, this shift is one of the greatest achievements of the Modi administration and in line with his decision of dismantling the Planning Commission at the very beginning of his term.

The avoidable technical complexity of the GST should not take away from the fact that Prime Minister Modi has risked an immense amount of political capital in ushering in this tax architecture. It is laughable that many commentators chose to ignore, perhaps for partisan ideological reasons, the massive, positive reset that is panning out. It is also perplexing that not enough notice is being taken of the flexibility and the pace at which corrective action is being taken.

Narendra Modi took a massive gamble with the advent of GST so soon after demonetisation. He played his hand again – on the 4th of October. It is clear, he is paying personal attention to the economy and is wresting back the narrative. In seizing the initiative and acting – he has sent out a renewed sense of assurance that the Indian economy would not be headed for a hard landing.

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