Below are a few of his decisions that changed India’s economy:
The Goods and Services Tax
The GST was the reform of reforms, and Modi did pull it off with great success. The taxpayer base has nearly doubled since its launch and collections too have risen. The GST collections in April rose 12% from the year earlier to an all-time monthly high of ₹1.87 lakh crore. Majority of large states have reported a 20% plus GST growth over the same period last year, indicating a broad-level growth across sectors and states. Ninety million e-way bills were generated in March 2023, 11% higher than 81 million in the preceding month.
The India stack
Modi is probably the first Indian prime minister to leverage technology so much for his welfare programmes. His government’s Unified Payment Interface (UPI) has revolutionised India’s economy by facilitating digital payments even in villages. Behind the huge digital payments infrastructure that has come up in India is India Stack, a set of open APIs and digital public goods that aim to unlock the economic potential of identity, data, and payments at population scale, such as Aadhaar, UPI, Digilocker and, more recently, CoWin Vaccination Platform.
The core idea behind India Stack is to lower the cost of transactions so that 1.3 billion people get access to socially and economically important services and that those services can be delivered by the private as well as public sector. It enables private innovation on the back of public infrastructure. India Stack created a set of open protocols or standards that are implemented by the institutions concerned. The UPI has helped private sector companies to rely on business models based on digital payments.
India’s tech-enabled governance is now admired the world over. India has developed a world-class digital public infrastructure to support its sustainable development goals with its journey having lessons for other countries embarking on their own digital transformation, IMF has said in a working paper recently, noting that digitalization has supported formalization of India’s economy and Aadhaar has helped in direct transfer of payments to beneficiaries while reducing leakages.Merchant payments on UPI are expected to reach $1 trillion by FY26, driven by a growth rate of 40% to 50%, Bain and Company has said recently in a report. Point of sales terminals are expected to double to 13 million by FY26 from around 6 million currently.
Direct Benefits Transfer
Direct Benefits Transfer (DBT) was another revolutionary scheme that the Modi government utilised for financial inclusion of India’s masses. In the 1980s, then PM Rajiv Gandhi had said that out of every rupee sent by the Centre government, only 15 paise reaches the poor. The DBT has changed that. With the help of the JAM (Jan Dhan + Aadhar + Mobile) trinity, the Modi government achieved the feat of transferring subsidies directly to the people through their bank accounts.
Direct transfer of subsidies reduces leakages and delays while bringing transparency and accountability to the process, thus saving the 85 paise that used to go missing from a rupee. Financial inclusion not only helps with disbursal of benefits but also increases India’s market size and financial inclusion. India saved $27 billion in key central government schemes through DBT as it is swift and eliminates corruption, the government informed in March.
On an average, over 90 lakh DBT payments are processed in India daily to send money directly into the account of eligible beneficiaries of government schemes, the government had said last year. More than Rs 24.8 lakh crore had been transferred through DBT mode from 2013 to last year.
The Insolvency and Bankruptcy Code
Before the Insolvency and Bankruptcy Code (IBC) came into force in 2016, companies under bankruptcy proceedings would take inordinately long time to be liquidated. Nearly half of the cases took more than ten years and 15% more than 25 years to complete. The IBC provided for a market-linked and time-bound resolution of stressed assets. The IBC made it easier for banks to recover their defaulted loans. It offered a one-step mechanism for distressed businesses to resolve insolvency in an efficient and time-bound manner. It was a necessary reform when India’s PSU banks were saddled with bad loans.
However, the new bankruptcy resolution process has not delivered significantly improved outcomes from older debt recovery mechanisms although it has increased overall institutional capacity. The number of cases entering legacy debt recovery channels is growing five times faster than in the IBC, but it is still the most efficient channel available, handling the biggest chunk of soured credit. The insolvency resolution process mandated by the IBC has seen lengthening delays amid rising legal challenges and a shortage of tribunal benches.
According to IBBI data, the 611 bankruptcy cases resolved under the IBC until December 2022 took, on average, 482 days, barring the time excluded by the NCLT. The IBC stipulates a maximum of 270 days to resolve corporate bankruptcy. Creditors recovered Rs 2.53 lakh crore, or 30.4% of their admitted claims, in these 611 cases. To be fair, in the case of 516 companies, the realisation was 84% against the fair value worked out when they were admitted to the process. The government is seeking to change the IBC to make it more efficient.
Make in India
Modi’s Make in India project aimed to transform India’s economy which has been serviced-led traditionally. Services have contributed more than manufacturing to India’s economy. The Make in India programme was boosted recently with the announcement of Performance-Linked Incentives scheme in more than a dozen manufacturing sectors especially electronics and semiconductor chips.
The PLI Scheme incentivizes domestic production in strategic growth sectors where India has a comparative advantage. This includes strengthening domestic manufacturing, forming resilient supply chains, making Indian industries more competitive and boosting the export potential. The PLI Scheme is expected to boost production and employment significantly, with benefits extending to the MSME eco-system.
When Modi had launched the Make in India programme in 2014, there were many nay-sayers that doubted if India could emerge as a manufacturing power. It required a trained labour force and lots of capital. Nine years later, The Make in India plan seems to be finally on track with Apple setting up its manufacturing unit in India, a potent gesture to western companies that want to diversify their manufacturing away from China. One can say that Make in India was launched well in time. In eight years of its launch, global geopolitical situations have changed in India’s favour.
National Logistics Policy
The logistics cost in India is 13 per cent of the GDP as compared with 8 per cent in developed economies, making it difficult for Indian exports to compete globally.
Together with Modi’s massive drive to build roads, trains, railways, ports and bridges, a logistics policy is set to revolutionise India’s trade by making goods move faster across India. Under the recently launched National Logistics Policy, infrastructure ministries including rail, highways, ports and steel, will prepare sector-specific plans to increase logistics efficiency in consultation with various stakeholders.
The policy aims to reduce the cost of logistics in India to be comparable to global benchmarks by 2030; improve the Logistics Performance Index ranking; and create a data-driven decision support mechanism for an efficient logistics ecosystem. India climbed up six places in the World Bank’s Logistic Performance Index 2023, as investments in soft and hard infrastructure as well as technology helped the country improve its port performance. India is now ranked 38 in the 139 countries index, up from 44 in 2018. India’s target is to be among top 25 countries by 2030.