Economic Initiatives and Reforms Under Modi’s Leadership: A Financial Perspective

Introduction

Since Narendra Modi took office as Prime Minister of India in 2014, his administration has pursued an ambitious agenda aimed at revitalizing the Indian economy. This blog delves into the various economic reforms and policies introduced under Modi’s leadership, analyzing their impacts on India’s growth trajectory and overall economic health.

Modi’s Economic Goals

Narendra Modi’s economic agenda centers on accelerating growth, modernizing infrastructure, and ensuring widespread access to financial services. His vision includes making India a more prosperous and equitable nation, with the economy at the core of his strategy.

Key Economic Changes

1. Goods and Services Tax (GST) What is GST? GST is a comprehensive single tax on the supply of goods and services, replacing a complex system of multiple indirect taxes. Impact: GST has simplified tax compliance, streamlined business operations, and boosted government revenues. According to the Ministry of Finance, GST collections averaged around ₹1.4 trillion per month in FY 2023-24, reflecting its impact on tax efficiency. However, businesses initially struggled with the transition, and some smaller entities faced compliance challenges.
2. Demonetization What Happened? In November 2016, Modi’s government demonetized ₹500 and ₹1,000 currency notes to combat black money, counterfeit currency, and corruption. Short-Term Effects: The immediate aftermath saw severe cash shortages, disruption in daily transactions, and economic slowdown. The Reserve Bank of India (RBI) reported that 86% of the currency in circulation was withdrawn. Long-Term Impact: While the long-term benefits aimed at increasing digital transactions and formalizing the economy were envisioned, outcomes have been debated. Some reports indicate increased digital payments, but the immediate economic slowdown was significant. The RBI’s data show a gradual normalization of cash flows and increased digital transaction volumes post-demonetization.
3. Digital India Campaign Objective: The Digital India initiative aims to enhance digital infrastructure, encourage e-governance, and promote digital literacy. Goals: One of its primary goals is to drive digital payments and make government services more accessible online. Successes and Challenges: There has been a significant rise in digital transactions and e-services. As of 2024, UPI (Unified Payments Interface) transactions have exceeded ₹12 trillion annually. However, challenges such as uneven internet access and digital literacy gaps persist, especially in rural areas.
4. Startup India and Make in India Startup India: This initiative supports new businesses by simplifying regulations, offering tax benefits, and providing financial aid. In FY 2023-24, India saw a record 70,000 new startups registered, reflecting the program’s success. Make in India: Aimed at boosting domestic manufacturing and creating jobs, this program has led to increased foreign direct investment (FDI) and the establishment of new manufacturing facilities. For instance, investments in the electronics sector have grown significantly, with India emerging as a key player in global electronics manufacturing.
5. Infrastructure Development Projects: Modi’s administration has launched extensive infrastructure projects including highways, smart cities, and bullet trains. Benefits: Improved infrastructure supports economic growth by enhancing connectivity and efficiency. The completion of projects like the Mumbai-Ahmedabad bullet train is expected to significantly reduce travel time and stimulate regional development. Challenges: Some projects have faced delays due to logistical issues and budget overruns. For example, the ambitious smart cities project has been slower than anticipated, with only a fraction of planned cities achieving full operational status.
6. Banking Sector Reforms Key Changes: Reforms include measures to manage non-performing assets (NPAs) and inject capital into banks to improve their lending capacity. Effect: These changes have strengthened the banking system, enhancing its ability to support economic activities. The gross NPA ratio has decreased from 11.2% in 2018 to around 6.8% in 2024, indicating improved financial health in the sector.
7. Social Welfare Schemes Pradhan Mantri Jan Dhan Yojana (PMJDY): This scheme aims to increase financial inclusion by providing banking services to the unbanked population. Ayushman Bharat: This program offers health insurance coverage to economically disadvantaged families, aiming to improve healthcare accessibility. Impact: These schemes have significantly improved financial and health security for millions. By mid-2024, PMJDY had opened over 450 million accounts, while Ayushman Bharat had provided coverage to over 50 million families.

How These Changes Affect the Economy

1. GDP Growth Growth Trend: India’s GDP growth has fluctuated, with some years showing robust growth. For instance, India’s GDP growth was 7.4% in FY 2022-23 but has faced challenges due to global economic conditions and internal structural issues. Comparison: Modi’s economic policies have contributed to varying growth rates compared to previous administrations, with notable highs and lows in economic performance.
2. Investment and Foreign Investment (FDI) Foreign Investment: India has attracted significant foreign investment, bolstered by a more favorable business environment and economic reforms. FDI inflows reached approximately $84 billion in FY 2022-23, reflecting investor confidence. Factors: Reforms, stable governance, and a growing consumer market have enhanced India’s attractiveness to foreign investors.
3. Jobs Job Creation: Modi’s policies have created new job opportunities, particularly in sectors like manufacturing and services. However, the job market still faces challenges, such as the need for skill development and employment for the growing young population. Successes and Shortcomings: While there have been job gains, unemployment rates have also fluctuated, and certain sectors continue to face employment challenges.
4. Inflation and Government Finances Inflation Trends: Inflation rates have varied, affecting purchasing power and living costs. The Consumer Price Index (CPI) inflation was around 5.2% in FY 2023-24. Fiscal Management: The government has worked on budgetary management and maintaining economic stability. Efforts to balance fiscal deficits and manage public expenditure continue to be crucial.

Problems and Criticisms

Criticisms: Several policies, including GST and demonetization, have faced criticism for their implementation and impact. Issues such as disruptions in businesses and economic slowdown during demonetization have sparked debates.

Effectiveness: While some reforms have achieved their goals, others have encountered mixed results and operational challenges. The overall effectiveness of these policies continues to be evaluated.

Looking Ahead

Predictions: India’s economic future will hinge on the successful implementation of current reforms and the introduction of new policies. Key areas of focus will include infrastructure development, job creation, and financial inclusion.

Focus Areas: Addressing infrastructure gaps, enhancing job opportunities, and expanding access to financial services will be essential for sustained economic growth.

Conclusion

Modi’s tenure has seen transformative changes in India’s economic landscape. While there have been notable successes in areas like digital payments and infrastructure development, challenges remain. The effectiveness of these reforms will be critical in shaping India’s economic trajectory in the coming years.