Despite five years of Modinomics, India continues to be constrained by economic fragilities
When Narendra Modi ran for Prime Minister in 2014, he pledged to boost the competitiveness of India’s industrial sector to promote growth. Modi will be running for president again in India’s general elections between 11 April and 19 May. The economy is in a better position than it was in 2014, but many of the structural fragilities that Modi inherited continue to afflict India today and a mixed track record in terms of economic reforms has dampened enthusiasm for Modi.
- The Government of India implemented the Insolvency and Bankruptcy Code (IBC) in 2016 to consolidate all insolvency and bankruptcy laws and to tackle
Non-Performing Assets (NPA) on bank balance sheets. While about twelve thousand cases have been filed since the introduction of the new law, resource
shortages at the National Company Law Tribunal (NCLT) have resulted in significant delays, and it still takes an average of 4.3 years to resolve
insolvency. Navigating the legal framework can also prove challenging for foreign investors unacquainted with the Indian market.
- In 2016, Modi proposed a demonetisation drive to tackle illicit money flows and tax evasion afflicting the Indian economy and resulting in lower tax
revenues to support the country’s burgeoning population. The move left cash-dependent sectors exposed to tighter liquidity leading to weaker demand
and dragging on the formal economy. It was also implemented too abruptly causing investors to panic and triggering capital outflows.
- A goods and services tax (GST) was introduced in 2017 to boost government revenues but, due to its co-existence with the demonetisation drive, it resulted in a one-off negative impact on domestic consumption instead. While the tax reform is a landmark, it is far from perfect: the GST remains quite complex with different taxes for different categories of goods and many important products, such as oil, are not included in the scheme to date.