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Subramanian Swamy: On economy, Modi relies on friends & ministers who don’t tell him truth

Modi’s reliance on unelectable political advisers and timid economists results in them telling the PM only what he wants to hear.

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I had no hope from the earlier two United Progressive Alliance (UPA) governments (2004–14), in which Prime Minister Dr Manmohan Singh, though an accomplished economist, remained a marginal figure of no consequence in his own government, and accidentally a prime minister. His government saw some of the most senior ministers committing gigantic corruption, and coming to the adverse notice of the law and undergoing prosecution in courts.

As a prime minister, Narendra Modi is the exact opposite of his predecessor, Dr Singh. He is not a person of letters, and one who has an unstudied familiarity with microeconomics but not macroeconomics and its intricacies of inter-sectoral economic dynamics. But he has immense appeal with the masses and hard-working middle classes, and thus the mandate to carry out major reforms. He is honest in money matters. Moreover, he has come up from his humble beginnings the hard way, by pulling himself up by the boot straps and thus, by example, has won over the toiling masses of India—to win election after election from 2002 onwards, first at the state level as the chief minister and now twice as the prime minister. But this same lack of academic background has made him dependent on his friends and chosen rootless ministers, who never tell him the bitter truth about the economy or explain the macroeconomics or that he needs to figure the way out of a crisis.

Hence, we have witnessed the folly of demonetization and the inanity of the Goods and Services Tax (GST), both of which have accelerated the tailspin of the economy. But as the prime minister, he is a domineering figure who brooks no political competition. His reliance on unelectable political advisors and colleagues for clues on the complex subject of the economy, which they know little about, or even lettered but timid economists appointed by him to posts of huge perks, results in them telling the prime minister only what he wants to hear. This is a frightening potpourri for the nation.

Also read: Manmohan Singh to Modi Govt: forget vendetta politics, focus on crashing economy

The good news is that the current developing crisis does not necessarily mean an imminent collapse of the economy. That is India’s historic innate resilience. To solve the current problems, the first step is to recognize the urgency that a crisis is imminent or already in existence. I have suggested a new menu of measures to stem the tailspin and turn it around to a fast-growing economy. The Bharatiya Janata Party (BJP) government also needs to give an alternative ideological thrust to economic policy rather than trying to improve on the failed efforts in the past and to seek marginal changes. Now is the time for a structural overhaul to purge the remnants of the command economy, and usher in an incentive-driven, innovation-structured and market-determined competitive economy.

The people of this young republic, but an ancient civilization, which is known the world over, are demanding modern transformation and rapid growth within the framework of our ancient values and heritage. Thus, today’s India is an ancient nation in search of a renaissance.

In the Preamble of the Constitution, our nation is defined as ‘India that is Bharat’. The term ‘Indian’, that is ‘Bharatiya’, signifies a citizen of the Republic of India. India is a new republic but not a new nation. Its people are modern, but they do not reject the nation’s time-tested traditions and the cultural heritage of its age-old past. Now, in 2019, as a renewed republic entering the eighth decade of Independence, India stands at the cusp of a major transformation caused by unprecedented economic development through out-of-the-box thinking, using everything from primitive tools to electronic software, and from entrepreneurship to hard work and self-confidence. This has given a significant and substantial boost to the quality of life for its more than 1.25 billion citizens.

There is now, since Independence, a realistic hope for India to regain its ancient glory, to become the most advanced nation. Its GDP has risen to more than $2 trillion and, in current prices, it is now already the third-largest nation in terms of real GDP (in Purchasing Power Parity [PPP] prices). This rapid growth has created an emerging middle class with rising aspirations and the ability to discover, invent and adapt modern scientific innovations for natural development. In 2019, India leads the world in the supply pool of youth, i.e., percentage of the young in the age group of 15 to 35 years (about 65 per cent), and this lead is expected to last for another forty years. This young generation, with growing access to quality education, Internet use and mobile connectivity, is not only empowered to demand positive change but is the most fertile milieu for promoting knowledge, innovation and research, which will ensure accentuated, sustainable economic growth in GDP at 10 per cent per year. It is this prime workforce that also encourages saving for the future, thus providing the corpus for pension-funding for the retired and the old. We should, therefore, not squander this ‘natural vital resource’, termed Demographic Dividend, which will shrink as development proceeds and as quality of life further improves in the future.

Also read: The economy is India’s most potent weapon, but it’s losing its power

India is thus at the inflexion point or cusp in the curve of transformational growth to global power status. India has now regained its position as the fastest-growing large economy in the world, but a 7 per cent GDP growth rate is not good enough any more. Economic growth must accelerate over the next two decades to meet the rising aspirations of our young consumer population. India thus needs to achieve and sustain a GDP growth rate of over 10 per cent per year for the next two decades (2020–40).

This sustained GDP growth will be accompanied by an increase in per capita income growth from $1,500 to over $7,000 per year at 2019 prices, and thus make the third angle of the global triangle of India, China and the US. For this, India must adopt a three-pronged strategy that can create capabilities for growth and new solutions, which will, in turn, build shared prosperity for its 1.25 billion citizens. Firstly, development must become a mass movement, in which every Indian recognizes and experiences tangible benefits accruing immediately, even as long-gestation reforms continue to be implemented.

Secondly, our development strategy must help achieve broad-based economic growth to ensure development across all regions and states, and across all sectors, ranging from education, agriculture and healthcare to manufacturing, urbanization and retail/trade. This needs the fostering of new innovations and the upskilling of labour, modernization of agriculture, water resource management, finding new fuel sources (such as thorium), and strong research and development (R&D), and physical infrastructure. These path-breaking innovations have to be backed by robust financial architecture and human resource development.

Finally, our growth strategy must minimize the gap between public- and private-sector performance. This calls for efficient, transparent and accountable state governance, which will require developing rational risk-taking and merit-rewarding governance. This will ensure that India not only achieves its ambitious goals for 2040, of overtaking China, but also challenges the pre-eminence of the US, to go on to become scientifically one of the two largest economies in the world by 2050. Thus, as we would then celebrate the centenary of our republic established in 1950, such a national development effort will enable us to challenge the hegemony of the US, in innovation-driven growth and global order.

This excerpt from RESET: Regaining India’s Economic Legacy by Subramanian Swamy has been published with permission from Rupa Publications India.

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  1. स्वामी ने फिरसे एक बार मोदीजी और वित्तमंत्री को जिम्मेदार माना।देखिए इस पोस्ट में।

  2. Very unfortunate that swamy is ignored by Modi – if indira gandhi had done what swamy told her in 1960’s , the “liberalization” and boom would have happened in the 1960’s and 1970’s rather than 1990’s. Swamy knows how to make india grow at 10% but Modi has petty concerns.

  3. Dr.Swamy an erudite,true nationalist and top class economist is vey much right about Modi’s inadequacies on larger national economic issues which was clearly demonstrated when modi gave FM job to the late Arun jaitley who is neither an economist nor a politician.Truly arun jaitley ran Finance Ministry like a bull in a china shop.Arun jaitley did nothing to bring back the money looted.Infact ignorant arun jaitley never listened to Dr.Swamy’s advice and on the contrary was talking lightly of valiant efforts of Dr.Swamy against sonia and rahul in the National herald case.Infact it was Dr.Swamy waging a lone battle against the corrupts like sonia rahul,chidambaram,etc.Arun jaitley as it turns out appears to be singing in tune with kapil sibal and abhishek manu singhvi.But modi was either oblivious to these murky happenings or was not understanding any of these devious acts of omission of arun jaitley.In the second term also modi has ignored Dr.Swamy and gave FM job to the fellow tamilanadu Nirmala sitaram an ,who also does not appear to listen to the erudite Dr.Swamy much to the peril of our nation and allowing anti social elements to gain strength.Modi is not understanding that he is running out of time.Hope he comes out of his slumber and give FM job to Dr.Swamy to allow country to progress.

  4. gree to views of Swami to a large extent…be it DEMO, GST, Divestment in PSU’s…Traffic Penalties…everything is done very impulsively….without much of forethought / planning…although the spirit behind each of the PM’s action is with a good motive…execution at the ground level is horrible…if things move in the current way…Not just AAM ADMI Party…but even AAM ADMI will vanish…..!!!

  5. Nice to note Dr Swamy focused on ” Recognizing need for Economic course correction” with a string of well thought remedies. Those are Prioritizing Health Education Innovation Merit driven Incentivised society. Structural reforms a comprehensive word which to the informed signifies vast changes with growth centered sustained revenue generation . That will feed next generation R&D both in Fundamental and Application to transform our country to the Number 2 economy and the capabilities to secure it apt strategic and tactical resources.
    This brings to a discussion forum on EMPOWERMENT he Chaired with Cato institute Resource Person as Panelist.
    It was following Seminal Crisis Lehmann Brothers and subsequent EROSION OF $10 Trillion.
    As I can RECOLLECT There he disagreed with CATO Resource Person and PROVIDED EVIDENCE when alerts and warnings were ignored from well meaning experts before the financial crisis. This is as case where Value of EMPOWERMENT can prevent crisis.
    He drew comparison to Sub Saharan Africa very Sparse in Population, high on natural resources yet very low on Human Development vis a vis Densely Populated Netherlands Japan . Those countries high on Empowerment served to create Accountability, Comprehensive Development even with High Density of Population
    Their societies were incentivising Merit and Innovation . Hence all round development ushered with Well Educated Employable Workforce and People could make informed choices for the larger good through EMPOWERMENT. Hence In my Previous post on this subject I had mentioned INTROSPECTION . Vandemataram

  6. Delightfully detailed about the diagnosis but woefully vague about what is to be done. My two bits? The central government should, either on its own or through public-private partnerships or through centre-state partnerships, invest in infrastructure like power, water, transport and communication. Equally important, block political interference in these projects. These will have a catalyst effect on almost all other sectors.

  7. It is lonely at the top. When all advisers – in the case of Rajiv Gandhi, the last one – have left, the great man has to take the fateful decisions based on his own understanding of the situation, which comes from a lifetime of experience. However, this is not like starting a war or pressing the nuclear button. The economy is something everyone understands, feels in their bones, although that does not mean that novices should be holding important posts. Someone having studied at MIT would be a bonus. Why the economy has settled permanently in Siberia one cannot say. However, the old Indian tradition of blaming the underlings or the advisers will not work.

  8. Description of the present situation in Swami’s Oxford English is okay, but what solutions can he suggest to improve the economy?

  9. Not an Economist but a humble Techie’s Anguish..👇

    Must Submit the points below
    1.Continuous shutdown production cuts in Manufacturing sectors depriving employment livelihood
    2. Status in Govt Healthcare spending, less than 1.5% of GDP less than Bhutan.
    Health expenses The Single Largest Contributor to Family Debt , even extreme actions as 85% of population manages healthcare through out of pocket expenses in private corporate hospital.One family out of four in debt from Health Expenses.
    3. Govt inaction and apathy forcing people towards Private Healthcare with no viable and acceptable alternative in current insurance based healthcare. ANOMALY..”When one earns and don’t need healthcare one pay less., Compared to one when no income or on savings pension and needs healthcare in advanced age one pays MUCH more ever increasing Costs”.. former CEO HIRANANDANI HOSPITAL Mumbai . This is raison de etre for lost low popularity of Health Insurance
    4. Ayush .. Arogya Muhalla clinic RSVY etc are novel beginning leaving much to desire. While middle class lacks a viable healthcare hence contribution to Lost Expenses Job loss no Social Security
    5. Money not in circulation.. Reason Uncertainty, GST, Terrible effects from NBFU, ILFS Sink hole around ….. crores in with no solution . RBI Security cover ( emergency reserves reduced to introduce money in Ailing Banks)
    6. NPAs and recovery of assets from Economic Fugitives .. outcome terrible . At least we could have pondered over out of court settlement et all.? instead of Prolonged litigation overseas. Any viable chance of recovery in near future ? With ever prolonging litigation expenses, will recovery become expenses and time value become more than amount recovered?
    7. Nothing more to say about Indian Money deposited in foreign accounts.
    8. DeMo Success ? Did it not affect the trading real estate, and informal sectors including manufacturing? Is it factual that that Even New currency being duplicated by overseas actors as per emerging reports? Ordinary citizens had high expectations on “Benami Properties” declaration and prevention much has been achieved there has it ..😉
    9. Stupid Divestment that too in times of Global Uncertainty of Crown jewels in Public Sector like IISCO, IIFCO, Hindustan Cables , Further plans in CLW, ICF Perambur, ICF Kapoorthala , Coal India SAIL ? …millions out of Employment😢?
    10. No major plans for Govt investment in Major Industrial Growth which could have rejuvenated .
    Taking a cue from Past when Pn Nehru urged Private Industry to invest in Steel Cement Infrastructure, Rolling Stock, Heavy Engineering… But to no avail. Ultimately it was Govt investment today’s PSUs which provides the Iron Structure of Our Economy the crown jewels that the Govt plans to Divest .. No wonder it will bring Our Economy to its Knees as I see it. Point to note
    the ills plaguing PSUs lie in Organizational Context of Contributing to Social Uplifting ..Hence profit making as the primary objective was not primary .
    That can easily be rectified having the best talents with immense codified uncodified knowledge resources . Can’t we look at reforms in our labour policies? That single most initiative can usher in much more Foreign investments and propel competition, growth in exports and domestic demand. What’s more transform the PSUs into Global Giants amongst Fortune 20 if not more .
    Because we don’t have a social security like Europe, Comparable High Govt Investments in World Class Education to sustain the R&D and Industry demands . Outcome we remain in “Eternal Catch Up Mode” requiring regular Technology Updates to remain viable . This unlike S. Korea, Japan, Taiwan, China….Israel ( not to even dream) in MULTIPLE SECTORS.
    Currently Many families committing their frugal lifetime savings and resources to send their children to Europe West for Tertiary education . It is even at UNDERGRADUATE level of professional education. It is Only expectation of minimum standards of living, sustainability, that is assured to EU citizens in Europe and the West. These Indian parents are not HNIs ( High Networth Individuals)but ordinary LNIs. Left with no options from our 👎👎👎👎👎…. standards of Professional education (with exception of miniscule Islands of Excellences) could find no guarantee of a minimum life line for their progeny here .
    Introspection and Urgent Corrective action . Alas will it happen? or that also will remain a publicity? …😓 Vandemataram

    • In a nutshell you are an Anti development and there by become an Anti-National as you can’t see so much development happening in the country under the leadership of Hon.Modi Ji, Nirmala Ji, Amit Shah Ji? I am sure you have not seen movies URI, PM Narendra Modi and recent one Man vs Wild. You should learn some positivity in your thinking and try to align yourself with nationalism. We have Article 370 removed, and in Assam 19 lakhs people with be thrown out to Bangladesh and if they don’t accept they will be thrown into Bay of Bengal. All these things re being done for improving the economy. I appreciate if you re orient your self and just chill. And one thing since your being a techie dont worry for now as your industry is based on US and European economy.

  10. It is unthinkable that Modi can shed his innate obsession with “control” and unless that is done, the animla spirits in the economy cannot be released.

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