Image Credit: Ramachandra Babu/XPRESS

The overwhelming mandate which propelled Indian Prime Minister Narendra Modi to power in 2014 was seen as primarily based on two pillars: a genuine belief in his tantalising promise of radical economic reforms which would lead to prosperity for everyone, and a smartly packaged concoction of Hindu nationalism.

Considering the voting pattern of that election, the expectations from Modi were more on the economic pillar and less on social parameters.

Four years of Modi: A fractured society, squandered mandate

Following the fading months of the Manmohan Singh government’s policy paralysis and growing allegations of corruption, Modi’s campaign promise in 2014 of depositing Rs1.5 million into every Indian’s bank account, by recovering it from the corrupt, sounded too good to be true.

But as his Bharatiya Janata Party (BJP) government completes four years in office, those promises remain just that.

In those four years, Modi has overhauled India’s archaic bankruptcy code, ushered in the world’s most complex indirect tax system, ensured that India jumped by an unprecedented 30 ranks on the World Bank Ease of Doing Business index and has largely led a corruption-free government.

That’s a serious list of achievements.

Yet, a series of recent electoral setbacks, a string of protests by farmers across the country, a systematic upsurge in casteist and communal violence and the lingering aftertaste of demonetisation are a pointer to the uphill challenge Modi faces as he eyes a second term in office.

According to recent surveys by agencies such as the Centre for the Study of Developing Societies (CSDS) and the Reserve Bank of India, consumer sentiment across urban and rural India is on the decline and the poor and the elderly are the most disenchanted segment.

Fastest-growing major economy

That disenchantment is ironic — since India last week surpassed China to regain the crown of the world’s fastest growing major economy.

Yet it is also a clear indicator of how, despite leading a hyperactive government, Modi has been unable to translate the political capital of his mandate into a cohesive economic strategy.

Instead, his government has often — as in the case of demonetisation — allowed itself to be hijacked by the compulsion to be seen as decisive.

With possibly less than a year to go before parliamentary elections, Modi’s economic legacy will therefore play a crucial role in deciding his fate. Here is a look at seven of them and how they will help or hinder his re-election prospects:

1. GDP growth

Early on in his tenure, Modi revamped the way India’s gross domestic product (GDP) is calculated, leading to a jump in the country’s economic growth.

The exercise was akin to what the previous Congress government had done with a revision of the poverty line — which only theoretically eradicated some of India’s most persistent poverty and attracted global ridicule. But in Modi’s case, markets swiftly responded with a surging Sensex and booming stocks to sustain the euphoria.

India’s GDP grew 7.2 per cent in the October-December quarter last year, and economists estimate it to grow at around 7.5 per cent this year and the next.

The effects of a record-breaking stock rally and the GDP outlook has also helped the government gloss over many of the inherent structural problems with the economy, such as a widening trade deficit and the toxic debt burden of public sector banks.

Even when the Indian economy faced strong headwinds from the twin effects of demonetisation and the Goods and Services Tax (GST), its growth rate was the envy of many developed economies. With economy showing green shoots of recovery, the results will boost Modi’s chances at the ballot box.

2. Economic reforms

The perception of Modi as an economic liberator has been deeply bruised mainly due to demonetisation.

But even otherwise, the government seems to demonstrate a baffling economic ambivalence: it is willing to bear the long-term pain of GST but will gladly raise import tariffs to their highest in decades; it will put up the beleaguered Air India for sale but be unwilling to negotiate flexible terms with potential bidders; Modicare could turn out to be a game-changer but hardly any details are available about it.

Road infrastructure and rural electrification are perhaps the sectors where the most visible progress has been made.

But mixed economic messages highlight a persistent problem of perception with the Modi government — both for its domestic vote bank as well as for international investors — and does not augur well for its poll prospects.

3. Goods and Services Tax

This is perhaps Modi’s boldest reform yet — not because he initiated it (it was conceived in 1985), but because he persisted and pushed through with it at the cost of eroding his own political capital.

In doing so, he has shown a strong appetite for absorbing short-term damages to build a political legacy.

Along with the dismantling of the archaic Planning Commission, the GST move also shows him as a leader unafraid of deep structural changes if he wills it.

But while the GST era earned Modi global plaudits, the execution and the tax slabs of GST were far from prudent. It forced many small traders — the traditional backbone of BJP support — into utter misery. Combined with rural distress and demonetisation, this might translate into unforgiving votes, even from a widely loyal BJP base.

4. Jobs creation

So where are the 10 million new jobs every year that Modi promised in his election manifesto? Nowhere, if the latest statistics is anything to go by.

Along with farmers’ distress to an IT meltdown, the deep dissatisfaction with the job market could spell trouble for Modi at the hustings.

A recent indication was in the BJP bastion of Gujarat — where Modi’s party barely scraped through to win the local assembly seats.

5. Demonetisation

This was the unmitigated disaster that launched a million memes. While Modi has often explained the rationale for banning 86 per cent of India’s currency in terms of fighting so-called “black money,” the visible benefits of banning 86 per cent of India’s currency are not clear even after 18 months.

Ostensibly, it helped tackle money laundering and wiped out hordes of unaccounted money and cleaned up transactions in the property market, but there is no data to clearly establish what exactly has transpired.

The decision also crippled the real estate sector at a time it was already dealing with headwinds. Taken in concurrence with the Benami Property Transactions Amendment Act, the cash ban enhances Modi’s tag of corruption-free governance — but the inability to rationally explain the reason for such a gigantic disruption is a price the BJP and Modi could pay in election booths.

6. Make in India

Yet again a landmark initiative, the Make in India campaign was launched with much fanfare but has sputtered in the interim.

Many prospective investors from around the world — including governments and sovereign wealth funds — concede that opportunities are finally available to access the lucrative Indian market.

But red tape and restrictive labour laws remain a concern and a genuine manufacturing boom is yet to kick off.

For all his energy, Modi has shown no indication of tackling India’s bloated bureaucracy, the source of much of the convoluted laws governing Make in India.

In the absence of any major commitments and removal of red tape, this is a campaign that unlikely pay electoral dividends for Modi.

7. Corporate Insolvency Code

With an average of 4.3 years taken to adjudicate a company’s bankruptcy in India, a code for time-bound resolution of corporate insolvency is a huge relief for investors and industries alike.

Bhushan Steel became the biggest beneficiary of the code when a Tata Steel subsidiary successfully bought it over last month.

At a time when the likes of Vijay Mallya and Nirav Modi dominate public imagination in India, having protection in place will also encourage businesses to better manage risks and entrepreneurs to thrive. An easy winner for attracting corporate votes, come 2019.