Fact checking Modi’s WSJ interview

Prime Minister Narendra Modi gave a wide-ranging interview to the Wall Street Journal to mark the second anniversary of his government. Modi argued that he had restored confidence to India and put an end to the “sense of policy paralysis, bad economic conditions and corruption” of 2012 and 2013.

As usual, there was a grain of truth, and also the exaggeration and sleight-of-hand that we have come to expect from him (look here for a check of other claims by Modi).

Consider Modi’s highlighting of the Pradhan Mantri Jan Dhan Yojana (PMJDY) as an instance of how his leadership had ended “a sense of negativity and a sense of deep inertia in the government machinery”:

If you see my Jan Dhan Yojana, you’ll find that I mobilized the whole government machinery so that in a definite period of time, the country’s poorest could be linked to the mainstream of the economy, its banking system.

Certainly, the PMJDY has accelerated the spread of basic savings bank deposit accounts (BSBDA), and increased their usefulness by adding overdraft facilities and life and accident insurance. But the truth is that the entire architecture of financial inclusion (BSBDAs, Aadhaar, electronic payments, RuPay cards) was created and implemented long before Modi took office. Modi often talks as if he singlehandedly brought the poor into the financial system, but the facts show that India’s financial inclusion programme was already established and growing rapidly.

In the two years before Modi, the UPA opened 44 and 61 million BSBDAs respectively, which under Modi jumped to 147 million in 2014-15 and 67 million in 2015-16 (see table below). If we conservatively assume that another government would have opened 61 million BSBDAs per year (as the UPA did in 2013-14), then the Modi effect looks something like this:

Screen Shot 2016-05-29 at 10.11.52 PM

Modi’s mobilisation of government machinery did have a positive effect: we can quantify it at around 92 million accounts, or 20% of the 457 million accounts opened (as on 30 March 2016). Impressive, yes, but the “policy paralysed” UPA also brought millions of poor households into the financial system. Indeed, there was a downside to Modi’s big 2014-15 push: the number of accounts with zero balance was 45% one year after PMJDY began, although it had declined to 26% by 26 May 2016. The growth in account openings consequently slowed in 2015-16.

If Modi did end “negativity” and “inertia” in the government, the PMJDY is definitely the wrong story to pick.

Modi went on to say:

My country had lost a lot of face on account of corruption relating to the coal scam, the scam involving auctions of the 2G network. But within a short and fixed time period, we have ensured transparency. Auctions are now actually held openly and online in front of media.

There is little doubt that the coal and 2G controversies damaged the UPA and helped Modi’s election victory. Indeed, the Modi government has overseen a spate of auctions to allocate natural resources since he took office. But this is not new: the UPA auctioned 3G and 4G spectrum in 2010, and 2G spectrum in 2012 after the Supreme Court cancelled the flawed January 2008 allocations in February 2012.

Likewise, the Modi government had to auction coal blocks after the Supreme Court (in September 2014) cancelled the allotment of 214 coal blocks made between 1993 and 2011. The Modi government could be commended for its speed, but it didn’t have any choice in the matter either.

What Modi deserves credit for is the passage of the 2015 Mines and Minerals (Development and Regulation) Amendment Bill that requires mining rights to bauxite, iron ore and other minerals to be auctioned. The UPA sat on a similar bill for six years before the Modi government succeeded in passing it.

In defence of his economic policymaking record, Modi also stated the following:

In India, reform in the insurance sector, reform in the defense sector, reform in the Bankruptcy Code had been pending for years…  In defense, in my country, there was no private investment. Today I have allowed it to 100%. In insurance, private investment was not allowed.  I have allowed it… I have allowed 100% foreign direct investment in the railways.

Now it’s entirely true that the Modi government succeeded in doing what the UPA had failed do for many years: to raise the FDI cap in insurance from 26% to 49%. It also passed a comprehensive Insolvency and Bankruptcy Code this year that should help clean up Indian banks’  balance sheets. And FDI is now permitted in railway infrastructure (though not in rail operations) whereas previously it was allowed only in metro rail.

But the claim regarding defence FDI is simply wrong. Consider the UPA’s July 2013 policy on FDI in defence:

Screen Shot 2016-05-30 at 7.18.23 AM.png

Here’s the Modi government’s current policy:

Screen Shot 2016-05-30 at 7.06.24 PM.png

The new policy is certainly more liberal than the older one, but it is misleading for Modi to say “today I have allowed it to 100%”. Just as it does today, the government had the power in July 2013 to approve defence investments with 100% FDI if it had wanted.

And the reality? No 100% FDI proposals have so far been approved. Here’s what Defence Minister Manohar Parrikar told parliament in April 2016: “From August 2014 to February 2016, a total amount of Rs.112.35 lakh (Rs 1.12 crore) has come into the country as FDI in the defence sector”. Damp squib.

Finally, Modi stated that:

If you look at the entire post-independence phase of the country, you will find that in terms of money volumes the maximum disinvestment has taken place in the last two years.

An odd formulation, considering that disinvestment began in 1991-92, but Modi is, at first cut, correct. The Rs 48,234 crore raised through disinvestment in 2014-16 is somewhat higher than the Rs 45,697 raised by the UPA in 2009-11.

But that’s too simple: if you’re comparing long periods like “the entire post-independence phase of the country”, you need to account for inflation: the value of a rupee raised in 2004-05 is not the same as in 2014-15. A proper comparison requires us to deflate the value raised from disinvestment with an appropriate, consistent index, in this case the Wholesale Price Index (base 2004-05).

Screen Shot 2016-05-29 at 5.04.36 PM

We find that the volume of disinvestment by the Modi government (in constant 2004-05 rupees) at Rs 26,671 crore is dwarfed by the Rs 33,464 crore the UPA2 raised in its first two years. Even in 2012-13, under the “policy-paralysed” UPA, the value of equity divested was greater than in either of the Modi government’s two years in office.

But the cold reality is that disinvestment has been an embarrassment under both the Singh and Modi governments, and basically reduced to a fiscal deficit padding sham in which a third to a half of funds have come from the state-owned Life Insurance Corporation. The following chart (sources here, here and here) says it all:

Screen Shot 2016-05-31 at 9.24.25 AM.png

It could be that the NITI Aayog or the Bank Board Bureau proposes a genuine transformation of the public sector in the coming months. But until that happens, Modi would be well advised to avoid flaunting what is a policy embarrassment from every perspective.

 

No end of the road for the Congress

Here’s a look at the Congress Party’s national prospects, first published as an oped in the Hindustan Times:

After a merciless series of election defeats since 2014, it’s tempting to write off the Congress as a leading national force. With few visible signs of a Congress revival, some argue that India’s regional parties are now the main bulwark against the BJP.

This certainly seems to be the case with the next big state election: Uttar Pradesh in 2017. The Congress is very much the underdog, with the BSP seemingly best positioned to beat back the BJP. The Congress’ current irrelevance was shown up — if in a small way — in the two recent UP by-elections where, in the absence of the BSP, voters dissatisfied with the Samajwadi Party gravitated towards the BJP.

But it may well be premature to write off the Congress. Even in its present nadir, the Congress is either the ruling party or the principal opposition in six of India’s 12 largest states (which account for 80% of the Lok Sabha seats). The BJP, at its current zenith, is one or the other in six states, although it clearly hopes to add UP to this list soon. Obviously ruling a state counts for more than being the opposition, but the Congress remains the only feasible alternative in a big swath of the country. Recall that the party ruled only two such states (Orissa and Madhya Pradesh) when Sonia Gandhi took over in March 1998. In military terms, the party’s intentions might seem suicidal to some, but its capabilities cannot be ignored.

Things will remain tricky for the party through early 2017. It will need to put in a respectable performance in UP, which at a minimum means winning enough seats to affect government formation in the state. It will have to fight off a challenge from the Aam Aadmi Party in Punjab and retain some of the smaller states. This won’t be easy: The BJP could lose a third of its 2014 UP vote of 42% in a four-way race and still have a chance of winning the state.

But once the Congress is past this stage, opportunities may begin to open up in Gujarat, Madhya Pradesh, Rajasthan and Chhattisgarh, all of which are ruled by the BJP and together account for 91 of the 543 parliamentary seats. The Congress won just three of the 91 in 2014. As tempting as it is to project BJP’s invincibility indefinitely into the future, the fact is that all of these governments are vulnerable to a challenge, and the Congress will be the only party positioned to take advantage.

Gujarat has been plagued by a Patidar agitation and its chief minister is facing allegations of cronyism. The three-term Madhya Pradesh and Chhattisgarh governments are also battling corruption charges, while Rajasthan tends to seesaw between the BJP and Congress (although the BJP will also be defending a large vote margin — as the AIADMK just managed in Tamil Nadu). The Congress will be in danger of losing its last major state, Karnataka, but the risks will weigh against the BJP.

So how does any of this matter? Despite the 2014 Modi wave, the national landscape is still shaped by state politics. While dissatisfaction with the UPA was obviously a factor, the data from the Centre for the Study of Developing Societies show that satisfaction with the ruling state government was perhaps the most important determinant of voting. Consider that the Congress’ 2014 vote share in Karnataka actually rose in comparison with 2013; but the BJP gained seats because of its merger with BS Yeddyurappa’s splinter party.

It is possible, as many commentators assert, that the Indian voter’s disenchantment with the Congress is irreversible. But it’s too easy to extrapolate the most recent trend into the future. Nationally, the Congress is positioned to the left of the BJP, ready to reap any disappointment with Narendra Modi’s development rhetoric, possesses a deep bench of younger leaders and has more boots on the ground than any other contender.

And if the party shakes off its stupor and survives the UP and Punjab elections, it has the chance to take the battle to the BJP heartland.

Arvind Panagariya spins an infrastructure tale

There’s something about serving in the Modi government that converts seemingly sensible people into inept spinmeisters. Consider the respected Columbia University economist and NITI Aayog Vice Chairman Arvind Panagariya. In an 8 May 2016 Business Standard op-ed titled The turnaround in infrastructure, he reeled off the Modi government’s many accomplishments in this arena. Following which he warned critics to “ponder the fate of infrastructure in the country had the previous administration continued.”

Except, if anybody bothers to look closer, Panagariya’s claims turn out to be irrelevant, misleading or simply false. In fact the “previous administration” equalled or exceeded many of the Modi government’s infrastructure achievements.

Consider highway construction. Panagariya points out that the government has unblocked Rs 3.5 lakh crore out of Rs 3.8 lakh crore worth of stuck road projects, and that “the construction (sic) of national highway projects awarded has risen from 3,500 kilometres in 2013-14 to 8,000 kilometres in 2014-15 and 10,000 kilometres in 2015-16.” So far so good.

But then he proudly adds:

“Road construction has risen from 8.5 kilometres a day during the last two years of the previous government to 11.9 kilometres in 2014-15 and 16.5 kilometres in 2015-16.”

A near doubling of the highway construction rate, pretty impressive right?

Not even close. Real data show that, in its last two years, the United Progressive Alliance (UPA) built 13.7 km/day of highways, compared with 14.3 km/day built in the first two years of the Modi government. That’s pretty much the same pace. In Panagariya’s defence, his fibs aren’t as blatant as Roads Minister Nitin Gadkari’s ravings (see Nitin Gadkari’s highway jumla), but they’re still way off.

As the chart below shows, there is no need to lie. The UPA did well, and in 2015-16 the Modi government did a bit better.

Screen Shot 2016-05-10 at 1.47.49 PM.png

Let’s look at railways next. Panagariya claims that:

In railways, the average rate of expansion of tracks has risen to 7 kilometres per day during 2015-16 from 4.3 kilometres per day during the previous six years. Investment in railways during 2015-16 has been double the average during the preceding five years.

An impressive increase, at least at first glance. But hold on. Panagariya is conflating track expansion with track commissioning. This detail is taken from Rail Minister Suresh Prabhu’s 25 Feb 2016 budget speech, in which Prabhu changed the measure of rail expansion from “completion” to “commissioning” because “nothing has started functioning until it has been commissioned”.

Fair enough. But, just out of curiosity, what does the old “track completion” metric, used for so many years, show?

Screen Shot 2016-05-10 at 2.51.18 PM.png

Say it ain’t so! What the Modi government claims to be a six-year track expansion high under this convenient new metric turns out to be a six-year low according to the now-discarded metric. Could the policy paralysed, rudderless UPA really have built tracks faster than the 56-inch Modi Sarkar? We’re still waiting to hear whether the government has hit its more ambitious 2,500 km target for 2015-16 (according to the old measure), but keep in mind that even this just about tops the UPA’s 2,300 km plus record in 2010-11 and 2011-12.

What about the claim that the Railways’ investment in 2015-16 was “double the average during the preceding five years”? A former Railways official points out in a 10 May 2016 Indian Express article that the Rs 94,000 crore railway investment figure for 2015-16 includes Rs 15,081 crore in funding for joint venture partners, a category not previously included. A like for like comparison shows the Railways’ investment to amount to Rs 70,000 crore in 2015-16, a record number but nowhere close to double the previous five-year average of Rs 48,000 crore. Busted.

(This propensity to spin isn’t new, as Manoj K noticed in Railway Ministry: 8 Achievements That Really Aren’t in July 2015.)

There are other claims in Panagariya’s op-ed, including some that may be true. Consider:

In domestic civil aviation, the total number of passengers carried has jumped from 66.4 million in 2014 to 80.8 million in 2015.

Great, but this had almost nothing to do with government policy.

In power, the government has already electrified 6,816 villages in the last two years compared with 5,189 villages in the three years before that. The prime minister has now announced his intention to bring electricity to the 12,000 villages or so that are yet to be electrified, by May 1, 2018.

A good effort, no doubt, but still modest once we look at a longer period. Turns out that rural electrification under the UPA in 2006-07, for instance, proceeded at four times the NDA’s rate. Cherrypick much?

Furthermore an investigation by The Hindu‘s Samarth Bansal shows even this 7,000 number to be exaggerated, and “that unelectrified villages have been counted as electrified”. To be fair the UPA’s numbers could be considered similarly suspect, but the fact is that the UPA vastly outperformed the Modi government in this arena.

One could go on, but it seems clear that Panagariya, like so many others in the Modi government, is guilty of cherry-picking or distorting data to make the government’s case. Not only is this futile, it obscures and even undermines the government’s genuine achievements. But in the interpretive dance that is the Modi Sarkar, facts don’t seem to count for much.