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.

 

4 thoughts on “Fact checking Modi’s WSJ interview

  1. singsong

    all this is simple jhumla.

    most of these programs existed during congress regime, and some might even have higher numbers than what modiji is going on about. we must know by now that he is a consummate showman, content may vary.

    when we talk about irrelevant things, we have no time to talk about important things, and that is what this is all about.

    indians got taken in by the ‘shining’ campaign, and continue to do so. not that the quality of congress persons is any better.

    there is a good operational theory that i am putting together, and if any of my speculation is accurate [i am not stating that theory here just yet], india WILL end up worse than it is now, for the RSS tree and its branches are hell-bent on holding onto power. both at the centre and states, at any cost,for their self-preservation.

    at some point in future, there will be a conversation about self-hating hindus 🙂

  2. Missing

    No use. By the time you fact check one interview, the candidate would have said 100 other things. You will forever be chasing ‘facts’.

    You can see an example in how much money they were danglign in front of the electorate, to get elected. Bihar and Kashmir speeches are an example, and now they are picking up fights as to how much money they have ‘given’ to opposition rules states, andhra and telangana being examples of this.

    Don’t contest the numbers and their word becomes fact. Contest it, and they drag you into the mud, dirty you, and you never win.

    I am not sure if whatever happens in the party is with the prior approval of the ‘dear leader’.

    He always seem to maintain that ‘one-degree-of-separation’, for plausible deniability.

    And the things the bhakts do are horrible. I used to be a die-hard supporter, but this new version of the party horrifies me.

  3. N Subbu

    What Ahluwalia Ji was to the planning commission, Panagariya Ji is to the Niti Ayog.

    Same ridiculous statement making ability, and admirable capacity to repeat them.

    No clear responsibilities defined, so they will put their fingers in every dish, even if they know nothing about the cooking process.

    Instead of 5 year period, they want to plan for 15 year period.

    Tell me what did the country gain by change of the name and people again?

  4. Raghav

    Ha Ha, losers always have a story to tell. 50 years to 2 years does compare well. What a waste of 7 minutes (as reading time quoted by Quint). If such prior credits were to be given, give it to the British for textiles, railways, ordinance factories, etc etc.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s