The National Democratic Alliance (NDA) Government led by Narendra Modi has completed three years in office. That is more than thousand days. Appraisals of the government’s performance are the flavour of the season. In corporate settings, appraisals are relatively more straightforward because there is an agreed set of performance metrics and targets against which appraisal is made. An election manifesto does not necessarily serve as a template to evaluate a government. It is a list of vague promises with no specific time lines. Neither the political party nor the voter takes it seriously.

In any case, appraising employees and appraising a government are two different things. In the case of the latter, one should evaluate them not only for what they did but also for what they did not do. At the same time, one must keep the counterfactual in mind. If not NDA, who would have been in office and what would they have done? That too must be kept in mind. Then, the question is whether one evaluates the government purely on economic criteria or in other aspects too. Even with respect to the economy, what parameters do we choose and why? If one of the parameters is economic growth, to what extent, does the government of the day deserve credit or blame for it? Again, we must remember if they could have made it worse. If governing is not an easy task, evaluating governance seems harder!

Not too many mistakes until…

With all these caveats out of the way, one has to start somewhere. Clearly, where one would like to give a big credit to this government is that they have not committed too many mistakes. That is a big part of governance. Knowing what not to do is more important than knowing what to do. In governance, the latter is harder. In fact, when it comes to economic development, we have a better idea of what not to do.



However, with respect to acts of commission, we have broad brushstrokes for government policy: education, access to finance, a national market, and then we pray.

Until the Uttar Pradesh government announced a loan waiver, the NDA government had not announced a populist scheme even though it had continued with the policies of the previous government on food subsidy (Right to Food) and on employment guarantee, etc. The farm loan waiver was an unfortunate decision not because farmers did not deserve to be helped. They deserved to be aided but it should have been without destroying the culture of repayment and without setting a bad example for those who honour their commitment by repaying. Once norms are destroyed, they are hard to restore. Now, many other States are following in the footsteps of Uttar Pradesh. Further, the government must impose reciprocal obligations on farmers who benefit from loan waivers and it should think in terms of long-term measures including weaning many off unviable farming.



Apart from this significant blemish, the government has not committed too many major mistakes.

In fact, the second or perhaps the most important ‘act of non-commission’ on the part of the government is the absence of big-ticket corruption. One only has to recall the debilitating impact corruption scandals had on the previous government. They induced policy paralysis as they robbed the government of credibility. They created a sense of malaise and lack of optimism in the society. In fact, the current mood of optimism, notwithstanding middling growth and sluggish job creation, could be traced to the absence of big corruption scandals in this government. That is worth praising and preserving.

… and the ‘Note-ban’ too?

The de-monetisation initiative of the government or, more precisely, its ‘banning of high denomination notes’ had come in for a lot of criticism. But, it was a bold experiment. That it did not seem to have cost the government politically is a different matter.



Has the exercise met the objectives that the government had announced? What is the impact on black money generation, on corruption and terrorism? Are there objective standards by which the government could be evaluated on the ‘note ban’ decision? We do not have answers. Has the government made a dent on the pervasive informality of Indian farming and production in Indian factories? It is still premature to comment on these too. We have learnt that the government has added 9.1 million new taxpayers in 2016-17 based on the increase in the number of income tax returns filed. That is good news but not conclusive proof that ‘note ban’ has resulted in a sustained improvement in tax collections.

Small businesses and informal credit markets (micro credit) were disproportionately affected by the ‘note ban’ exercise. Whether and when they would be captured by data is anyone’s guess. In fact, as Dr. Subbarao, former Governor of the Reserve Bank of India, argued in a note for the Institute of South Asian Studies, the correct benchmark to evaluate the note ban exercise is not the growth rate of the previous year (2015-16) but the growth that might have been achieved without the note ban exercise. On that basis, the ‘note ban’ exercise may have shaved off more than a percentage point off the growth rate of the economy.

On the impact on small businesses, unfortunately, we may not see the impact in the data for quite some time. The Annual Survey of Industries (ASI) that tracks production, employment and value addition in registered factories releases its data with a long lag. Summary results for the year 2014-15 were published in March 2017. Therefore, data for 2016-17 will be available only in the first or second quarter of 2019.



In the first year of this government – in 2014-15, the proportion of factories that employ more than hundred workers had registered a small increase. That is good news.

The total number of ASI registered factories for these three years was:

2012-13 179102

2013-14 185690

2014-15 189468

The number of factories registered under ASI and employing 100 or more workers is now 17.69 per cent of the total number of ASI registered factories. The number was 16.05 per cent in 2012-13 and 15.85 per cent in 2013-14. If this trend had been arrested by the note ban exercise, then indeed it will have extracted a heavy price.

The tag of ‘tax terrorism’ sticks

Further, the government did not collect as much as it might have expected in black money declarations because the schemes usurped too much of taxpayers’ wealth in terms of taxes on the declared wealth. It might be attributed to two attitudes: ‘punish the evildoer’ mindset and risk aversion or a cautious attitude on the part of the bureaucracy that made them anxious about potential revenue foregone under a low tax rate. Both are not desirable traits in policymakers at all times. Indeed, the bureaucracy’s naturally cautious inclinations might have also come in the way of the government continuing with its tax reforms. India had not fully put behind it the issue of retrospective taxation. Its Generalised Anti Avoidance Rules (GAAR) initiatives had witnessed some confusion and eventual backsliding. Reduction in corporate tax rates had been largely stillborn. Government’s laudable attempt to reduce labour costs by bearing a portion of employer’s statutory dues towards labour welfare had also not made much progress after an initial announcement in the 2016-17 budget presented in February 2016. Thus, while the reform of the indirect taxes can be said to have made a big leap forward with the potential introduction of the Goods and Services Tax (GST) from July this year, the government has barely scratched the surface on direct taxes. If anything, it has become more and not less complicated with the levy of additional cesses, etc. India remains a country of high tax incidence.

That is what makes the rising ‘class war’ rhetoric from the Prime Minister worrisome. Clearly, it is no one’s case that the Indian private sector is virtuous and that the government is vicious. If anything, Indian private sector is as much a part of India’s development challenges as the government has been, if not more. However, the government will have earned the moral right to go after rent-seekers and the greedy and unscrupulous capitalists, if it had made India’s tax policies and their administration reasonable and without making hostility towards the taxpayer its operating principle. If anything, this government has continued to practice ‘tax terrorism’ – a phrase coined by the current Finance Minister to describe the tax policies of the previous government. The government had not done enough to climb the moral pedestal with authority.

In mitigation and in government’s favour, one must acknowledge that this government had done very well to plug the round-tripping of domestic money sent overseas and recycled back into India by eliminating capital gains tax exemptions granted to specific international tax jurisdictions such as Mauritius, Singapore and Cyprus, under the Double Taxation Avoidance Agreements India has signed with these countries. It is not a widely heralded reform but it is quite significant.

The good thing about GST: The GST Council

The GST has been long time coming. On the surface, the design might appear sub-optimal based on the number of rates and the number of categories of goods and services. However, India has to pay that price for its Federal structure. If its implementation proceeds without too many major hiccups and technical difficulties, it could boost economic activity and generate tax revenues for the Union and State governments. One of the significant unintended payoffs from the GST implementation is that States feel that they could use the GST council as a platform for inter-state consultation. The benefits from such an interaction are hard to quantify but harder to understate. It is actually very good news. Given India’s size, many worthwhile initiatives remain confined to their local origins. Although the Ministry of Personnel, Personal Grievances and Pensions documents best practices and successful programmes from Districts and States, much more remains to be done on information sharing and replication of sound initiatives from one State to another. That the GST council could serve as a platform for that is a significant development.

For example, Madhya Pradesh government has been in the news for its rapid agricultural growth in recent years. The share of agriculture in the Gross State Domestic Product is nearly 40 per cent compared to the national average of 17 per cent. It will be useful if BJP-ruled States document their successes and failures, exchange notes on them and benefit from each other. It is disappointing that BJP ruled States had not done so.



Further, on administrative reforms, the NDA government had disappointed, notwithstanding some announcements on streamlining hiring and promotions to senior government positions. Indeed, many appointments have been made on merit but not all. For example, the Bank Boards Bureau has not been utilised for the purpose it was created. More importantly, the promise of the Prime Minister, before assuming office in May 2014, to have a council of Ministers comprising of super-Ministries, is largely unfulfilled. The improvement in the quality and speed of decision-making that such a structure could have delivered remains a matter of potential and conjecture. That is a pity. For example, we have multiple Ministries on transportation – Railways, Shipping, Civil Aviation and Surface Transport & Highways.

Infrastructure: a mixed picture

Of course, it is good news that the division of responsibility for transport solutions for the country has not come in the way of road construction picking up under this government. Contracts for road construction measured by ‘awarded length’ in kilometres had picked up noticeably since 2014-15 (Chart 1).