The Modi Booster

IN HARYANA, CONSTRUCTION of stilt floors on MSME (micro, small and medium enterprises) plots, typically small or medium-sized, is closely regulated by the state building code and violations are checked by the Department of Town & Country Planning. The height of the stilt area is set at 2.4 metres and the area earmarked solely for parking. This means any commercial activity, including any manner of manufacturing, can take place from the first floor on. The parking stipulation translates into increased costs as materi­als that can include machinery need to be transported to the first floor. The stilt-parking regulation is not exclusive to Haryana, with similar conditions being part of state building laws implemented by revenue, town planning and municipalities in almost all states.

The rules for the use of Floor Space Index (FSI) can be a maze that rather than regulating construction, lend themselves to abuse and violation. In several states, restrictions on building height for hospitals have been imposed with the aim of limiting fire hazards. Yet, these controls have not kept pace with modern fire-fighting equipment that can tackle hazards in highrises. The fiats do not fac­tor in the fire-fighting capacities of a city or state. The result is that larger hospitals need more land and have no choice but to spread out facilities. The resultant higher costs can make healthcare cost­lier. On the other hand, informa­tion technology (IT) businesses operate from highrises towering over the cityscape. While safety concerns of hospitals are not comparable and need careful at­tention, the height bar imposes avoidable inefficiencies.

Keeping in mind the need to reduce friction where regulatory cholesterol hurts the most, the Cabinet Secretariat last year initiated an exercise to list big and small hurdles that either deter business or make running a commercial operation look like a combination of hurdles and steeplechase. The central issue that repeatedly cropped up was the use and regulation of land. Even as Indian cities expand and new areas urbanise, useable land is at a premium while its utilisation runs the gamut of rules that are often either outdated or framed by well-intended but overzealous officials. The task of strik­ing a balance between regulation and practical considerations was urgent if land was to be utilised in a sensible and efficient manner. World Bank Group data puts India’s urban population in 2023 at 36 per cent, a number that continues to grow. The population density in larger metros is staggering. The Mumbai suburban district has a population density of 25,357 per square kilometre while Delhi’s was 11,320 as per Census 2011, with the city’s northeast recording a stag­gering 36,155 persons per square kilometre. Clearly, land utilisation and associated rules and regulations require a thorough overhaul.

In January 2025, Cabinet Secretary TV Somanathan set up a taskforce of senior Central secretaries to coordinate with states on a set of 24 parameters considered vital to improving ease of business and administrative efficiency. A high-level committee for regulatory reforms announced in the Union Budget 2025-26 to review all non-financial sector regulations, certifications, li­cences and permissions is in the works and will be announced soon, but the Centre sees the state-level approach as equally important in reducing friction that retards or discourages com­mercial activity and encourages violations. The higher level of reforms flagged by experts and commentators include a review of the Goods and Services Tax (GST) in the context of compli­ance and rates, improvements in the functioning of the Insolvency and Bankruptcy Code, the Na­tional Company Law Tribunals, and public services. While these areas are under the scanner, the Centre-state exercise is seen as a related exercise with a potential to uncork economic growth.

The initial round of contacts with states is complete and since the process was de-politicised and under the radar, Central secretaries deputed to the task were able to engage in fruitful discussions. Opposition-ruled states like Tamil Nadu, Kerala and West Bengal that are vocal in criticising the Bharatiya Janata Party (BJP) were amenable to the dialogue that saw the Centre asking states to examine how they performed on the parameters listed by it. “The idea was to ask the states to consider improvements if they did not tick the boxes and not change rules in areas they were doing well. Decisions and choices that resulted in improving results were shared and a governance template is being developed,” said a source familiar with the consultations. Putting the Centre’s efforts in context, an official said enhancing the effi­ciency of the economy and spurring growth is a strategic goal tied to securing both social betterment of India’s poor and enhancing national security.

The growth imperative is becoming increasingly apparent by way of other, not completely unrelated, developments. In a surprise announcement on June 6, the Reserve Bank of India (RBI) reduced its policy rate, the repo rate, by 50 basis points and also reduced the Cash Reserve Ratio (CRR) by 100 basis points. CRR is a percentage of a bank’s total deposits that need to be main­tained in reserve and is a regulatory requirement. The step was unusual. This was the third consecutive Monetary Policy Com­mittee (MPC) decision this calendar year to reduce the repo rate. On February 7, the repo rate was reduced by 25 basis points to 6.25 per cent and then again on April 9, the policy rate was reduced by a further 25 basis points to 6 per cent. With the decision of June 6 RBI has reduced the repo rate by 100 basis points.

The markets were quick to note the “strong bet” placed by the central bank on growth. This comes at a time when the Indian econ­omy was already growing at a high rate. Data released on May 30 showed India’s GDP grew at 6.5 per cent in 2024-25, one of the high­est rates of growth for a large economy. In a normal inflation-growth dynamics scenario, RBI’s decision was, to put it mildly, unusual. This kind of monetary loosening is reserved for situations where growth needs support and has fallen below a certain threshold. The concern, at least in the short run, is that a country like India, prone to inbuilt inflationary pressures, can seldom afford monetary steroids at a time when its growth is already high.

In his statement that accompanied the resolution of the MPC, the RBI governor said, “I must also add that while price stability is a necessary condition, it is not sufficient to ensure growth. A sup­portive policy environment is vital. This is even more important during periods of high uncertainties such as the current times. At the Reserve Bank, therefore, while price stability remains the focus of monetary policy, we are not oblivious to putting in place complementary monetary and credit policies and regulations that support growth and prosper­ity.” Earlier in his statement, the governor had said, “I would like to highlight that there is no tussle between price stability and growth in the medium and long term.”

These are interesting remarks as any economic observer knows that long-run determinants of eco­nomic growth boil down to just one factor: improved productivity of the economy. India has plenty of inefficiencies on that front that range from poor productivity of agriculture and labour. Seen from the vantage of those factors, it is questionable if monetary policy can shift those economic gears. A case has been repeatedly made for the implementation of the labour codes framed to reduce compli­ance burdens on business while supporting a set of welfare mea­sures for workers in formal and informal sectors.

There is, however, another set of considerations at hand. The institu­tional reforms necessary to increase factor productivity are hostage to politics and even governments with strong legislative majorities are not always able to get their way on these matters. Agricultural productivity and waste are a good example in this context. The farm reform laws, considered an important frontier in this respect, were passed in 2020. The prime minister expended political capital to en­sure the passage of these laws in Parliament. This was a step that all parties knew was necessary to revive growth in Indian agriculture but at the same time Opposition parties were loath to let BJP walk away with the credit.

The result was that a tiny section of powerful farmers from Punjab, backed by the Opposition and India’s hyperactive ‘civil society’, forced the government to roll back these laws.

With these structural blocks cemented in Indian politics, one of the few levers available to the government to push growth is an appropriate mix of fiscal and monetary policies. Orthodox economists balk at this, but there are far more pressing issues at hand, ones that go well beyond the debate among economists on growth-inflation dynamics.

The RBI decision supports the Modi government’s bid to en­courage consumption demand by raising the tax limit so that individuals earning up to ₹12 lakh pay no income tax, the conces­sion rising to salaries of ₹12.75 lakh taking a standard deduction of ₹75,000 into account. Official sources said data for Q1 will indicate whether there is an uptick in consumption but the RBI decision is expected to reduce lending rates even though the same applies to savings. On the pending discussion on GST, a source said rate rationalisation needed extensive consultations and the finance ministry received necessary inputs that will be shared with state finance ministers and will be debated at a meeting of the GST Council expected to be scheduled soon.

THE MILITARY ENGAGEMENT between India and Pakistan that led to extensive damage being inflicted on 11 Pakistani airfields and minimal damage on the Indian side has been examined across the world. The world was care­fully watching the two sides not just to evaluate the merits (and demerits) of respective weapons systems but also to conclude which country had an upper hand. Notwithstanding the exten­sive propaganda barrage by Pakistan—and the swallowing of its line in sections of the Western press—the grudging conclusion is that India prevailed by a clear margin.

What was commented on only in passing was the cost of the equipment in India’s arsenal that enabled India to deliver punish­ing blows on Pakistan while protecting itself from wave upon wave of Pakistani drone attacks as well as attempts to unleash missiles. Together, the S-400 missile defence system and the in­digenous Akash missile saved India from a lot of trouble. Their combined cost is approximately ₹70,000 crore. If one adds other parts of the Indian air defence system and the auxiliary systems that go with the package, the cost is well above ₹1 lakh crore. The Akashteer automated air defence and control system was sanc­tioned at a cost of less than ₹2,000 crore.

The trouble for India is not just that both Pakistan and China have to be handled in the eventuality of a military conflict. In the aftermath of Operation Sindoor, Pakistan is expected to get a brand new HQ-19 air defence system along with a squadron or two of J-35 stealth fighter aircraft. The bill for these imports is likely to be partially (or even fully) footed by China. On its own, even with the 20 per cent increase in the defence budget for 2025-26, Pakistan is in no position to afford heavy capital expenditures on defence equipment.

This troubling reality has been apparent for a while to India’s defence planners. The possibility that India is no longer facing two adversaries with their own individual politico-military dynamics but a single military machine requires India to double down on its military modernisation. India’s defence purchases and its military orientation have always been defensive in nature. But the situation that it confronts now is qualitatively different from earlier eras.

The government, for sure, is pushing ahead with a number of military systems that range from domestically manufactured fighter jets (Tejas Mark1A and Mark2), submarines, ships and other naval equipment along with a series of missiles and other equipment. All of these projects are capital-intensive as can be ex­pected for preparations involving a future, technology-intensive, conflict. India will soon be making a choice between the GE F414 and the French Safran engines for Tejas Mark 2.

The big question is where would the money for all this come from? It is here that high and robust economic growth becomes necessary. Every percentage point added to the growth rate makes a big difference. In the early 2000s, analysts had concluded that if India grew at 7 per cent for more than two decades, it would be in a position to alter the geopolitical balance in Asia. Very few fore­casts survive contact with reality. But this claim had some truth to it. India needs higher output and economic muscle to arm itself so that it can defend itself. The ordinary instinct of India’s policy planners is to generate more output so that it can be consumed. There is poverty to alleviate, infrastructure to build and, in gen­eral, make life easier for a people who yearn for prosperity. Now the goal has changed to something more fundamental, the desire to defend the country. That needs higher economic growth and at least in the immediate future, the means to that end do not matter.

The RBI decision supports the government’s bid to encourage consumption demand by raising the tax limit so that individuals earning up to ₹12 lakh pay no income tax, the concession rising to salaries of ₹12.75 lakh taking a standard deduction of ₹75,000 into account. Official sources said data for Q1 will indicate whether there is an uptick in consumption but the RBI decision is expected to reduce lending rates

Aware of the need for social stability and to guard against a po­litical backlash, the Modi government has stitched a web of social welfare programmes that look to support the lower end of the socio-economic scale. It has also kept a growing middle class in focus. As Prime Minister Narendra Modi completes 11 years in office, the government claims to have kept inflation in check despite global pressures. Digital governance, health insurance, state-run medical stores, unified platforms for Central and state schemes and urban renewal are measures to provide comfort to the middle class and help them save. At the same time, investments in national security have grown. The defence budget has risen from ₹ 2.53 lakh crore in 2013-14 to ₹ 6.81 lakh crore in 2025-26. Defence ministry sources said the quantum can be further raised if required. The defence ministry signed 193 contracts worth ₹2,09,050 crore in 2024-25, the highest in a single year, and of these 177 contracts were awarded to domestic industry totalling ₹1,68,922 crore. The armed forces have procured 43 items worth over ₹ 2,400 crore from startups and MSMEs supported by the Innovations for Defence Excellence (iDex) programme launched in April 2018.

A national effort to improve—and in some cases cauterise— inefficiencies, incompetence and obsolete practices is a daunting task. But this runs parallel to encouraging innovation and new-age commerce. As of now the government and RBI are tangoing to a shared tune on the success of which hinges India bid to maintain a growth momentum critical to its future.

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