Is there a method to Modinomics?

India’s July–September 2025 GDP grew 8.2%, with low inflation and financial stability despite global turmoil. Sanjeev Sanyal credits a decade of reforms—from GST, IBC and inflation‑targeting to sector openings and infrastructure push—for boosting productivity. The third Modi government is now rationalising GST, implementing labour codes, and easing QCOs, following a consistent, pragmatic, innovation‑focused policy approach.

India’s GDP grew 8.2% in July–September 2025 following 7.8% in the previous quarter, achieving rapid expansion without overheating the economy. Inflation remained extremely low at 0.25% in October and financial indicators stayed strong despite global disruptions from tariff and military conflicts. Sanjeev Sanyal attributes this resilience to a decade of sustained reforms that boosted productivity. Reforms in the 2014–19 period — inflation targeting, the Insolvency and Bankruptcy Code, and GST — created structural stability, even though they were initially deflationary.

These steps laid the groundwork for the 2019–24 phase, during which the government preserved macroeconomic stability through the pandemic while liberalising new sectors such as drones, space, and geospatial mapping. Legacy obstacles like retrospective taxation and outdated telecom rules were removed, and defunct agencies began to be consolidated.

Recognising pandemic-related disruptions and foreign dumping, the government also intervened pragmatically through infrastructure spending and quality control orders (QCOs) to protect domestic producers. As the economy recovered, many QCOs were rolled back once producers’ balance sheets strengthened and market conditions stabilised.

Under the third Modi government, reforms have returned to a structural focus: GST slab rationalisation, removal of the angel tax, and the rollout of labour codes. Across all three administrations, Sanyal highlights consistent principles — fostering innovation, maintaining macroeconomic stability, improving systems through iterative steps, and applying flexible, practical policymaking guided by real-world outcomes rather than ideology.

Below is the full Article by Sanjeev Sanyal, Member, Economic Advisory Council to the Prime Minister

The latest quarterly GDP growth rate came in at 8.2 per cent year-on-year (yoy) for July-September 2025. It follows a 7.8 per cent yoy print for the April-June quarter. Remarkably, this strong growth has been sustained without an overheated domestic economy. Consumer price inflation posted just 0.25 per cent yoy in October and the financial system, by all indicators, remains robust. Moreover, this economic performance has been achieved at a time the external environment is disrupted by both tariff and military wars.

The key enabler for India’s growth has been productivity gains from sustained economic reform effort over the last decade. The benefits of big reforms done in Prime Minister Narendra Modi’s first government (2014-19) may not have been clear then, but they are now: the inflation-targeting framework has structurally lowered inflation, the Insolvency and Bankruptcy Code cleaned up the financial system, and GST created a unified internal market. However, they were all “deflationary” policies in the short-run, and it required significant effort to keep the reform momentum going despite criticism.

This created the foundations of the next round of reform in the second Modi government (2019-24). Despite the extreme pressures of the Covid pandemic, macroeconomic stability was not sacrificed. Instead, a series of targeted process reforms opened up new sectors — drones, space, geo-spatial mapping and so on.

A number of legacy irritants were also removed such as retrospective taxes, and outdated telecom regulations on “other service providers” that strangled IT-enabled services. A systematic effort, still ongoing, was initiated to close or merge defunct government agencies such as Tariff Commission and Children’s Film Society India.

Appropriate intervention

While most reforms have been market-oriented changes, Indian policy is not driven by a blind belief in laissez-faire. Pandemic-related disruptions, and dumping by foreign countries require appropriate interventions, especially since bank and corporate balance-sheets had still not fully recovered from the “twin balance-sheet problem” of the previous decade.

Therefore, the Central government embarked on an aggressive round of infrastructure building to bring back demand. At the same time, a slew of quality control orders (QCOs) were issued to protect indigenous producers from the dumping of cheap and poor-quality inputs.

The above policy-mix allowed the economy to recover strongly from the pandemic-induced downturn. However, as the economy moved on from the recovery phase, the third Modi government (2024-) reverted to its longer-term structural and process reforms agenda.

The rationalisation of GST slabs and removal of “angel tax” are part of process optimisation, while the implementation of the four labour codes completes an important structural shift.

Meanwhile, the government has withdrawn several QCOs introduced during the Covid downturn and subsequent recovery phase. These were introduced at a time that indigenous producers were facing balance-sheet stress, wildly fluctuating demand, and a slew of cheap imports of questionable quality. The QCOs provided some breathing space but they also created friction in the economy.

Given that Indian producers now have much improved balance-sheets, stable domestic demand, and have had time to discern the price-quality trade-off, it was judged that many QCOs were no longer needed. This is an illustration of how policymakers have been driven by practical considerations rather than by some ideological stance.

Consistency in policy-making

As can be seen, there is a certain consistency of policy-making across all three Modi governments. First, the goal of reform is always to build an economy based on indigenous innovation and entrepreneurship. The Central government sees its role as that of providing a stable macroeconomic environment, building enabling infrastructure, and an arena for the “creative destruction” of innovation.

Second, many complex changes are achieved through step-by-step iteration. For instance, an imperfect GST system was introduced in 2017 by putting items in the tax bucket nearest to the pre-GST level. This allowed for easier transition but perpetuated many inefficiencies (like the distinction between sweet and salted popcorn). Once the system was fully stabilised, the slab structure was rationalised in 2025.

Third, a flexible approach allows for heterodox policies and practical adjustments based on feedback from actual outcomes rather than theoretical predispositions. In a sense, this follows the dictum of the Chinese leader Deng Xiaoping: “It does not matter if a cat is black or white as long as it catches mice.”

Published on November 29, 2025 on Hindu Business Line