Modi 3 and the fruits of fiscal Tapasya


The following post is contributed by @saiarav from X or Yajnavalkya from Medium

Modi does the unthinkable – goes to polls with a non-populist (revdi-free) budget

At the start of this year, I had written about Modi’s excellent economic stewardship during his second term amidst a period of extreme economic turbulence globally – a once-in-a-century pandemic followed by a major war which roiled energy markets and rapid rate hikes in the West to combat inflation (Modi’s fiscal masterclass). I had noted then that Modi:

“has achieved the near impossible of following a disciplined fiscal policy while not just maintaining his political capital, actually expanding it”

But I had fully expected that he would open up the purse strings during the election year budget this February notwithstanding his public remonstrations against the growing revdi (freebies) culture. And for good reasons. One, Modi had gone in for a ‘revdi’ at the end of his first term in 2019 (the cash transfer scheme for 120 million farmers). And the economic scenario in 2024 was decidedly more mixed compared to 2019 with greater level of economic distress among the poor. Two, recent state elections had seen parties winning based on extremely aggressive freebie promises. For example, Congress won handsomely in Karnataka last year with promises of a slew of freebies (or welfare programs if you like) amounting to more than 2% of the state’s GDP. So I must not have been the only person who was stunned to see that Modi had decided that the normal rules of politics does not apply to him. And as of today, his judgment appears to be spot-on because the only debate about the 2024 elections appears to be what his margin of victory will be. The reasons for this  – the so-called “akshat-wave” after the Ram mandir inauguration, the opposition being in absolute shambles, the ever-increasing political stature of Modi – calls for a separate discussion. In this post, I peer into the future and see what Modi’s fiscal statesmanship could potentially mean for the country.

A 10-year long fiscal tapasya….

For reasons that are not entirely clear, fiscal conservatism has been an article of faith for Modi throughout his career as an administrator. He has held on to it steadfastly during his entire 10 years as the the Prime Minister. For anyone familiar with Indian politics, it is easy to appreciate how challenging it can be to stick to fiscal discipline even during times of buoyant revenues. This makes his unrelenting fiscal focus all the more remarkable considering that for most of his tenure, he has been hemmed in by weak tax revenues. Therefore, to call Modi’s 10 year long commitment to financial discipline as a tapasya (penance) would not be out of place.

…might finally yield a Rs.20T (~$50bn) -sized fruit during Modi-3

And Modi is on the cusp of reaping the fruits of that tapasya in his third term. Barring unexpected shocks – electoral and economic – he could be presiding over a period where the economy has sizeable fiscal resources to pursue its socio-economic goals; a rare event in independent India’s economic history. Underpinned by a solid cyclical recovery in the economy and strong buoyancy in tax collections (direct taxes likely grew at 20% in 2023-24, twice the pace of nominal GDP growth), Modi-3 is not only placed very comfortably to meets its 2025-26 fiscal deficit target of 4.5% (vs. 5.8% in 2023-24), it will also have its disposal, up to Rs.4 trillion of fiscal space during 2025-26 for spending on new programs or projects (or >1% of GDP) after meeting its regular revenue and capital expenditure obligations. That is the base case which assumes direct taxes grow at 15% annually. In a bull case of direct taxes continuing to grow at 20%, the above figure could be as high as Rs. 5.5 trillion. Further, this figure will continue to swell with each succeeding year as the economy expands and revenue growth outpaces the growth in base expenditure. During Modi’s third term, I estimate that the central government will have up to Rs.20 trillion of aggregate fiscal space for new programs/projects. Also, note that many of the programs of the central government include contribution from the states, which means the total fiscal resources available could be well higher than Rs. 20 trillion.

(For those interested in the math behind the above numbers, I discuss the same at the end of the post)        .

Potentially transformative, but availability of funds is not enough

What can one do with an annual budget of Rs.4 trillion? Well, for perspective, the Jal Jeevan Mission which was initiated in Modi’s second term with an annual budget outlay of Rs.0.7T (Rs.3.5T over 5 years, 60% funded by centre) will have provided tap water connections to 160 million households by end of 2024 (110 million connections provided as of April 2024). No commentary required on how transformative this project has been for the 100s of millions of beneficiaries.

In the first two terms, Modi’s focus was primarily on building physical infrastcucture – road building under Gadkari has been an unqualified success while in case of Railways, huge investments have been made, it is still a work-in-progress with mixed results so far. Even welfare schemes had a physical asset bias – from toilets to piped water to housing. While the government deserves a lot of credit for strong execution, it has to be underlined that these are relatively low-hanging fruits from a governance perspective. As the priority areas inevitably shift from road and railways to more complex ones, quality of policymaking, human capital and management will be the key drivers of outcomes, and not just availability of funds. To wit, it is way more difficult to develop 20 high quality IITs or a few hundred Kendriya Vidyalayas compared to building 100K kms of roads. Or just throwing around money into PLIs will not deliver a successful industrial policy.

An opportunity for Modi to cement his legacy – a wide range of focus areas to choose from

What areas Modi will prioritize with the Rs.4 trillion per year (~$50bn) of additional resources is anyone’s guess because this is one government which revels in keeping its plans a total secret. One can only say two things with certainty -one, Modi will be extremely keen to cement his legacy with a couple of flagship projects/programs which has a transformational impact on society. Two, the consummate politician that he is, he will have his eyes firmly on what programs will drive the optimal political benefit for the 2029 elections (and all the state elections over the next few years).

The list of potential programs is endless. Below, I discuss briefly a few ones which I see as critical ones. I classify them into 3 categories: A) long term strategic B) medium term economic growth and C) quality of life. Obviously, most of these programs will tick all three boxes, the classification is based on how a politician like Modi would want to see it. Admittedly, some of the resources might also simply get used up in standard fiscal management as well – ie Modi might simply want to reduce fiscal deficit at a faster pace, or execute the long pending reduction on tax surcharges on the rich or fill up the job vacancies in the government.


  1. Long-term strategic 
  • Increase defense capex spend – In contrast to his public image as a hawk on national security, the the spend on defense capex has been rather modest. In fact, as a % of GDP, it has dropped from the levels seen during UPA. With the China threat escalating in recent years, Modi would want to increase defense capex by at least 10 bps (100 bps = 1%), if not 20 bps and get back to UPA levels. That would be 0.35-0.70 trillion increase in annual outlay.

  • Increased R&D spend – India’s R&D spend is abysmally low at around 0.6% of GDP compared to 2.4% for China. The spend has seen a steady decline from the 2008 peak of 0.9% and private sector has shown very little inclination to spend on R&D with their contribution being only around one-third of the total spend whereas in countries like China and Korea, the figure is more than two-thirds. A key policy objective for the government, apart from increasing its own direct spend, should therefore be to bring in major policy incentives to crowd-in private investments in this area. As it happens, the government has already signaled that this will be a priority area in the third term, announcing a Rs.1 trillion fund to provide long-term interest free loans for R&D work. But much more needs to be done.
  • Energy security – There are two parts to this. One, as a major importer of oil & gas with demand continuing to grow for the forseeable future, the country needs to own equity in oilfields and LNG plants abroad to enhance its energy security. For example, if India wants to secure say ~20% of the nearly 5 million barrels/d of crude it will import this year, that will mean an investment of $40 billion. Of course, the investment will be done via the government owned oil companies and it will be partly funded via debt. But it might still entail the government infusing a $5-$10 billion of equity.

The second part is investment in energy transition. So far, the Modi government has bet big on solar but now it has also stated its intention of expanding its nuclear fleet (add 15 GW by 2030). While investments in solar power has been largely driven by private players, the government will need to play a big role in setting up nuclear plants. A back-of-envelope estimate for the cost of the plants would be $50 billion and it would be reasonable to assume that the government will have to invest close to half of that amount.

  1. Medium-term economic growth 
  • A PLI-powered industrial policy – An easy prediction to make is that a turbo-charged PLI program will be the topmost priority for Modi-3. After all, the biggest failure of Modi- 1& 2 has been the inability to kickstart growth of the industrial sector and deliver well-paying manufacturing jobs to to a burgeoning labor force. Success or failure to deliver on this during the third term will likely be the most consequential factor in 2029. With the success of the modest sized PLI programs so far, Modi will look to bet much bigger sums on the program. But, at the risk of repetition, PLI itself will not be sufficient. A lot more work needs to be done in terms of improving ease of Doing Business, bringing down land costs, labor laws, building a skilled workforce and so on. One specific area where I really hope Modi-3 focusses on is building a vibrant EV industry (nah, not the two-wheelers, cars are the real deal). We are already a few years behind almost every major auto market globally on EVs. If China is the undisputed leader in EVs today, it is because the government has pumped in nearly $200bn into the industry via subsidies, grants and incentives over the last two decades.
  • Agriculture – The government would be keen on doing something transformative in this sector, not least because it is still the largest vote bank, but I am not sure ploughing in large sums of money will solve the structural issues bedeviling the sector. Having got their fingers burnt during the second term with the farm laws, it is unclear to me what major policy action they could take up for this sector.


  1. Quality of life
  • Urban housing and infrastructure – Another easy prediction to make is this (especially urban housing) will be one of the biggest focus areas in the third term given Modi’s penchant for physical infratsrructure. The political dividends will be way higher than what he has received for roads since the change will not just be very visible to the average voter, it will also have deeply positive impact on his day-to-day life. Modi has already delivered well on rural housing but urban housing will be way more challenging, not least due to scarcity of land and a large, ever-increasing migrant population. It will require well-thought out policies and mich greater co-ordiation with the state and local governments
  • Health and education – The public investment in health and education has been woefully short forever and that trend has continued thru the Modi years. Between the two, I think Modi will focus on health because the political benefits accrue faster and it is also relatively less difficult to execute compared to education. On paper, both these sectors can easily absorb, individually, an additional 0.5% of GDP (I.e. almost the entire Rs.4 trillion fiscal space) given the historical underspend in the sectors. But, more than any other programs, funding is a much lesser factor compared to the ability to build quality organisations which can deliver.

The fiscal math


  • Nominal GDP grows at 11% (6.5% real and 4.5% inflation)
  • Direct taxes grow at 15% annually while GST grows at 13%
  • Divestment (both PSU equity and physical assets) per year of Rs1.25 trillion

 Fiscal deficit falls to 4.5% by 2025-26 and below 3% by 2028-29.

A few points:

  • 2024-25E total capex was Rs. 11.1T but this included equity infusions to BSNL and funds for the Science Fund which will not be repeated.
  • The Jal Jeevan Mission wich has an outlay of Rs 0.7T in 2024-25 comes to and end during the fiscal year, hence lower growth in revenue expenditure in the next year. That, in turn, adds to the fiscal space.
  • Run-rate capex is for ongoing projects across various sectors – more than half of it is for Roads and Railways. The assumption is that the allocation to the two sectors have peaked and will see more a modest 8% growth growth forward.
  • Higher growth baked into 2026-27 revenue expenditure to factor in 8th Pay Commission.


Farmers vs Government: The Benefits and Limits of Democratic Redistribution

In its period of rapid economic growth, Indian democracy was successful in redistributing gains from urban centered, globalization led growth to the rural agrarian economy. The redistribution of available economic and administrative resources among competing groups is a primary concern of democratic politics. The situation is very different in non-democratic polities. In the figure below, we see that during globalization led growth, the ratio of per worker agrarian income to overall per capita GDP drops to less than a half in China and Vietnam, while it remained above or close to one in India and Indonesia. In other words, agrarian workers in one-party China and Vietnam became relatively poorer while their country became richer, agrarian workers in India and Indonesia did not incur a relative disadvantage.

Ratio of agricultural income per worker to overall GDP per capita for four Asian countries. In democratic, farmer majority India, the rural populace could always command a major share of the state’s redistributive efforts. After an initial decline from 1.4 to 1.0, the ratio in India stabilizes. In one-party China and Vietnam, the emphasis is on efficient agricultural production, not producers, and resources are invested heavily in urban areas.

In India the vast rural population with more than a century long experience in political mobilization, has pushed governments to spend money in rural areas. Redistribution has occurred via irrigation projects, rural roads, NREGA, subsidies, loan waivers and recently, direct income transfers. Any negative externality arising from agrarian activity has been borne by urban residents (eg: Delhi smog) but farmers were not penalized. Aside from rural-urban dynamics, democratic redistribution has led to a spatial equalization of agricultural productivity across the country.

Left image is district wise agricultural productivity in 2005. Since then, as the right image shows, agricultural growth has been concentrated in the most backward areas (dark red on left). The primary drivers have been irrigation projects and rural roads.

Though the condition of Indian cities is depressing, the upshot of a democracy dominated by the rural majority is comfortable food security. In fact, even though India’s use of pesticide is quite low by global standards, and its agricultural yields, cold-chain infrastructure sub-par, it has become a major net agricultural exporter. This is in huge contrast to China which has become a massive net importer of food. This is an important strategic advantage for India.

Net agricultural trade balance for India and China since 1961. China reverts to a net import situation as soon as its economy starts booming in the 1990s. in contrast India’s exports zoom in its period of economic growth.

There are signs, though, that India’s redistribution toolkit might be reaching the limits of its efficiency. Concurrently, a more reformist Indian government, awash with surplus grain, wants to re-orient farmers towards higher return crops or even an exit from farming. An urbanising electorate may also not be as willing to redistribute their hard earned tax monies towards their rural co-citizens.

The reorientation of the Punjab-Haryana farmer away from rice and wheat will require tact and persuasion, not ordinance fiat. The set patterns are very comfortable from the economic (MSP + diaspora remittances + armed forces recruitment) and psychological (we feed and secure the nation) perspective. The simple promise of higher incomes might not convince historically agrarian communities who havent fully embraced the money economy.

The Prime Minister has proven to be a masterful communicator. We have not yet seen the same skill in his dealings with the farmers. The approach there has oscillated between genuflection and disregard. The potential is there for the 200000 sq. km tract of well irrigated, fertile land in India’s north west to become the new California Central Valley (47,000 sq km). India can then become the land that greatly increases global access to premium agro-products like fresh, dry fruits and vegetarian protein. The latter (beef-mukt world) will also resonate with many urban supporters of the government and even the farmers themselves.

Rwandan miracle–Asian Tiger of Africa


The world breaks down into three major factions:
——post modernists (psychotic in need of urgent medical services)
——“non post modernists and non Islamists”
Can Rwanda, the Asian Tiger of Africa, inspire and lead the global “non post modernists and non Islamists”? Can Rwanda inspire and lead the globalists?

American Caste (b)

America has a national crisis in math capacity, competence and merit. American students sharply underperform students in many countries all over the world. Including Vietnam, which is a poorer country than India per capita. We will heavily refer to the 2018 OECD PISA report in below paragraphs, but the below chart graphic is from the 2015 OECD PISA scores report because math scores are reported for more countries in the 2015 report. Perhaps the 2018 report will be revised to add more countries in the future:

In my view  a level 5 PISA score is the minimum requirement for a person to be considered a high school graduate who is literate in math, able to function in the modern global economy, or be qualified to attend college. The PISA report defines a level 5 PISA score or better as a fifteen year old that “can model complex situations mathematically, and can select, compare and evaluate appropriate problem-solving strategies for dealing with them.” How does America perform in the 2018 PISA report?:

  • United States: 8% of students scored at Level 5 or higher in mathematics
  • OECD average: 11%
  • Six Asian countries and economies had the largest shares of students who did so:
    • Beijing, Shanghai, Jiangsu and Zhejiang (China): 44%
    • Singapore: 37%
    • Hong Kong (China): 29%
    • Macao (China): 28%
    • Chinese Taipei: 23%
    • Korea: 21%

Note that these six countries were among the poorest countries in the world in the 1950s, far poorer than poor Americans or poor Europeans or poor Chileans can even imagine. In 1979 China was unbelievably poor. Much of the population of China–perhaps as many as 100 million–had starved to death because of extreme poverty in the 1970s. Poor children around the world are outperforming American children in mathematics despite extremely low education spending per student and very low socio-economic level of their legal guardians, where socio-economic level is defined as:

  • income
  • wealth
  • formal education of parents

Do any American high school student subgroups perform well in Mathematics? Yes, “people of color” or “minority” Americans perform well in Mathematics. America’s “people of color” or “minority” students are orders of magnitude more likely to get an 800 on the mathematics SAT than European Americans. If we assume this is an extreme tail end distribution issue related to European Americans having a lower standard deviation and non standard distribution in mathematics performance relative to “people of color” or “minority” Americans, we can explore the breakdown of Americans who score between 750 and 800 on the Mathematics SAT. Here European Americans perform far better relative to “people of color” or “minority” Americans.  In 2015 16,000 European Americans scored 750 or higher. 33,000 “people of color” and “minority” Americans scored 750 or higher. We further know that 51% of SAT test takers were European Americans and 49% were “people of color” or “minority” Americans.  “People of color” or “minority” Americans are [33,000/16,000]*[51%/49%] or 2.15 times as likely to score 750 or higher on the mathematics SAT compared to European Americans.  If we examine the 107,900 test takers who got SAT math scores of 700 or higher; 59,900 are “people of color” or “minority” Americans, versus 48,000 European Americans. “People of color” or “minority” Americans are [59,900/48,000]*[51%/49%] or 1.30 times as likely to score 700 or higher on the mathematics SAT compared to European Americans. For data junkie geeks like me there is a lot more data on SAT math score distributions here and here. The Greta Anderson article’s comment section in particular has some very intelligent commentators who have studied the American SAT score distribution. This is likely to be the subject of many future blog posts and Brown Pundits Podcasts.

What about this is worrying?:

  1. European Americans in particular are sharply under-performing both very poor children around the world and “people of color” and “minority” Americans in mathematics.
  2. American mathematics SAT scores have fallen between 1972 and 2016. 1972 is the earliest year for which I could find comparable SAT mathematics scores. In 2017, 2018 and 2019 the SAT mathematics exam was completely restructured to make scores no longer comparable to SAT mathematics scores between 1972 and 2016.
  3. 90% or more of current jobs and businesses are likely to be replaced by artificial intelligence (AI), brain electro-therapy (meditation . . . practiced by civilizations around the world for over 5,000 years), brain sound therapy (naad or mantra yoga and their equivalents in Native American, Egyptian, Sumerian, Taoist and other civilizations around the world for over 5,000 years), bio-engineering tissue, genetic editing, and fused AI-brain interface synthesis intelligence. Almost all of these future disciplines are complementary to mathematics.

Future articles and podcasts are planned all six of these future disciplines. If you are curious about fused AI-brain interface synthesis intelligence, please watch my main man Elon Musk:

Some say that the tension and relationship challenges between America’s four big castes–European Americans, European “Latino” Americans, Black Americans and Asian American–are driving low math scores for European Americans “AND” other Americans. One example is where thought leader Mark J Perry explores the possibility that tension between the European American caste and the Asian American caste are lowering American  mathematics performance. Excerpts of his article are reproduced below:

Continue reading American Caste (b)

Post Modernism (d)

Five thousand years ago the greater Egyptian, Sumerian, Eastern (defined as pan Arya plus China) civilizations were very mathematically oriented.  Many caucasians appear to believe that these ancient civilizations were racist. Possibly because of this many caucasians believe that math is racist.


Another possible reason many caucasians appear to believe that math is racist is because they fear it might unfairly advantages “brown” people (Asians, Arabs, Latinos) and “brown” cultures (eastern philosophy including Toaism and Confucianism, native american religion) at the expense of caucasians in the new global artificial intelligence, neuroscience, genetics economy.


Could part of the anger against math come from fear that mathematics, science, technology, seeking the truth through thought, seeking the truth without thought might be haram or blasphemous? (Obviously most Abrahamics do not believe this and this is not a critique of Abrahamism.)


I believe that mathematics is part of art; and that it derives from beyond normal gross thought. From what in Sanskrit is called Buddhi, Vijnayamaya Kosha, Ananda Maya Kosha, Sukshma Sharira, Kaarana Sharira, the subtle heavens.


Perhaps the anger against mathematics is part of a deeper anger against the subtle heavens? If so, one possible way to look at this is that to transcend the subtle heavens (including mathematics) it might be helpful to love them and love our way through them. Or to love and respect the racist (subtle heavens–including mathematics) until we transcend the various subtleties of thought and feeling.

What are everyone’s thoughts?


Post Modernism (c)

Post Modernism (b)

Post Modernism (a)

Intellectual Dark Web (a)

Intellectual Dark Web

Vital stats in South Asia

A bunch of vital stats from South Asia from Google Data Explorer. Since Zach and I started looking at these data since the early 2000s Pakistan and Bangladesh have diverged, unfortunately. I don’t understand what’s going on with Bangladesh’s anomalously high adolescent fertility though. This could be a function of variation among women as they age, with those entering the labor force delaying childbirth and the number of children so much that it brings the whole average down.

And of course, the whole comparison between India and the other countries is difficult since the Indian statistics average together many different regions.

Continue reading Vital stats in South Asia

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