Narendra Modi is a real fiscal hawk — both as CM and PM, he doubled down on revenues, plugged leakages

In the early 2000s, Gujarat had an electricity problem that was also a fiscal problem. More than a third of the power supplied was lost in transmission and distribution. Collections were weak and rural service unreliable. The state could raise tariffs sharply, squeeze supply or keep absorbing the losses.

There were few precedents for aggressively collecting overdue electricity bills, and going after defaulters was widely considered political suicide. Yet, Gujarat chose the harder among its options: billing was tightened, power theft pursued and payment channels widened. Jyotigram separated agricultural feeders from other rural demand, making farm supply predictable while improving service for everyone else.

The numbers moved quickly. Cash collections rose from 9,176 crore in 2003-04 to 13,101 crore in 2006-07. Transmission and distribution losses fell from 35.9% in 2002-03 to 21.5% in 2006-07.

The chief minister who took these decisions was Narendra Modi.

That decision offers a useful lens through which to view the economic record, especially of fiscal discipline, of Modi, today India’s prime minister.

Thrifty, for good reason

Why does fiscal discipline matter? Because money must come from somewhere. Roads, railways, education, healthcare and welfare all need funding. Without sufficient revenue, spending means larger fiscal deficits, more borrowing and potentially higher inflation, ultimately eroding the value of the benefits it was meant to deliver. Fiscal discipline preserves the state’s capacity to invest, support households and respond when circumstances demand it.

But there is another way to balance the books: cut spending. A government can always improve this year’s deficit by cancelling next year’s bridge. Road and railway projects can be delayed, irrigation schemes deferred. The savings show up immediately in the accounts, but the productive capacity and future growth sacrificed do not.

True fiscal discipline is about making room for necessary spending without compromising long-term fiscal stability. That means knowing when to spend, where to spend and how to pay for it

Our recent paper, Fiscal Discipline from Gujarat to the Union: Evidence on Balances, Debt and Expenditure, 2001–2026, examines this approach across both governments under Modi. What emerges is a philosophy of preserving the state’s capacity to deliver. Collect better, leak less, manage interest costs and expand the economy from which tomorrow’s revenues will come.

Amp up revenues, plug leakages

At the state level, Gujarat’s wider finances followed the electricity logic. Comparing the three-year averages for 2004–07 and 2011–14, a revenue deficit of 0.51% of GSDP became a surplus of 0.67%. Own-tax revenue rose from 6.43% to 7.65% of GSDP. The fiscal deficit fell from 2.94% to 2.25% even as capital outlay rose. Other states were consolidating too. But Gujarat’s improvement in revenue balance exceeded that of 12 of 15 peer states, while its rise in own-tax revenue exceeded that of 14.

The same template followed at the Union. Better collection came through a wider base. GST pulled transactions into the system through e-way bills, input-credit matching and e-invoicing. The early years were rough. Gross collections still rose from 11.8 trillion in 2018-19, the first full year, to over 20 trillion in 2023-24.

Leakage reduction came through the welfare architecture. Direct transfers moved benefits into bank accounts, while Aadhaar-linked payments stripped out duplicates and ghost beneficiaries. The welfare footprint widened at the same time through housing, toilets, cooking gas connections and electricity.

Consolidation accompanied the expansion. Between 2013-14 and 2018-19, the Union fiscal deficit fell from 4.48% of GDP to 3.44% and the primary deficit from 1.14% to 0.35%. But growth presented a different challenge. In September 2019, the government cut the corporate tax rate from 30% to 22% for eligible companies, accepting an estimated revenue cost of 1.45 trillion in pursuit of higher investment. The fiscal deficit widened in 2019-20.

Wading through covid

Then, covid arrived. Yet India’s direct fiscal stimulus was more restrained than that of major advanced economies. In the IMF’s April 2021 comparison, announced additional spending and forgone revenue amounted to 25.5% of GDP in the US, against 3.3% in India.

India relied more heavily on credit guarantees and other measures that did not immediately add to demand. Support leaned on food, employment, health and targeted transfers. Free foodgrain became the defining instrument, later continued under the PMGKAY for about 81 crore people.

The difference showed up in inflation. US consumer inflation reached 9.1% in June 2022, a 40-year high. India’s CPI inflation peaked at 7.8% in April 2022 and returned to the RBI’s 2-6% band by November. By limiting deficit-financed demand, India contained a source of inflationary pressure. Fiscal restraint helped protect the real value of the welfare it delivered.

Fiscal consolidation resumed quickly after the pandemic. The deficit fell to 6.7% of GDP in 2021-22, 6.4% in 2022-23, 5.6% in 2023-24 and 4.8% in 2024-25. Meanwhile, central capital expenditure more than doubled between 2020-21 and 2024-25, from 4.3 trillion to 10.5 trillion.

Borrowing costs completed the circle. Indian sovereign bonds remained relatively stable through turbulence in global bond markets, while the yield gap with US Treasuries narrowed. Government debt is a claim on future fiscal resources, and bond markets price its sustainability. Falling deficits made that path more credible, even before index inclusion added demand.

Hawk-eyed on the fisc

Budget 2026-27 continues the logic. The fiscal deficit is targeted at 4.3% of GDP, effective capital expenditure at 4.4%, and central debt at 55.6%, on a path to 50% by 2030-31.

Fiscal hawkishness is not an aversion to deficits. It is keeping a hawk’s eye on them. The purse can be loosened when growth needs support or an extraordinary shock arrives, but discipline requires the fiscal room to absorb the cost and a credible path to restore it afterwards.

Across 25 years and two levels of government, that is the case for calling Narendra Modi a real fiscal hawk.

Dr. Vidhu Shekhar is an economist and associate professor at SPJIMR. He holds a Ph.D. from IIM Calcutta, MBA IIM Calcutta, and B.Tech (H) IIT Kharagpur. Views are personal.