Modi must aim for high growth with compliance

Modi must aim for high growth with compliance

By M.D. Nalapat | 5 February, 2017
Indian economy must enter into double digit growth mode, else there will be chaos.

Judging by his pronouncements, it has become obvious that what Prime Minister Narendra Damodardas Modi seeks is a transformation of the moral framework of the citizen. Whether it be sage admonitions delivered in “Man ki Baat” or on other platforms, or the snap delegitimisation of 86% of the country’s currency and consequently its informal economy, Modi is implementing steps that he regards as essential to wean the people of India—especially High Net Worth Individuals (HNI)—off their addiction towards personal enrichment through breaking the many rules that successive governments in India have created in an imitation of the British raj. Those who, in the past, saw Prime Minister Modi as being entirely focused on economic growth the way Deng Xiaoping was in China during the 1980s, have been shown to be wrong. What Modi seeks is less the change in Gross National Income that Deng championed than a change in the ethical chemistry of the citizen. He aims to make the citizen “swacch” in thought, word and deed, as the old saying goes. It may not have been properly reported in the media, but the first location to feel the effects of Modi’s drive for cleanliness was the Prime Minister’s House on what was formerly Race Course Road in Delhi, from which was removed lorry-load upon lorry-load of what can only be described as junk. This cleanup was after Modi began to live there. This pile of rubbish had been maintained in situ by less swacch-oriented predecessors, but could not survive Modi.

Deng Xiaoping was not fussy about methods, for all that he sought was faster and faster growth. To him, “whether a cat was black or white did not matter, so long as it caught mice”, a method which oversaw the emergence of China as the world’s second biggest economy, now five times India’s size. Such pragmatism would have been painful to Mahatma Gandhi, for whom “means were everything”, leaving little left for the actual ends of the policies pursued. The Mahatma was so focused on changing the moral attributes of the people of India that there were more than a few occasions when he halted and reversed mass agitations designed to drive the British out because of what he perceived to be moral frailties within the people. A careful study of Prime Minister Modi’s words and actions will show that he too regards the moral uplift of the citizen to be the primary task of his government. Even if growth gets reduced, what is needed, in this view, is the imperative of every citizen being brought to a situation of full compliance, with the laws and regulations in force at that particular time. To Deng, rules were bagatelle. What mattered were results. So those who regarded Narendra Modi as the subcontinental successor to Deng Xiaoping were wrong. To Prime Minister Modi, as to Mahatma Gandhi, “means are after all everything”. And while Mahatma Gandhi relied on Soul Force to change human personalities to the desired behaviour pattern, Prime Minister Modi trusts in the agencies of government to achieve the same result. 

The only way consistent with high growth rates for Modi to ensure that citizens function within the boundaries set by law and governmental edict and yet remain as productive as their kin in countries such as the US is to follow the example of that country. In the world’s largest economy, tranches of activity that are still proscribed in India are deemed legal, with the consequence that it is far easier for an individual (or a business) to function within the bounds of law and thrive in the US than is the case in India.

Prime Minister Modi needs to simplify procedures in India such that it would be as painless and profitable to operate businesses in this country as it is in those that have per capita incomes twenty times what India has. The PM could prevail on North Block to reduce taxes and do away with vexatious procedures, so that tens of millions voluntarily enter into the tax net. As for the Prime Minister’s dream of a cashless society, the day such modes get freed of the taxes and imposts that cling on to them at present, the sooner will citizens embrace cashless methods by their own free will. In contrast, the 8 November 2016 order has forced the abandonment of thousands of businesses and has caused the shedding of millions of jobs because businesses are unable to switch so suddenly from paper to plastic without forfeiting viability. By following a less coercive course, Modi would achieve his goal of Citizen Compliance with Authority in a manner that does not affect the economy the way the current demonetisation has.

And what of the war against Black Money? The implicit identification of all currency as “black” and all bank transactions as “white” omits to take account of the billions of dollars lost every month to India through bank transfers. It fails to take note of the huge volume of licit currency transactions. For example, those paying for petrol with currency pay a hefty indirect tax on such purchase, even if they may have not on the currency they used. The greater the velocity of currency transactions, the higher the number of rounds of expenditure in which taxes will get paid, whether these be direct or indirect. It should be the goal of government to increase such a velocity and to make it ever easier for a politically non-influential citizen to conduct his or her business. India is a short distance away from chaos should the economy not enter into double digit growth mode, and North Block’s attention has to be concentrated on boosting output and overall income.

It is better to lose a rupee of tax and gain twenty in output (and consequently almost certainly more than a rupee more of tax) than to lose twenty rupees of output in the process of trying to gain an extra rupee in tax. 

Those voting for Narendra Modi in 2014 did so in order for their lifestyles to improve. To them, “Acche Din” means faster growth and a life more filled with economic attainment, and not the day when government policy ensures that each citizen be made to practice the Mahatma’s austere lifestyle.

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