That the Narendra Modi government earnestly desires high growth is indisputable. This is in sharp contrast with the attitude of the previous regime, which was following mutually exclusive policies: formulating schemes for the “redistribution” of wealth, while doing everything to ensure wealth destruction and fiscal ruin—distributing wealth even when there was none. This was not surprising because it was guided by all manner of Lefties. Tragically, however, the current regime’s economic policy is also not without similar blind spots—statism and socialism.
The dialectic of desire for brisk economic development and institutionalised dirigisme have been the defining feature of the Narendra Modi era; it will continue to be so in 2018, which is the last calendar year in which any major policy decisions can be taken. So, we have his government taking steps aimed at liberalisation, and also measures reminiscent of pre-1991 era. For example, some progress seems to have been made in the ease of doing business, the result of which got reflected in the World Bank’s 2018 report: India jumped 30 notches in the index, from 130 to 100—an unprecedented jump.
In fact, the World Bank seems to have become the harbinger of good economic news for our country. India may yet again become the fastest growing major economy with a growth rate of 7.3% in the calendar year 2018, the Bank’s Global Economic Prospects released on Wednesday. It, however, downwardly revised the estimate for 2017, from 7% to 6.7% because of “short-term disruptions from the newly introduced GST”.
The same day the government announced a slew of measures to attract foreign direct investment (FDI). This included 100% FDI under the automatic route for single brand retail trading and construction development. The former, it may be recalled, has been contested by traders, a big constituency of the Bharatiya Janata Party. Further, foreign airlines have been allowed to invest up to 49% under approval route in Air India, thus facilitating its privatisation, which would be a big reform. Foreign institutional and portfolio investors (FIIs and FPIs) will now also be able to invest in power exchanges through the primary market.
Yet, the statist impulse is never at rest. Like the government under Jawaharlal Nehru after Independence which became the prime mover of development, the Modi regime took upon itself to set everything right. So, unsurprisingly, the official attitude towards businesspersons is: “We’ll tell you what to do.” A set of officials takes decisions, and everybody from the captains of industry to small shopkeepers has to follow. This is top-down approach; doesn’t have much regard for feedback, much less for alternative viewpoints.
One consequence is unpredictability. One day, the Prime Minister invalidates 86% of the currency. Economic growth took a hit, and is yet to recover from it; the quantum of job loss in the informal sector was enormous.
Worse, the tyranny of suddenness persists. In September last year, the Railway Ministry announced that General Electric should make electric engines instead of diesel ones. This meant that the American firm’s 2015 contract, worth $2.6 billion for supply of 1,000 diesel locomotives, would be nullified. But GE had won the contract in competitive bidding. GE protested vehemently; there was widespread criticism of the capricious announcement. The government was forced to roll back the decision.
Then there is Road Transport Minister Nitin Gadkari who, a few weeks before the GE affair, told the Society of Indian Automobile Manufacturers (Siam) at a function organised by them, “You may not like it, but I wish it from my heart that your growth should be less.” However, the India Brand Equity Foundation, a trust established by Government of India, proudly talked about “several initiatives by Government of India” for rapid growth of the Indian auto industry. So, what is the policy? Supporting the auto sector, as the website says? Or bulldozing it, as this top Minister threatens?
A country can’t attract investors if top government functionaries keep changing policies or making statements on a whim. But then these are the wages of statism: when the powers that be are convinced that they know everything that is good for the economy, they are also convinced that suggestions and feedback are redundant.
Dirigisme is not the only worry; the regime bureaucracy is also enamoured of socialism. Even in its fourth year, it is just trying to sell off Air India—which was an open-and-shut case, thanks to the losses running into tens of thousands of crores. There has been no major privatisation, though public sector banks ought to be sold off for the sake of the taxpayer and the economy in general. Soothing World Bank reports, a healthy stock market, and rosy scenarios painted by the optimists cannot hide the truths about the dampened investing sentiment and sluggish employment generation.
Businesspersons are aghast that the compliance burden grows by the day. For instance, on 5 January, Goods and Services Tax (GST) officers sent notices to hundreds of companies—including Google India, Panasonic, Hitachi Zochen, DLF City Centre, and Suzuki Motorcycles—asking for exhaustive lists of documents within hours.
The government is also reportedly planning to bring down the cash transaction limit from Rs 1,000,000 to perhaps as low as Rs 200,000. This would mean more paperwork. All in the name of checking black money. While businesses are tormented to file all sorts of documents for this purpose, nobody knows what is being done, if at all, to bring back the trillions of dollars supposedly stashed in overseas accounts.
In the past statism and socialism have badly hurt economic development. Against this backdrop, one needs to be ultra optimistic to believe that 2018 will transform the country. We can only hope and pray that Team Modi has the will to go forward with Minimum Government Maximum Governance.