The government tried to sell the white elephant called Air India, but failed. PSUs have been used to support the exchequer and thus dress up the deficit figures.


The fact that the Bharatiya Janata Party has won the general elections impressively doesn’t mean that its government under Narendra Modi did everything right on the economic front. It didn’t, and it is time it got its act together.

Prominent Indian-American economist and first Vice-Chairman of the Niti Aayog Arvind Panagariya’s suggestion on fiscal prudence, government downsizing and aggressive privatisation of public sector undertakings (PSUs) should be taken up in earnest by the Modi government in the second term. Talking to PTI recently, Panagariya said, “Show strong commitment to fiscal consolidation to ensure that the private sector is not starved of investment funds.”

To be sure, this is not something new. Survey after Economic Survey has recommended such measures. Economic Survey 2017-18, for instance, recommended “easing the costs of doing business further, and creating a clear, transparent, and stable tax and regulatory environment”.

While India jumped inexplicably, almost magically, in the World Bank’s Ease of Doing Business ranking, there is nothing to show that this has galvanised the wealth creators; thousands of them have actually moved out of India. Global investors are not queuing up to put money into India.

Survey 2017-18 recognised this: “India’s investment slowdown is not yet over although it has unfolded much more gradually than in other countries, keeping the cumulative magnitude of the loss—and the impact on growth—at moderate levels so far.”

It had also suggested “creating a conducive environment for small and medium industries to prosper and invest will help revive private investment. The focus of investment-incentivising policies has to be on the big and small alike. The ‘animal spirits’ need to be conjured back.”

So far, however, the Modi regime has been unable or unwilling to heed to any counsel pertaining to major reforms that its own advisors have been offering. In fact, Finance Minister Arun Jaitley often scorned the idea of big-ticket reforms and favoured incrementalism. More importantly, Modi himself transformed from a business-friendly politician (when Gujarat Chief Minister) to a leader wedded to dirigisme.

Privatisation, which was and is the need of the hour, was never attempted with any measure of seriousness. The government tried, half-heartedly, to sell the white elephant called Air India, but failed. PSUs have been used to support the exchequer and thus dress up the deficit figures.

This attitude was fundamentally different from the one when the BJP first came to power (1998-2004). There was desire for change; it was very much there as manifested by, among other things, the appointment of Arun Shourie as disinvestment minister. In fact, privatisation was one of the redeeming features of the At Bihari Vajpayee government. Prime Minister Vajpayee’s support to the privatisation of state-run companies was a testimony to his commitment to change and free market economy. If Shourie was seen as the most successful minister, it was mainly because of the solid support he received from Vajpayee. The latter genuinely made an effort to dismantle the relics of socialism.

The consequences of not carrying out privatisation have been deleterious both for public finance and the economy. Lakhs of crores have been spent on the recapitalisation of PSU banks and the running of Air India. The sale of PSUs and state-run banks would have made government finances much better.

The Modi government, while not exactly profligate, has not been an exemplar of fiscal consolidation. The fiscal deficit as per cent of gross domestic product or GDP came down by more than one percentage point during Modi I, but that was more a consequence of low global crude prices than of any commitment to small government. States, however, have not been very cautious, primarily because of mindless farm loan waivers, and the gains made by the cut in the Central deficit have been offset by the improvidence by states.

With few signs of crude prices softening, the government can ill-afford to be casual about not just the fiscal deficit but also the current account deficit, especially as exports show little buoyancy. Exports, especially merchandise exports, cannot go up without substantial improvement in manufacturing; and that is not possible without the entire raft of reforms being carried out without much ado.

Modi’s journey as Prime Minister so far has been that of a campaigner who has effectively executed populist schemes and successfully sold them (and nationalism) politically. Modi II ought to be about reforms. For the sake of the nation.

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