Journalist TCA Srinivasa Raghavan has written a column
on the relative timidity of Modi, the Prime Minister in comparison to Modi, the
campaigner. He also offers three possible explanations for the timidity that he
sees. Such articles must be welcomed. Reality checks are necessary for those in
power. It is unlikely that they will get candid feedback from their
subordinates. There are no peers within the country for those in such high
positions for them to get a 360-degree feedback.
One thing is clear. The Indian government – or, for that
matter, any government- can always do better, faster and more. But, we all know
that governments move slowly. India has a reputation for being slow. The more
the government tries to reform; the greater is the resistance to change. It is
not just about bureaucracy but even vested interests outside the government.
All these are well known, however.
The article mentions three areas that, according to the
author, has contributed to the image of a reluctant, indecisive, slow-moving
government. One is that the Prime Minister wants to run the government in
Chinese style with Indian features. The second and related to that is the
purported fascination with the American Presidential form of government with
pork-barrel politics. The third is the risk aversion that comes with wanting to
win a third term. To the extent that there is a grain of truth in all of these,
there is room for improvement and change in the style of functioning.
The only chance – and it is small, by the way – that a
pro-Hindu Prime Minister wins a second term in India is to act in the first
term as though he/she has only one term and makes decisions faster. The system
is set up to deny him or her another chance. So, the third explanation may be
more useful and the PM can take that seriously.
All that being said, there is a fourth factor and that is
that the scale of the economic mess left behind by the previous government is
so big that it cannot be fixed overnight, not to mention dealing with new
problems that keep cropping up. Talking of crops, India had a deficient monsoon
in 2014 and to compound matters, it had unseasonal rains in March this year.
Well-known agricultural expert Ashok Gulati is sounding the alarm bell
and rightly so.
With the unceasing onslaught of information and news, old
news and memories fade fast. India had run up a huge current account deficit
because, thanks to the previous government’s ill-considered and corrupt
decision-making, coal mining was banned and export of iron ore had stopped. The
Modi government has passed the Coal bill and the mining bill for transparent
transfer of public resources into private hands. This should show up in growth
in infrastructure industries soon. A.K. Bhattacharya of the Business
Standard called it ‘stand-out governance’.
The previous government had left a huge fiscal deficit.
One estimate puts the true fiscal deficit in 2013-14 at 6.6%. The mid-year
economic analysis of the government published in December 2014 put it at about
6.2%. This government had to undertake a severe fiscal squeeze in 2014-15 to avoid
getting downgraded and seeing cost of capital go up for Indian borrowers in
world markets. Plus, India’s image would have taken a big knock had there been
a downgrade to junk bond status. Consequently, the government had to stick with
the fiscal deficit target with the crucial difference that it had to do genuine
fiscal tightening whereas the previous government projected a lower fiscal
deficit by postponing payment of bills in the cash accounting system that the
Government of India follows. The result is a growth squeeze as well and that
does lead to a sense of drift and complaints of non-performance. It is time to
take stock of what this government has done in the last ten months.
The Prime Minister has done a few things that no other
Prime Minister in living memory has done. He has taken the case for one of his
government’s policy proposal to the public. Again, this is about undoing one of
the toxic and destructive policy legacies of the previous government – the Land
Acquisition, Relief and Rehabilitation Bill of 2013. First, he is addressing
the nation once in a month in a radio talk. No other Prime Minister has done
that in the recent past. Second, he used the radio talk to address farmers
directly. He has re-promulgated the Ordinance to push through important changes
to the dysfunctional Land Acquisition Bill of 2013. It is not easy and, if
passed, its import is likely far more significant than the mere undoing of a
lousy and toxic policy of the previous government which was not only
anti-industry but not pro-farmer either. It would have simply killed all land
acquisition transactions or reduced them to a crawl.
He has been directly appealing to the rich of India to
give up their subsidized cooking gas. The Tata group is urging its employees to
give up subsidised cooking gas.
In his speech at the function to mark the 80th anniversary of the
Reserve Bank of India, he remembered to mention that, urging bank employees to
give up their subsidised cooking gas. That is a good sign. A good leader misses
no opportunity, no matter how trivial, to push his agenda. Small things add up.
Few more examples follow.
A report in Times of India noted that the government
had put up a list of thirty-six companies “committing to supply 95 lakh tonnes
of the construction material during this year at price up to Rs 180 per bag.
These companies will supply cement from 103 factories spread over the country
and the material can be bought for building roads, affordable housing,
irrigation projects, drain and other civil works by Centre, state and local
Manish Sabharwal of Teamlease never tires of mentioning
that some of the labour reforms (they are quite modest actually, considering
what remains to be done) have not been attempted in the last two decades. For
example, “the Government has implemented a single window labour compliance process
for industries; companies will now be required to file just one compliance
report for 16 labour laws. Each factory has been issued a labour identification
number (LIN) to enable it to register online and file the unified labour law
return. The new rule will be applicable to central government affiliated PSUs
and entities. Each state will have to pass similar rules individually for
application to private entities in their states.”
Based on the proposal announced in the budget, workers
will have options for their pension savings than the Employees’ Provident Fund
Organisation and for their health insurance needs than the Employees’ State
Insurance. The benefits of freedom and choice both these afford workers are
enormous. This is empowering.
Subsidy for diesel used to be a big issue for the
government. To be sure, the previous government did this one thing well. They
quietly raised the price of diesel every month by 50 paise per litre. In fact,
the success of that approach holds important policy lessons for successive
governments and governments around the world. This government carried it
through to its logical conclusion and decontrolled the price of diesel. Now,
prices of petrol and diesel go up and down regularly. Our media outlets
continue to accord it some significance and mention every price change
diligently. It should be and is a non-event. It was not so, just two years ago.The
government also decided to follow the same model for gas pricing by announcing
a modest increase now followed by a review every six months. Reforms are as
much about packaging and giving time for change as it is about intent to sweep
away the old, the unnecessary and the harmful.
Similarly, cash transfer of subsidies was such a big
challenge. Most of the objections to it was patronising. Now, it is being
rolled out on a nation-wide basis. The Prime Minister overrode objections from
members of his own party and decided to deploy Aadhaar for doing so.
Again, it is easy to forget or dismiss its significance. However, the payoffs
are likely to accrue to India for a long time. This is what Sajjid Chinoy of JP
Morgan wrote at that time (in October 2014):
a move that is likely to get buried under the more dramatic diesel and gas
price announcements – but one that, we believe, is equally important in
reducing subsidy leakages in the medium term –the government announced it will
be linking cash transfers (“Direct Benefits Transfer”) with recent efforts to
increase financial inclusion (“Jan Dhan Yojna”).
The Finance Minister indicated that, as a
start, in 54 districts of the country those with bank accounts would receive
the LPG subsidy in the bank account. While the details are still to be
announced, tying financial inclusion with cash transfers is unambiguously
positive. A move to cash transfers will eventually ensure that distortions
caused by dual-pricing of products will disappear, better targeting (to the
extent that the UID is involved and results in de-duplication) will result in
fiscal savings, and that households have a reason to use and service bank
accounts and build up a financial history that can eventually be used to avail
More recently in February 2015, A.K. Bhattacharya of Business
the new government for the fillip given to the spread and use of Aadhaar,
for the success of the Jan Dhan Yojana (by the middle of January, the number of
accounts opened under the scheme had crossed 115 million) and for the crediting
of cooking gas subsidy directly into bank accounts.
While subsidies to the poor get more attention from the
media and elites, subsidies to corporations do not. That is myopic. The NDA
government has promised to rationalise corporate taxes but do away with many
ad-hoc tax exemptions that have now become permanent fixtures in the tax
statutes. They have to follow through and deliver on this. That would be a huge
windfall for the government and reduce clutter.
Foreign direct investment in hitherto closed sectors like
Railways, Defence and Construction have been either allowed or prior limits
hiked. “Some of the key government measures for the construction sector
cutting of minimum foreign investment from
$10m to $5m and minimum floor area from 50,000 sq. metres to 20,000 sq. metres;
reduction in minimum 10-acre land area for
serviced housing plots;
removal of the three-year lock-in period for
repatriation of capital and
enabling of developer’s exit on completion,
Also, according to the research note by IIFL cited
earlier, “the Ministry of Roads and Highways has sharply raised the pace of
award of road projects. The Ministry of Roads had awarded projects of 5,000km
in 9MFY15, which include 4,300km on EPC basis. For reviving stalled projects,
the Government has cancelled 34 projects totalling 4,084km, which would be
restructured in terms of their model (PPP/EPC) and project cost to enhance
their viability. The Ministry of Roads has also addressed various issues that
have affected execution of ~4,200km of road projects.”
Citing CRISIL, IIFL notes that “work had already begun by
end-Nov’14 on 75% of the 16 road projects awarded in FY14. This number was 18%
in FY13 and 10% in FY12. Time taken between the award of a project and its
commencement has reduced from 10-12 months earlier to 7 months. To spur
execution, the Government has been taking proactive steps such as completing
80-90% of land acquisition, fast-tracking environmental nods, delinking forest
and environment clearances, increasing limits on sand mining, and enabling
online filing for clearances to construct rail over-bridges and under-bridges.”
In December, the government introduced amendments to the
Electricity Act 2003 that, among other things, would allow consumers to choose
to buy electricity from multiple sources of supply. They can also switch
suppliers by giving notice.
The amendments are expected to be passed by both houses of Parliament and
become law by the middle of this year.
Finally, Prime Minister Modi’s campaign to clean India
has ignited several minds. The most electrifying and inspirational example is
that of Ms. Temsutula Imsong of Nagaland who has been camping in Kasi, cleaning
up Prabhughat. Her campaign has attracted several other youngsters. Mr.
Srinivasa Raghavan must check that out. Merely visiting her Twitter handle
and seeing the pictures, one is infected by the enthusiasm and energy of her
and her other collaborators who have come voluntarily without any push or prod.
Which other Prime Minister has managed to attract young Indians in the service
of a public cause? This gives us Indians a lot of hope in the future.
For a Prime Minister who came to office promising
sweeping changes, it is a challenge to confront the scale and criticality of
problems in every area of government that demand urgent attention. Hence, in
line with devolution to States, the Prime Minister would do well to devolve
authority and responsibility to his Ministers, hold them accountable and drop
them if they are found deficient. The process can be transparently done too
with public seeing the goals set, the achievements and failures and the
appraisal. Before that, he needs to revisit his promise to re-organise several
Ministries into Ministerial clusters, reduce overlaps and streamline
decision-making. That is an idea well worth pursuing.
India’s skills and learnings outcomes are nowhere what is
required for an economy wanting to achieve the status of an economic
superpower. Human Resource Development initiatives of this government are not
in the wrong direction and lack clarity and purpose. That brooks no delay.
Last year, the government promised to do away with many
outdated laws. Not much seems to have happened since then.
Implementing such sound ideas will mark the difference between this government
and other governments of the past.
In the final analysis, given the neglect and wrong
policies of the previous UPA government and given India’s aspirations, it will
always be the case that the government is found wanting, no matter how
impressive and comprehensive are its actions and achievements. For India with
nearly 600 million people in poverty or in low-income status, no pace is fast