Of big Government and poll verdicts

Political parties have erroneously come to believe, a la Mao or Mahalanobis, that big government is the cure for ills afflicting the political economy. 

Published: 16th December 2018 04:00 AM  |   Last Updated: 16th December 2018 03:06 AM   |  A+A-

Popular consensus has it that the defeat of the BJP in three states in the Hindi heartland was caused by agricultural distress and joblessness—aggravated by anti-incumbency, demonetisation and the impact of flaws in GST. The supposition finds resonance in the general discourse in the political economy. The cause, though, is really the consequence of a larger malaise, and that is the big government approach to governance.

Political parties have erroneously come to believe, a la Mao or Mahalanobis, that big government is the cure for ills afflicting the political economy.  Ironically, the best articulation of the antidote to big government was in the 2014 manifesto of the BJP, which promised Minimum Government, Maximum Governance.

The first budget of NDA II underlined the commitment “to the principle of Minimum Government, Maximum Governance”. Mind you, minimum government is less about ministries and ministers and more about simpler, shorter processes.  That is yet to be. The angst is not about intent but about implementation. The anger is about what was said and what was not done, what got done and how whatever was done got done. Big government has thwarted change.

The effect is visible across sectors. Consider job creation. The imperative of shifting the workforce from farm to factories, or indeed a more productive livelihood, has run out decades. Yet the political class is invested in an old shibboleth—that laws, rules and regulations ensure job security.

Among the biggest job creators are micro, small and medium enterprises who produce a chunk of the GDP and deliver dollars. There is much lip empathy for MSMEs, on the ground, little has changed.  The tragedy is that MSMEs find mention in political resolutions and are short-changed in economic policies. In a recent work, Manish Sabharwal, along with Sandeep Agarwal, presents the stark reality of “regulatory cholesterol” and inspector raj—MSMEs face 60,472 possible compliances and 3,382 possible filings. Enterprises must also deal with over 40 labour laws.

Multiple layers result in manifold clearances, numerous filings, compounded delays and escalate costs. Yet governments loathe de-layering—even in the face of evidence of failures in human and economic development.

India moved to 77 from 142 in 2014 among 190 countries in the World Bank’s survey on ease of doing business. Reality resides beyond headlines. The first step to job creation is starting a business, wherein India is ranked 137.Notwithstanding the grand reform of Insolvency and Bankruptcy Code, India slipped from 103 to 108 in resolving insolvency, and despite GST slid from 119 to 121 in paying taxes. It also went down from 154 to 166 in property registration and is placed 163 in enforcing contracts.  

Yes, the headline rank delivers optics to woo investors, but job creation requires an easier landscape for the entrepreneur. Ergo the focus on headline rank is part of the problem. The moot point is, has the number of clearances for power projects, factory, hotel or housing projects shrunk substantially? A flow chart of permissions across critical sectors would deliver some insights.  

Big government is a big cause of the distress in the farm sector. The genesis of misery lies in the fact that over 50 per cent of Indians depend on less than 14 per cent of the national income. Farm loan waiver has been on every party’s election manifesto, in every state election. Every party also agrees that it is not the solution to restore the viability of agriculture. In fact, politicised loan waivers shrink credit and badly designed MSPs worsen viability.

What farming needs is liberalisation—freedom to enter contracts, leverage supply chain credit and access markets. The idea of a national market for perishables, Amul II, requires localised aggregation of produce and discovery of price. This is best done by e-commerce entrepreneurs who have successfully integrated producers and consumers but have been“governmentalized”.  

The gap between articulation of ideas and action is a saga of pendency. Budget 2014 promised a review “of allocative and operational efficiencies of government expenditure to achieve maximum government”. The Bimal Jalan Committee report is yet not public. Budget 2015-16 announced disinvestment would include “disinvestment in loss-making units, and some strategic disinvestment”. It is now the Peter borrows to buy PSU to pay Paul scheme (http://bit.ly/27PSUs).

In May 2016, the urban development ministry asked states to “convert 3,784 census towns into statutory urban local bodies”. It would have generated jobs but is stalled. The 2017 budget promised to revise labour laws into four new codes. The draft code is yet to be implemented. Budget 2017 proposed a model law on contract farming for states. The Niti Aayog draft finalised in May 2018 awaits adoption.
It is true that the onus of propelling change in many sectors rests on states. That ideas could not take off even as the BJP expanded its footprint from six to 21 states is a testimony to the power of rent secured by babudom and politicos. Pro or anti-incumbency rests on a state of expectations. The expectation is that this perch of pelf be dismantled. Big government is the problem, not the solution.


Shankkar aiyar

Author of Aadhaar: A Biometric History of India’s 12 Digit Revolution,and Accidental India

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