The second anniversary of the NDA government of Prime Minister Narendra Modi is an appropriate milestone to reflect on its performance.
In May 2014, the possibility that India would embark on a path to prosperity was real. The BJP led by Modi was given an unprecedented mandate by the people and expectations were high that the new government would break from the dismal past. A move from what I call the PPP (perpetually planned poverty) policies of the past to policy reforms necessary for wealth creation was expected.
The sad truth is that instead of change, India, in essence, is still on the same old path India has been on since 1947. Heavy-handed and inept government interference into the economy had prevented India from reaching anywhere close to its full economic potential. Though the realisation that the needed structural reforms are unlikely to happen has dawned on most serious observers, it is politically incorrect to voice that concern for fear of antagonising the powers that be.
Governments, central and state, have immense power and control over all aspects of the economy, as is the norm for socialist countries. That leaves very little room for the expression of dissatisfaction by the people and the private sector. Industry leaders, for instance, may (and they do) privately bemoan the lack of reforms but they know that it would be foolish to say so publicly since the fate of their commercial enterprises are in government hands. They wisely choose to rate every budget a solid 11 on a 1 to 10 scale. They just grin and bear it because they have to, and if possible they vote with their feet.
A powerful government is a two-edged sword. It can implement growth-inducing policies that are the engines of prosperity. But if instead the government chooses growth-retarding policies, because of its power it can also prevent any challenge to its bad policies and therefore be immune to any possibilities of reform.
India’s government is unfortunately too powerful for India’s welfare. The reason is that the structure and nature of government is a continuation of the British colonial government. Although Indians democratically choose their government now, that fact is consistent with an all-powerful, anti-freedom, exploitative and extractive government like before.
Economic prosperity is built on a few basic building blocks such as good rules, urbanisation of the economy, free markets, property rights, and individual freedom. Instead, the government has focused on their anti-thesis, and perpetuated poverty rather than prosperity.
Like the previous governments, Modi’s government continues to focus on villages, which necessarily implies rural poverty and therefore the continuance of fruitless rural poverty alleviation programmes like MNREGA and Jan Dhan. Those don’t create wealth but merely redistribute what little there is. The stress is always on subsidies and dole, instead of freeing people to create wealth. The poor need freedom and opportunities to use their labour to create wealth, not `2 per kilo rice as handouts.
Lack of property rights, unclear land titles and regressive labour laws limit employment in urban India. Add to that the lack of investible funds. The financial institutions are in dire distress with massive non-performing assets (NPA). Estimates of stressed assets in the banking sector top 15 per cent. Almost every public sector bank is broke multiple times over. The only avenue appears to be the injection of even more money into them. That is not the solution. In short, the government has demonstrated neither the vision nor commitment to structural changes. What kind of changes? For instance, it could have liberalised the education sector, instead of introducing even more onerous requirements.
Lack of availability of land has hamstrung industrial growth, and thus the growth of manufacturing jobs. Public sector undertakings and defense occupy prime real estate in urban areas. These could have been made available to industry for growth. Furthermore, land that the government holds is urgently needed for affordable housing. The housing sector can be another powerful engine of growth.
The government must vacate the spaces in which the private sector can and does do a much better job than the public sector can. Why must the government run Air India, BSNL and the like when the losses made by these entities have to be suffered by taxpayers who have no control over them?
There have been no administrative reforms. The British Raj-inherited bloated bureaucracy continues to thrive. It is an unaccountable mass of people absolutely resistant to change and whose main output is red tape. Another neglected area is judicial reforms. Certainly, the Modi government did not create the system but it has done nothing to address the problem of over three crore pending court cases.
Has Modi’s NDA government done anything at all? Of course it has. Any government in power, especially an all-powerful government, always does things. But did it make the right choices in doing what it did? Did the promised ‘acche din’ materialise? I think the answer is no, and I believe most observers think so too but are unwilling to come out and say so.
With three years still to go, there is time for the Modi government to change tack. That will only happen if it understands why India has not prospered so far. No country has become rich without the right rules, without urbanising, without economic freedom. No country has become rich without letting markets function or by pandering to special interest groups. The numbers speak for themselves that India is mired in poverty. Only when the realisation dawns on the Indian people and their leaders that it is possible to create wealth with the right rules and policies will India’s trajectory really change. Until then, it is futile to expect any real change.
Atanu Dey is an economist and author of Transforming India