Sometime back,
the post “Decoding
Modi’s Popularity” tried to understand the reasons for continuing
popularity of the Indian Prime Minister. Many western commentators try to judge
him on their standards which implied would translate into so-called western
liberal values. Thus in their assessment, he stands contrary to what they seem
to preach to Indian masses. Yet while his popularity remains undisputed, there
are many commentators including among the Indian right and his support base who
feel that Modi is not an economic reformer. They point out to the lack of
reforms in the Indian context. They argued that Modi while create political
disruptions has faltered on the economy. The low economic growth rate in the
recent periods is seen as an vindication of their stand. Yet, at times it feels
for an economic reformer in the Indian context, all Modi had to do was to
privatize Air India and close down BSNL. To a prospective champion of Indian
economic reforms, the test begins with privatizing Air India and ends with
closing down with BSNL. It seems the rest would not count.
Long back, in
reviewing Modi’s first year in office, an article in Swarajya “Situating
Modinomics” tried to place Modi in an economic context. The article had
posited while the tempo of reforms seem to favour those who advocate gradual
incrementalism yet those defences seem to be conveying apologies than something
to do with intrinsic ideological convictions. At that time, the question raised
was it feasible or desirable to pigeon-hole Modinomics into a certain school of
ideology. The article argued on the contrary Modinomics was not doctrinaire unlike
Thatcher who could unapologetically convey Hayek was her guiding master in
economics. Of course Britain and India are two contrastingly different economic
and social structures and thus cannot be compared. It was no doubt that Modi’s
election was viewed as triumph of the right in economic terms. The directions
of his economic policy was certainly not something in tune with his economic
backers. The break down between Modi and section of economic right happened
during demonetization which was perhaps contrary to what they stood. Since
then, Modi has been harangued for his economic policies.
Yet in the six
years or so of his rule have seen disruptions in the economic sphere too. There
should be no doubt that his economic record in terms of disruption remains high
and perhaps might surpass what is associated with PV Narasimha Rao or Atal
Bihari Vajpayee. There might not have been dream budgets a la Manmohan Singh in
the early 1990s or P Chidambaram 1997 or even Yashwant Sinha 2001. Yet, outside
of the budget the reforms are unmistakable. Many measures which were on hold
for the inability to exercise political will have gone through. Disinvestment
is slow but on many other fronts, there have been considerable measures.
While the GST
has to be simplified and it might be sometime before it gets achieved, the very
fact that GST could be implemented was itself a significant disruption. The current
round of troubles with GST is more an outcome of the steep learning curve than
the concept itself. The direct tax code might be in the offing but even before
the same, the reduction in corporate taxes to 17% for the new firms and 25% for
the existing ones was a significant pointer towards a low tax regime. The personal
direct taxes have been mystified more but they too seem a work in progress expected
to reach fruition in the coming couple of years. The movement of digitalisation
of compliances has begun, but this is the journey that is going to test Modi’s
political will and calibre the most given the hold the babudom has on the
common tax payer. If the harassment of the tax inspectors end or reduce
considerably, Modi’s tax reforms would have won the day.
His moves on
Insolvency and Bankruptcy Act too was sharp departure from the past. Again, it
is on a path of the learning curve before it becomes smooth in the months and
years to come. If there has to be strong start up environment, the market exit
must be made costless or at the least costs must be negligible. For the market
economy to function, it is not entry barriers have to be eliminated but equally
important are the easing of exit barriers too. The labour reforms would complement
the same. It would be easier for the firm to plan their recruitment and
retrenchment without considerable hassles. By giving states freedom to amend
the labour law provisions, the ease of doing business will get decentralised
and competition among states intensified. The other labour laws have been
simplified though it is the first step in perhaps a long journey of labour
frictionless economy.
The farm reforms
were no less disruptive. The political will that was demonstrated by the
government in the passage of these bills was a testimony to its reformist
credentials. The farm markets which have had significant barriers will now find
themselves unhinged. The growth in the value chains linked to agricultural sector
would be tremendous. The push towards digitalization through UPI, BHIM, RuPay
etc. all point towards unapologetic use of state instruments to push
capitalism. There is a likelihood of state capitalism as a new form emerging
across the world.
The merger of
banks and the low muted opposition by the unions to the same indicate the
reforms are likely to get a boost without much of an opposition, notwithstanding
the farm protests in parts of the country. The bank mergers will pave way for
reaping economies of scale and scope to take on the global giants. The move to
permit select firms to list in overseas stock exchanges is one of the first
steps towards the capital account convertibility in the country. There has been
considerable liberalization and allowing entry of the private sector in almost
all spheres of the economy. The defence sector too is witnessing series of
steps of liberalization.
Yet there is
bound to be some negative impact on the growth in the short to mid run. The post
“Institutional
Disruption and Economic Downturn” discusses the possible existence of
J-Curve that results in the downturn. Therefore, political parties are
reluctant to embrace reforms due to the possible electoral repercussions. Aside
of these, Modi has shown a penchant for reforms even in the social sector. While
the perception might vary, the facts and the evidence do point out to the
reforms and the disruptive nature of the reforms that have characterised
Modinomics over the last six years or so. This is what should count in judging
Modi, the reformer.
Comments
Post a Comment