Administration

India’s choices in 2019: Modi has reforms to his credit, UPA free rode on Vajpayee’s reforms

At independence, the country suffered from widespread poverty, abysmal social indicators, and rudimentary infrastructure. It then went on to adopt socialism as the centerpiece of its development strategy, with helper features such as license-permit raj, distribution and price controls, and autarkic trade policy. The result was meager progress for almost 40 years.

The process of change initiated gathering steam only with liberalizing reforms, first introduced grudgingly in the second half of the 1980s and then deliberately from 1991 onward. But with the first four decades nearly lost, despite progress in recent decades, India’s problems have remained massive. Therefore, as a critic, if you select to evaluate any of India’s governments according to problems that remain unsolved, you can have a field day. That is precisely the approach critics of Prime Minister Narendra Modi have taken.

Such criticisms prove nothing and indeed apply with greater potency to preceding governments. Genuine evaluation needs assessing the progress made by a government against that by other governments. If this correct metric is applied, it is difficult to escape the conclusion that the present government has done splendidly well and that a return to any available alternative, which will inevitably be some variation of the erstwhile United Progressive Alliance (UPA), would set back India’s economic progress.

Space constraints do not permit a comprehensive list of growth-friendly policy initiatives that the present government has taken. Luckily, such detailed enumeration is not necessary either. Instead, it suffices to mention only three major reforms that the Modi government has implemented: Insolvency and Bankruptcy Code, Goods and Services Tax (GST) and Direct Benefit Transfer (DBT). If I look for reforms of matching significance during the whole 10-year rule of the predecessor UPA government, I cannot come up with a single one.

Nearly each of the major UPA initiatives such as MGNREGA, the National Food Security Act and Right to Education Act were about social spending and contributed little to grow the economy. Its pernicious Land Acquisition Act hurt growth outright.

In a public debate five years ago, a senior member of the UPA government happened to defend the record of his government by appealing to the high growth rates witnessed during its tenure. But when demanded to name the reforms by his government that could be credited with this growth, he could offer no answer. As I have maintained everyone along, the high growth rates during UPA rule largely represented a lagged response to the reforms that Prime Ministers Narasimha Rao and Atal Bihari Vajpayee had painstakingly implemented.

Exceptional performance in telecommunications, automobiles, two-wheelers, civil aviation and software industries owed much of their success to those reforms. The current debate on whether the UPA or Modi government delivered better growth outcomes has wholly missed this critical point.

Indeed, not only was the first UPA government lucky enough to harvest what the Vajpayee government had sown, at the end of its second term, it also left an un-plowed field with debris thrown all over. The successor government had to spend its whole first year removing the debris and readying the field for cultivation again by reassuring investors against retrospective taxation, taming inflation, unblocking numerous stuck infrastructure projects, and ending bureaucratic paralysis.

Even so, can one argue that a new coalition of opposition parties would be different from UPA of yesteryear? Alas, so far there is no sign that any credible opposition leader, save Andhra Pradesh chief minister Chandrababu Naidu, seriously believes in economic reforms as being central to sustained rapid growth. Nearly everyone believes that rapid growth is India’s destiny and they are there to spend the revenues the economy would keep producing aplenty like the mythical Kamadhenu.

The only concrete policy proposal currently on the table by an opposition leader is the one by Congress president Rahul Gandhi promising a guaranteed minimum income for all. Sadly, like many UPA era programmes, it is about pure redistribution. Worse yet, it is fatally flawed.

Before, the proposal appeared to be for a universal basic income. But after several commentators pointed to its fiscal unfeasibility Praveen Chakravarty, head of Congress’s data analytics department, stated that the proposal was actually for guaranteeing a pre-specified minimum income to every citizen. It is to be implemented by giving each person the difference between the pre-specified minimum income and the income she already earns. For instance, if the specified minimum income is Rs 10,000 per month and I already earn Rs 6,000, the government would give me Rs 4,000.

The fatal flaw in the proposal is that if I know that I cannot get a job that pays me more than Rs 10,000, I would choose not to work at all. The general choice for me would be to stay on perpetual vacation and receive full Rs 10,000 from the government. Which fool would choose to work to earn Rs 6,000 that would be entirely taxed away through an equivalent cut in government bounty?

Congress will need a better social spending proposal and, more importantly, a roadmap for growth-friendly reforms if it wants to take the nation forward. Alas, the story of Kamadhenu is a myth, not reality!

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