Thursday, August 07, 2014

Reforms- who's right, Modi or his critics?

Some three months into Modi's government, the reforms brigade is getting worked up. What, no "big bang" reforms, they ask. Why isn't Modi privatising? Why isn't he pruning subsidies? And what about labour market reforms?

I argued in a post a few weeks ago that there are good reasons why the Indian polity is allergic to such reforms. But commentators are loath to accept these. In recent days, we have had an orgy of lamenting. The FT, which is normally sober, headlines a commentary piece as "Modi's transition from dictator to ditherer". There is little justification for the hysterical headline apart from the fact that it is alluringly alliterative. Victor Mallet writes:
Some of Mr Modi’s supporters, on the other hand, are nonplussed. They are disappointed by his near-silence on domestic matters, his obsession with foreign affairs and the absence of “big-bang” economic reforms after a decade of lacklustre Congress rule; “underwhelming” is the word used in New Delhi to describe the government’s first budget in July.
“Here is a government that came in with a lot of hope, riding a tide of high expectations, promising change. Ennui has already set in,” writes Bibek Debroy, co-editor of Getting India Back on Track , a book telling the government what it should do.

Ashoka Mody and Michael Walton, writing in BS, provide a rationale for reforms in slow motion:

The business-as-usual economic policy, with which this government has begun, should have been expected. For about a century, a motley group of lower middle class voters has steered Indian politics. Since independence, meeting their insistent livelihood demands has been the prime objective of every political party and government. The Bharatiya Janata Party (BJP) attentively wooed this coalition with finely-tailored promises and remains anxious to hold on to this constituency in the forthcoming state elections. India's central political dynamic remains intact.....

The absence of a transformative agenda is a calculated accommodation to India's political economy. Modi brilliantly channelled the cry for change into an electoral platform. But the government has neither the mental model nor the political courage to effect real change. As so often, political and bureaucratic elites have made promises to the Indian electorate that they cannot keep. Acchey din may be a long way off.  

Shreekant Sambrani, also writing in BS, suggests that Modi is trying to emulate what he did in the Gujarat, which is to focus  on execution rather than sweeping changes in the policy framework:
Modi's strategy was to run the state as a business entity. For this purpose, he depended on two younger members of his team, both with business background and experience, Nitin Patel (current finance minister) and Saurabh Patel (current industries and energy minister). Modi trusted their acumen and gave them key responsibilities. They delivered on issues such as 24x7 power supply and industry-friendly ambience, leading to showcase projects such as Vibrant Gujarat. Modi orchestrated and executed many a scheme with great aplomb, which caught everyone's imagination, most of all, that of India Inc. Thus was born the legend of the Gujarat Model.
To this end, Modi depended heavily on the bureaucracy. His chief secretaries such as P K Laheri, D Rajagopalan and A K Joti delivered plenty. All through his chief ministership, Modi was very much his own chief economist with little regard for theory or ideology, but possessing pragmatism in abundance and an unerring instinct for what sells.
Sambrani thinks this won't work at the national level. Well, we have to wait and see. After all, the political pundits were telling us that, whatever Modi's oratorical skills and record in Gujarat, he would find it impossible to win a national mandate on his own steam. And yet we know he brought it off. It may well be that the answer to India's problems is not to attempt radical reforms and face the political unrest these will trigger but to get the government machinery to deliver better.

Economists argue that reforms must come first, then you get growth. Modi's approach seems to be to do a little better on growth first; once the economy recovers and incomes rise, perhaps the receptivity to reforms will be greater. He may well be proved right. It is wise not to under-estimate the capabilities of extraordinary leaders.

1 comment:

Anonymous said...

Very interesting article. I agree with author that we should avoid jumping to any conclusions with just 3 months of horizon.

On other hand, the prima facie "blink" that Modi is not pressing for radical reforms & that he speaks the same hackneyed populist language, also seems to be apt.

BJP/NDA must keep one thing on their table continuously - Unlike previous govt, Modi's govt is going to be continuously under scanner of public & private institutions and if they don't deliver "growth", their contract for next term may be doubtful of renewal.

I think the tag line should change from "Ache din ayenge" to "Bure din khatam honge"...That is what Modi seems to be working currently. For "Ache din", perhaps we will have to wait a bit longer.