Prime Minister Narendra Modi is absolutely correct when he says that the goal of making India a $5-trillion economy is achievable. That his government has taken steps in this direction is also indisputable. Yet, much more is needed to realise the dream. Real reforms are needed.
Speaking recently at the inaugural session of the 100 years of the business chamber Assocham in New Delhi, the Prime Minister said, “Five years before, the economy was heading for disaster.”
His assertion about the United Progressive Alliance regime’s handling of the economy is bang on. Shaped by pinkish intellectuals and implemented by ministers like P Chidambaram, it was faltering and flailing. Reforms had been abandoned, even reversed; policy paralysis was its defining feature. Things came to such a pass that many industrialists, who are normally reticent, were forced to voice their concerns about the situation. Indeed the business class, like others, showed enthusiasm in voting in Modi precisely because the economy was heading for disaster under the Congress-led government.
The same, however, cannot be said about other statements that he made. He said, “We are building the Indian economy on two strong pillars of formalisation and modernisation. We are trying to bring in more and more sectors into the horizon of formal economy. Along with this, we are linking our economy with latest technology so that we can speed up the process of modernisation.”
While formalisation is good for the economy, it is serendipitous rather than causal: that is, it is the by-product of a healthily growing economy but cannot be a pillar on which an economy stands. As the economy grows, smaller businesses — from hawkers and retail shops to local traders and tiny factories — realise the benefits of becoming formal. In the natural course of growth and expansion, they themselves, in their own self-interest, strive to move towards formalisation.
It had been happening till two events occurred — demonetisation and the goods and services tax or GST. The latter is good in principle but its hurried implementation has resulted in unprecedented pain for small businesses. The former, however, was bad in principle as well as in execution. These two government decisions, aimed at enforcing and expediting formalisation, have played havoc with the economy.
Modernisation, too, has been understood very narrowly by the policy makers — just linking the economy with latest technology. The truth, however, is that economic policy in a liberal democracy has to be in tune with modernity; only then it can be properly modernised. And the principles of modernity are market economy, limited government, and free speech.
It needs to be mentioned here that a country can be rich and modernised, enjoying considerable technological advancements, without being a democracy; oil sheikhdoms are examples of such modernisation. China is another, and a much bigger one. India cannot and should not aspire to become such a modernised nation.
Even after over seven decades of Independence, India doesn’t fare well on any of the principles of modernity. All political parties have failed the country. The Congress imposed socialism in the country, leading to a big, unwieldy state and a controlled economy. Though it was a Congress prime minister, PV Narasimha Rao, who launched liberalisation in 1991, its rule spanning 10 years (2004-14) also buried reforms.
Unfortunately, the Modi government has not been able or willing to carry out reforms. Not that it hasn’t done anything for the economy. India’s rank has jumped in the World Bank’s Ease of Doing Business ranking. The Prime Minister is also right in saying, “Ease of Doing Business may sound just like four words, but in order to improve its rankings there is a lot of effort that goes into it including changing the policies and rules at the ground level.”
It is, however, quite evident that this jump in the ranking, while impressive, has not enthused investors, domestic or overseas. The reasons are not difficult to find. Tax officials have been given enormous powers which they often employ with impunity. Then the scope of regulation keeps increasing. In the last five years, an anti-profiteering regulator has been set up; others are in the offing. Price controls have become a headache. Long is the list of woes.
One result is the flight of capital. There are reports that thousands of high net-worth individuals or HNIs have migrated to the countries which have a business-friendly environment.
The situation cannot be reversed by speeches and promises. Real action (read authentic liberalisation) is needed. Only this can help realise the dream of a$5-trillion economy.
(The author is a freelance journalist. Views expressed are personal.)
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