Disequilibrium : No more episodic reforms

When you come to a fork in the road, you have to decide which way to go? Between objectivity and subjectivity, I would personally much rather choose objectivity for it allows one to stay on the path of moral equivalence; if I allow my biases to creep in, then I lose the moral high ground of equilibrium, clarity of thought, lucidity of purpose and perspicuity. To assess Narendra Modi’s three years as Prime Minister is not an easy task, for when he stormed to power, he arrived slap bang in the midst of the political firmament as a deeply divisive and polarising figure. One, mind you, who has never ever shown or articulated anything remotely hurtful or antagonistic of any particular caste, creed, religion or people. There could be underlying credos and currents and subliminal messaging that exist, but none that one has seen or heard publicly. In fact, what Modi as PM has achieved is to uniformly unite Hindu majoritarianism thrice in these last three years. The Modi wave, again let us be mindful of the fact that the BJP never came to power in 2014, Modi did and he had more than adequate traction to bring an equally fatigued opposition to the seat of power. There is no explanation for winning 71 out of 80 seats in UP (73 if you add Apna Dal), sweeping Rajasthan, Gujarat, large swathes of Bihar, MP and Maharashtra. The Hindu vote aggregated behind one man as it opposed the patronising appeasement of religious minorities by various political formations. Modi broke that mould and replicated this in the Assam polls where once again the Hindu vote consolidated behind him in India’s second most populous Muslim state. And if vindication and validation was still required of this new axiom then the UP hustings earlier this year defied all laws of logic, political punditry and gravity. Hindus cutting across all caste fault lines voted for Modi as he swept the state from the badlands of western UP to the Purvanchal region neighbouring Bihar. It was a colossal victory, which flew in the face of polemics — how demonetisation will prove to be a referendum, how Akilesh has got the youth and women behind him, how the Muslims will vote en bloc blah blah blah. While all this was repeated ad nauseam in the Lutyens intelligentsia, media and intellectual network, what emerged when the EVMs delivered their mandate was brute majority. Modi was riding the crest of his popularity, the rising tide had lifted all the boats.

From paralysis to stability

Personal probity, integrity and sincerity of purpose along with a functioning government, somewhat centralised with PMO domineering, has provided the necessary stability. PM Modi’s personal popularity and clean image has soared with the passing of each month. From the dark days of the UPA diarchy and its paralysis in its last few years with inaction resulting out of humongous scams, Modi has through a series of administrative reforms given a new meaning to governance. One can argue that Modi @3 has not been able to do anything transformative or ground breaking, but he has provided stability and continuity. The Congress can claim that many of his administrative schemes are regurgitating what UPA seeded (which is partly true), but the reality is that this reform has made people’s lives easier and simpler.

There was a certain toxicity in the air during the last days of the discredited UPA, a deeply underlying negative sentiment, which Modi has managed to turn around. Cabinet ministers and secretaries in various ministries in the immediate aftermath of the change in dispensation at the centre would tell you that ‘untangling the knots was a monumental task’, such was the level of dysfunctionality about governance.

But all that is now in the past, just as the torturous losses in Delhi and Bihar have been consigned to the ashes of history. As is the jibe of suit boot ki sarkar, something that the image- conscious PM chose to rectify almost instantaneously. Showing his innate understanding of how a nimble footed politico should work, PM Modi has veered from right of centre in terms of policy prescription to left of centre. Moving with blinding speed, he has appropriated along with Gandhi, Patel, Bose, Ambedkar and other Congress icons; rural Bharat itself, knowing fully well that India resides in its villages. From Sonia’s welfare economics model, it is now Modi’s rural focus, which is the overarching formula for political and economic upliftment. Not a chimera, for the votes have rolled in. Development sadly, has been lost sight of, as needless muscular nationalism practiced by hot heads has taken centrestage. What is disappointing is that Modi and his government wasted too much time chasing legislation in the first flush of May 2014 and beyond. Almost in parallel, they lurched from one foreign trip to another and got bogged down with electoral wins. Again, one can argue that this is what politics is all about. Equally, it is about the delivery mechanism and use of executive powers, which are at the disposal of the PM and through its instrumentality the Union Cabinet and its decision- making prowess. This sadly was underused, except when push came to shove, for instance on the eve of travelling to Britain to meet David Cameron, PM Modi exercised powers vested in him to hike FDI limits. Such action has been few and far between. On the foreign policy front, his biggest achievement has been to neuter Pakistan amongst its top votaries — Saudi Arabia, UAE and Qatar, who he has engaged with directly and repeatedly. This has sent Pakistan rushing into China’s arms.

Slow pace of change

One can see that this slow pace of transformative change is something that the PM is seized of. He has constantly told the bureaucracy to exhibit risk-taking transformational ideas and moves, but this is still to materialise. Demonetisation is where the PM showed his risk-taking ability, but one still doesn’t comprehend fully what it was meant for and what it achieved. Other than the fact that the tax warriors got fresh data on evasion and this would probably help in prosecution and enlarging the narrow tax base of 2.9 crore of which only 1.4 crore actually pay personal income taxes. Finance minister Arun Jaitley mentioned the other day that this period since November had helped add 91 lakh new tax payers. What is pertinent is that for a right wing government with a brute majority in the lower house, very little cutting edge has been done. No new ideas, nothing dramatic nor anything out of the box and what could be described as a killer application with widespread breakthrough benefit. People braved the pain and rigours of DeMo because they believed that what the PM did was right. The tax amnesty schemes — both overseas and domestic — have been unmitigated disasters.

Look at Indonesia, which launched an overseas and domestic amnesty scheme almost around the same time we did. In phase one, they have unearthed $379 billion with a four per cent penalty attached to it, so people have come forward in droves. Instead we have come up with diddly squat and our claims have turned out to be dubious and questionable. The draconian penalty and jail terms obviously spooking people.

Execution peril has dogged this government, road contracts for one have been given out, new financing models are in place (Hybrid Annuity), but actual road building is poor. There has a been a lot of talk and hot air over disinvestment, again execution has been ineffective. IDBI Bank, which the finance minister announced would be strategically sold in his 2015 budget speech, has seen no movement forward. On Thursday, the rogue bank practically went belly up with a quarterly net loss of Rs 3,200 crore and chump change and gross NPAs ballooning to in excess of 21.5 per cent. Banking NPAs, which were never kosher are now threatening to imperil the entire financial system. Finally, an ordinance to the Banking Regulation Act means that RBI now has to come up with the requisite policy on how to resolve this mess — hair cuts, valuation, bringing stakeholders on board — the whole ball of wax with double speed. The time for talk is over. While a bad bank approach to resolving the NPL and stressed asset situation has been the most commonly talked about solution to resolving the issue of large non-performing loans and stressed assets, the government does not appear to favour this approach. Instead of the bad bank approach, the Government prefers a comprehensive framework, which includes a mix of imparting power to oversight committees as well as making legislative changes to provide full authority to bureaucrats and bankers to deal with asset restructuring and right-sizing debt. What ever form and shape this resolution has to take place, its time starts now.

In its crucial last leg

These next two years are crucial for Modi for private capex is still in the doldrums, large swathes of the economy remain vulnerable due to inordinately high debt levels, govt expenditure has to accelerate in sync with ramped up capital goods production. Inflation dynamics are favourable for corporate margins just as an impending good monsoon can actually reset agricultural growth and consumption momentum. Policy measures to jump start investment cycle recovery, of course, is vital for the economy’s well being. Christopher Wood writing in his Greed & Fear CLSA report after visiting India says, “Meanwhile, the rest of the Indian story under the extraordinary Modi remains as vibrant as ever. Indeed, the achievements of the Modi government are remarkable for all the carping by the champagne socialist pundits, who continue to make a lot of noise on the local English language TV stations. Greed & Fear will mention a couple of examples of which it has been reminded during meetings in the Indian capital this week. First, over 280m so-called “no-frills” bank accounts have been opened since Modi became Prime Minister in May 2014 helped by the catalyst-enabling effect of the electronic ID card known as Aadhaar. As a result, more than 90% of Indian households now have access to a bank account. Second, out of the total of 550,000 so-called “Fair Price Shops” where ordinary people buy subsidised food, 200,000 are now equipped with biometric identification to make sure only those authorised can purchase the subsidised items. Similarly, of the estimated Rs1.6tn in welfare payments that is currently paid to individuals by the government, 95% is now paid via electronic means under the so-called Direct Benefit Transfer Programme. While it is true that the Aadhaar programme was launched under the previous government, the real rollout and practical application of the programme has been massively leveraged since Modi assumed power, as the above examples demonstrate. The benefits of direct electronic payments are hard to exaggerate in terms of reduced leakages and the like. There is also the savings to the government with total savings estimated at Rs 500bn.”

Trial balloons have been floated on various contentious issues and instead of biting the bullet thereafter, they have been sent off into cold storage — Air India’s privatisation, the merger of telecom twins owned by the government BSNL and MTNL, aggressive recapitalisation of banks — among other burning issues.

Cassandra’s prophesy

More than anything Modi has given India a healthy feel good factor, an island of tranquility and growth (though Cassandras would argue that the gau rakshaks need to be kept at bay and what you eat, wear and consume shouldn’t be anyone's else’s problem, and I concur with that as a Libertarian). India is definitely a sweet spot, its national security problems, of course, will require another treatise. As I have written in the past in these very columns, right wing traditionally has two strong suits — economic reforms and national security — somehow reticence and shoddy management haveseen failure in handling Kashmir Valley and Maoist insurgency in the jungles of Sukma-Jagdalpur. Both require urgent and undivided attention from the PM himself, and the resolution of the conflict in the Valley should have primacy.

High on optics, manacled by gradualism and incrementalism, it has not been able to able to surmount the hump on land acquisition, labour reforms which remain mired, privatisation which is hobbled, ease of doing business where we remain at 130th position and most importantly, retrospective tax which we have kept in abeyance but not rolled back using the Finance Bill. But my own sense is that all this will change, the coming two years will see a lot of this unfinished agenda being kicked wide open as more difficult decisions will be taken by the PM himself. Semantics aside, Modi has to leverage this edifice to deliver on his growth and development planks now. Reforms cannot be episodic, there has to be a continuum about them.

@sandeep_bamzai