INDIA-POLITICS-MODI
Western India's Gujarat state Chief Minister Narendra Modi listens to senior BJP leader Arun Jaitley during the Bharatiya Janata Party (BJP) Legislative Meeting at Gandhinagar, some 30 kms from Ahmedabad, on December 25, 2012. Modi was elected the leader of the Legislative party and will be sworn in as Gujarat Chief Minister for the third time on December 26. AFP PHOTO / Sam PANTHAKY
Surajit Dasgupta
Pragmatism Over Dogma

Modi’s five months in office indicate that his decisions will be guided by pragmatic national interest rather than textbook definitions of economic reform.

Far better than the Congress, not entirely a liberal economic great-leap-forward, but an urge to push policy and governance within the confines of political realism — that is how the five-month-old Modi government’s performance can be summarised. However, those who supported the BJP’s campaign in the hope of an instant revival of the national economy, but who are not in touch with functionaries of the government, may have had occasions to despair. Why so many foreign trips? Why has one minister been entrusted with two of the most important portfolios, both of which demand full-time involvement? Why no thrust on Hindutva? These are some of the FAQs the government must live with.

Let’s try to answer these questions. The new dispensation is severely short of intellectuals. There are not many who can replace Arun Jaitley in the Finance Ministry. It is not politically feasible to bring someone from outside and abruptly place him at the top. However, economists who had provided intellectual support and inputs during the election campaign for the party will be acknowledged, if not rewarded. ‘Reward’ has been ruled out because

  1. Many of them have said they did not do it for rewards;
  2. They have said they are too independent by temperament to be part of a government, and
  3. Some have been too demanding for the government’s comfort.

Two names here are illustrative. According to sources, Modi found Arvind Panagariya, the Columbia University economist, and an early Modi backer, too demanding, and hence was asked him to restrict himself to the role of a consultant who would keep operating from overseas. When Surjit Bhalla, a vocal free market advocate and chairman of the asset management firm Oxus [disclosure: Surjit Bhalla is on Swarajya’s Editorial Advisory Board] was contacted, he excused himself saying he was too fiercely independent-minded to be part of the government, a finance ministry economist under the condition of anonymity confided in me.

To the above, if one added the clause that MPs aged above 75 wouldn’t be made ministers, one can reason why an economic stalwart in the right wing camp such as Arun Shourie couldn’t be invited to join the government. Shourie’s personal reasons wouldn’t have been a big hurdle, had the age restriction not been in place. The tacit rule also explains the exclusion from the cabinet of another crusader against corruption—Subramanian Swamy—who turned 75 two months ago.

In fact, Modi is so serious about this self-imposed discipline that he is reported to have told his confidantes he would retire after leading the party in the 2024 elections (he would be 74 then). Lending credibility to this insider information, he told a child who had asked him on Teachers’ Day what the qualifications of a prime minister were: “Prepare yourself for the 2024 elections!” If you thought that was a mere quip, you were mistaken.

As was expected, reforms have begun in right earnest after the first phase of the prime minister’s foreign trips. Easing the burden on a recuperating Arun Jaitley, pro-market Arvind Subramanian and Rajiv Mehrishi have been brought into the government’s scheme of things.

Barely a few weeks after returning from his US trip, Modi appointed Subramanian as the Chief Economic Advisor and shunted Finance Secretary Arvind Mayaram out of the Finance Ministry. Mehrishi, an IAS officer of the same batch and state cadre as Mayaram, was appointed Secretary, Department of Economic Affairs, in the Ministry of Finance.

Mehrishi is believed to be the chief architect of Rajasthan’s labour reforms initiatives. Bibek Debroy [Disclosure: Debroy too is a member of Swarajya’s Editorial Advisory Board], the noted economist, whose works often shed a positive light on Modi’s Gujarat economic model pre-April 2014, is now heading the committee to restructure the Indian Railways Board.

Last week, FM Jaitley signalled far-reaching reforms in the litigation-ridden coal sector. The Cabinet has recommended an ordinance for reallocation of coal blocks; the reallocation will be completed in four months; there will be e-auction of coal mines for private firms’ end use.

Now comes the policy’s political management. To pacify regional rivals, the government has decided that the revenue from mines will to go to the states. To keep breast-beating socialists at bay, Jaitley has assured that Coal India’s future won’t be affected, even though the government is set to undertake restructuring of the public sector behemoth by creating multiple mega coal companies in line with the recommendations of a government-commissioned study by global consultancy firm Deloitte.

On the other hand, liberal economists who are lamenting the government’s act of stopping short of a complete de-nationalisation of the coal sector have no more than academic importance on the political scene. Former secretaries at the Power Ministry E.A.S Sarma and Anil Razdan, for example, want an independent statutory regulator to de-politicise coal mine allotments and coal pricing. This is hardly a soul-stirring issue for activists.

Economic pundits have missed the importance of three major events last week. One, 88 infrastructure and industrial projects, involving investment of nearly Rs 3 lakh crore—which is more than the Centre’s budgeted income tax collections for the current financial year—have become operational over the past few months. This will help in adding jobs and easing pressure on banks, which had lent to the projects that got stuck due to lack of government clearances.

Two, the government on Monday initiated a series of measures to make it easier for companies to do business in the country by streamlining the process for granting industrial licences as well as setting up a committee to look into issues of corporate bankruptcy. At present, there is no bankruptcy law in India. Such a law will enable entrepreneurs to close down unviable businesses. The move will primarily help small and medium enterprises (SMEs). Micro, small and medium enterprises (MSMEs) contribute about 8% to India’s GDP. The government has earmarked Rs. 24,000 crore towards the sector under the 12th Plan against Rs. 11,000 crore in the 11th Plan.

All public sector banks are expected to allocate at least 55% of credit to MSMEs, register a 10% annual growth in the number of micro enterprises and raise their credit growth to the sector by 20%.

Three, the content of bankruptcy law was perhaps too much to deliberate upon for cerebrally challenged television channels, but why did they miss the news on the effort to sell stakes in the Oil and Natural Gas Corporation (ONGC)? The administration’s top privatisation official met bankers on Monday in Mumbai to discuss the sale of a 5% stake in ONGC. The finance ministry hopes to raise up to $3 billion from the sale, almost a quarter of its target for asset sales for this financial year.

Earlier, it was announced on the day of launch of Shrameva Jayate that all 1,800 labour inspectors will be disallowed from swooping down on companies. Instead, a computerised system will randomly send them on inspections, based on data trends and objective criteria. Following inspections, they will have to upload their reports within 72 hours and cannot modify them thereafter. This was a low-hanging fruit to pluck.

Also, the Planning Commission will soon morph into a body that facilitates coordination between the Centre and the states. It will certainly not be a planning organ by another name, and it will not be a typical think-tank as is being speculated in the media.

The huge social media following the BJP has can be a double-edged sword. For instance, a large section of BJP supporters on Twitter aren’t favourably disposed towards Jaitley. Conspiracy theorists even find him a Congressman in Modi’s team! More measured commentators call him status quoist. Whatever be the truth in these allegations—fuelled by the Finance Ministry’s act of taking the same Double Taxation Avoidance Agreements (DTAA) route as the UPA Government to bring back Indian black money from overseas, the refusal to make the Henderson-Brooks report on the 1962 India-China war public, and the affidavit censuring Gen V.K Singh—the Prime Minister is not banking on the Finance Minister fully. At the same time, the two will remain friends.

When Narendra Modi was being vilified by political rivals and NDA constituents alike for the 2002 Gujarat riots, Arun Jaitley, then a Central minister, stood rock solid behind the then Gujarat Chief Minister. Earlier, when the tussle between Hajurias and Khajurias in Gujarat politics had cornered Modi, it was a room in the backyard of Jaitley’s 9 Ashoka Road bungalow where he spent his years in ‘exile’.

Now that a large section of BJP supporters suspect the Finance Minister’s good offices with Congress functionaries to be responsible for the confidentiality of information on black money and the Henderson-Brooks report, and for a Budget that funded the UPA government’s pet projects, the PM is in an unenviable position of having to balance friendship, national interest, and his core constituency’s perception.

But, seasoned politician that he is, Modi is delivering on the financial front by filling all economic wings of the government with free-market advocates who will together steer policy rather than saddling the onus on the Finance Minister alone. Even as shifting Jaitley to some other ministry is ruled out, his relevance is reducing.

Actually, Modi is a leader who has no friend, no social circle, nobody to wine and dine with, unlike all of us. He is obsessed with a mission called India, and even his family and wife couldn’t come in his way. The equation with Jaitley is more of indebtedness and recognition of his connections in the political and industrial circles (the second was necessary for revival of the ‘India story’) than of friendship. This is pragmatism. We should repose faith in his patriotic instincts.