Achche din? Not with the state as a doer

For the 2014 elections, the Bharatiya Janata Party (BJP) had put out two versions of its election manifesto, a detailed one and a shorter one. I had placed the shorter one on my laptop’s main screen. I thought I would track India’s transformation as it unfolds, given that we were promised a different government — a “minimum government with maximum governance.” About six months later, I deleted it. I noticed that we only had a change of leadership and but no structural difference in the way the government intended to function.

Indeed, over the following years, things worsened. In the first two weeks of this month we have headlines like “Maruti slashes production for a third month amid subdued demand”. Or, “Industrial output in India contracted for the first time in 21 months”. Or, “FY19 growth at three-year low”. Or, “The IBC is going the way of previous failed laws on bad loan”. Or, “Narendra Modi’s most distinctive economic policies were his worst”. What went wrong? 

A year after the Modi government started announcing various schemes, thinker and writer Arun Shourie described the government as “UPA (United Progressive Alliance, led by the Congress) plus cow”. This memorable description was apt. The hallmark of the two UPA regimes was job guarantee schemes, continued support for unproductive public sector companies, bloated infrastructure projects for cronies, a controversial scheme for tagging every resident called Aadhaar, budgetary gimmickry to hide the fiscal deficit, tax terrorism, giveaways to farmers, etc. It was the same expansive, intrusive government.

The BJP-led government came to power with a clear majority, the first time by a party after 30 years, and an unprecedented mandate to focus on development and job creation. Instead, Prime Minister Narendra Modi changed the names of UPA schemes and expanded them; he added a few more of his own. Taking a leaf out of the book of previous Congress governments, it announced a loan mela called MUDRA. There was no reform of the public sector, no meaningful disinvestment, only sleight-of-hand, such as ONGC buying Hindustan Petroleum and Power Finance Corporation buying Rural Electrification. Billions of rupees have been taken out of government companies as dividend, denuding them. A couple of them don’t have enough to pay salaries. Ownership, corruption, lack of accountability in public sector banks remain unchanged, with the result that hundreds of billions of rupees of taxpayers’ money has been injected into them just to keep them alive. Instead of a miracle identification project to cut wasteful subsidies, Aadhaar has turned into a surveillance tool. The promise of minimum government, maximum governance turned out to be a joke. 

Two major reforms of the Modi government were the goods and services tax and (proposed by the UPA) the Insolvency and Bankruptcy Code (IBC). But high GST rates and draconian rules reiterated the extortive nature of the Indian state, apart from innumerable glitches. The bureaucratic and flawed IBC architecture has ensured that the new system is rapidly descending into utter chaos and has started resembling previous bankruptcy resolution efforts — a cesspit of seedy deal making, long inaction, stymied resolutions and a long list of unresolved cases.

A new government will take charge in a few weeks from now. What can it do to make a structural difference? In the tech world, they say, try to make something 10 times different, to really get noticed and gain traction. To make a dramatic difference to the lives of millions of Indians living in poverty, we need a 10x shift in governance. This cannot be achieved by doing more of what hasn’t worked so far, such as do-gooding schemes, more subsidies and higher taxes. A structurally different approach is required, which would be making the government a facilitator, not a doer. This would be a 10x shift in approach.

We have been led to believe that government policies and action are needed to solve every problem area — farm loans, jobs, housing, poor health care, or bad infrastructure. However, if we dig deeper we will know that the government is the problem, not the solution. Every scam or wasteful expenditure has its roots in licensing, public sector, tenders, or opaque systems, for which the government alone is responsible.

There was a time in the 1950s and 1960s when private capital and skills were scarce and the government had to step in to set up industrial projects. From there on, the state expanded relentlessly, limiting the growth of private enterprise, fostering crony capitalism and corruption, in the process forcing the most brilliant Indian minds to migrate. This path has to be retraced. The government has to shrink dramatically, not only because it is a wasteful, largely unproductive and unaccountable system. Today the talent, capital and strength of private institutions are well-established both in the “for profit” and “non-profit” space.

What I am suggesting is not mere clichés like “government has no business to be in business”, which I first heard 35 years ago. India can prosper dramatically if the government were to act as a referee to maintain peace, deliver quick justice, and minimise frictional costs, while encouraging private institutions to act out their enterprise and vision in every area possible. If we do that, the government will need to raise much less tax as well, fuelling further exponential growth — the real Achche din.

The writer is the editor of www.moneylife.in

Twitter: @Moneylifers