Political flexibility needed

Economic reforms cannot be mere rhetoric. They are hard work. Modi has drawn the wrong lessons from their election victories.

The NDA government has found foreign policy, foreign adventures and political games superior to the hard work of reforming an economy to its true potential. Prime Minister Narendra Modi has travelled to more countries and dealt with more heads of governments than his predecessor so far.

In all his meetings, he was fully prepared. Either he is a speed reader absorbing information or he has been thinking of India’s foreign relations when in Gujarat. He has locked on to the need for large FDI and that Japan and China with funds at low interest rates. He had a security agenda ready for Japan and the USA.

Modi and BJP president Amit Shah, however, have drawn the wrong lessons from their election victories. They have not given enough weight to their lack of majority in the Rajya Sabha, the lack of majority without the Shiv Sena in a joint sitting of both Houses, the innate immaturity and bullying nature of Sena chief Uddhav Thackeray and the need for his support in Maharashtra if the BJP is not to be at the mercy of the NCP.

To this, add the deep hostility of the Trinamool Congress and the AIADMK. Both have sizeable numbers in the Lok Sabha. Could the BJPs intentions for West Bengal and Tamil Nadu not have been finessed till some legislation had been passed by the Lok Sabha? The Congress will lead the holding up of legislation in retaliation for BJP doing it in last Parliament. There is an arrogance of majority affecting the BJPs promises of good governance which demands legislation to be proposed and  implemented. It is not enough to make the bureaucracy come to office on time and clear files speedily.

In six months, inflation is down, balance of payments much better, GDP growth improving, the Rupee is stable, FII inflows rising, stock market booming. Only the last two are due to the BJP government. Investors and markets are anticipating reform and a boom. Money is pouring in and FII inflows might be largely Indian unaccounted money flowing back.

Releasing surplus food grains has helped bring down food prices. Falling crude oil prices reduced petrol and diesel prices, and lorry freights on vegetables, etc. Actions of the previous government also helped. 

The legislative programme is jeopardised-goods and services tax, raising the cap on FDI in insurance to 49 per cent, labour law reforms, direct tax reform, indeed the forthcoming Budget. Not all reforms need legislation. But “cultural nationalism” agenda is moving (school books in Gujarat with Hindu mythology, compulsory Sanskrit in schools, the Central government’s use of Hindi in all public interchanges, ‘Z’ class security for a yoga guru hitherto under no threat, a new ministry for yoga, ayurveda and homeopathy etc).

Bureaucratic actions like speedier information, faster responses, using the internet for information and approvals, etc are some. There has been no comprehensive statement of economic policies. Some policies to come maybe: goods and services tax as top priority, reduction in income-tax rates for the middle classes, getting FDI into infrastructure, defence, railways etc, rationalising social schemes to make them less leaky and more purposive, closing down of sick public enterprises, replacing the Planning Commission with a think tank, joining up similar departments with interests in energy, transport, health etc, skills development centres, more universities and so on. Many of these need the support of the Rajya Sabha. 

Eliminating black and unaccounted money are rhetoric like that of the past governments. No closing loopholes that allow these moneys to escape has come (needs no legislation).

Deliberate loopholes like: tracking hawala; property and stock holdings overseas by resident Indians; stopping participatory notes for anonymous investment in India, or closing the Mauritius route for investments from Mauritius free of capital gains tax; cutting huge social schemes (like MNREGA) leaking as much as 50 per cent of funds so; poor quality monitoring of infrastructure expenditures  (enabling vast sums to be siphoned off); continuing commissions on defence imports; reforming land legislation; closing or selling state owned enterprises (inefficient and many very sick). Many of these need Rajya Sabha approval too.

Coal production
The government still has faith that the hitherto backward, inefficient and supply contract violating Coal India Limited will, in three years, significantly increase coal production. Power, steel, cement and fertiliser prices will rise after the auctions of coal mines on Supreme Court directive  after paying the additional Rs 290 per tonne on past production (imposed by the Supreme Court). But, government says that tariffs are to be capped.

So, the government will interfere with market prices for cement and steel and regulated ones for power. This additional cost of power will then have to be borne by state governments in their purchase price or by the generating companies since the government wants consumer prices to be capped. That will deter fresh investments in renovation, modernisation of old plants and building new ones. Then again, coal mines could have been offered to reputed coal mining companies from overseas. This would have brought new technology and raised productivity. 

This government, like its predecessor, is treating the Coal Nationalisation Act as a holy cow not to be slaughtered.  The coal mines should have been sold off and users restricted to the four essentials of coal, fertilisers, cement and steel with a small percentage sold on the energy exchanges. There is also no mention of an independent Coal Regulator to transparently regulate all matters to do with coal production, technology, productivity, tariffs, meeting supply contract commitments.

Economic reforms cannot be mere rhetoric and announcements. They are hard work. The government must give itself political flexibility.