Modi should walk the talk on empowering wealth creators

In his Independence Day speech, Prime Minister Narendra Modi said he wants to take the Indian economy to the $ 5 trillion mark by 2024. That means a near-doubling of the size from the current $2.7 trillion over five years. The question that immediately pops up in one’s mind is – can this be done given the current slowdown in the economy?

The progress the Indian economy has shown since 1991 makes out a clear case for an open economy, where private initiative – whether by the roadside hawker or a top industrialist – is not hampered by an overbearing state. So, something else Modi said gave hope. “The need of the hour is to recognise and encourage the wealth creators of our nation...If wealth is not created, wealth cannot be distributed. Further, if wealth is not distributed we cannot uplift the poor sector of our society.” He called wealth creators assets to the nation who must be empowered. This is in line with what he said in a recent interview to The Economic Times: “We are willing to go as far as needed to ensure that ‘animal spirits’ are revived and our entire private sector is bullish.”

Unfortunately, the actions of his government during both his tenures belie the hope. Top of the mind are slapping the super rich with a 42 per cent tax and the failure to end tax terrorism. But there are several other inconsistencies.

Nothing contradicts Modi’s words more than the recent amendments to the Companies Act. One provision was stiff penalties on companies for non compliance with mandatory corporate social responsibility (CSR) provisions. Mandating companies to spend two per cent of their profits on CSR, as the Companies Act, 2013 did, was bad enough, but saying private sector executives could be jailed for non compliance was positively egregious.

There appears to be some rethink on these provisions but news reports say that the panel recommending changes has suggested making non compliance a civil offence, instead of a criminal one. The reduction of the severity of the offence does not mean a reduction of government interference. Bureaucrats will still have the power to question companies on their CSR spending. How is this micro management compatible with either minimum government or encouraging wealth creators?

Take also the extension of the National Anti-profiteering Authority, when its two-year term came to an end. Suspicion of the private sector was the foundation on which the NAA was set up in 2017. Private firms, the argument went, would not willingly pass on reductions in GST to consumers in the form of lower prices. So a government body was needed to ensure justice to consumers. Assurances that the NAA was just a benign, deterrent provision proved false. The NAA was structured to not just act on complaints from consumers, but also to act on its own. What was meant to serve as a warning to big business started being used against small businesses and retailers as well. Can businesses – regardless of size – be engaged in wealth creation when they have to sit and explain their costing and pricing structure to government? News reports also suggest that GST officers will conduct mock purchases to detect cases of profiteering. Is this not viewing wealth creators with suspicion and striking fear into them?

Farmers as wealth creators

Modi and his government have been constantly talking about doubling farmers income but the focus is largely on subsidies and other sops. There’s little action on freeing farmers from the numerous controls on agriculture. Private firms that can provide cold chains, storage facilities and other infrastructure are hobbled by the Agricultural Produce Marketing Acts and Essential Supplies Maintenance Act. Outdated land leasing and contract laws come in the way of both farmers and businesses. Farmers, and businesses they work with, can be wealth creators too. Why do they continue to be hobbled? Why do politicians and bureaucrats still believe that farmers need to be protected from the private sector by the state? Agriculture is a state subject, so much of this is the responsibility of state governments but Modi has not managed to get many Bharatiya Janata Party (BJP) state governments or even those of the party’s allies to usher in these reforms. Import-export of agriculture produce is something that is in the realm of the central government. But these tend to be plagued with ad hocism: Exports are banned/incentives withdrawn or imports curbed whenever prices for urban consumers start rising. The most recent is the withdrawal of export incentive on onions in June. This lack of consistency hurts farm exports and farmers’ incomes. How are they, then, to be the wealth creators that they can be?

There is no denying that businesses are hobbled by labour laws. The Modi government has ushered in some piecemeal reforms but a lot more remains to be done. The government often toms-toms its initiative on consolidating the myriad labour laws into four codes. But, as economist Arvind Panagariya pointed out in an article, many of the provisions are not reforms at all but mere simplification of the compliance process. In some respects, the code is actually turning the clock back. This will not only discourage wealth creation, but job generation itself.

Perhaps Modi’s Independence Day speech is recognition of all that his two governments have done wrong. But unless he undoes a lot of the wrong that has already been done, the animal spirits that he expects will make India a $5 trillion economy will not get unleashed. The ball is now entirely in his court.

(The writer is a senior journalist and author. She tweets at @soorpanakha)

The views expressed above are the author’s own. They do not necessarily reflect the views of DH.