Power brakes: When bulky State slows down the development cart

The economy is in sharp focus. With jobs scarce and inflation persistent, the government has turned to two things that it rarely considers – lowering taxes and reducing regulations. This is not because of any new-found faith in leaving money in the hands of taxpayers, or in lowering the regulatory cholesterol that chokes most businesses. More likely, this is just a one-off concession by the government because it has to be seen to be doing something. Anything!

We should get used to such ad hoc things. There are limits to what governments can do, especially the Centre. People elect governments with a lot of hope, but invariably they struggle to solve complex problems. They have authority, and they think they can do a lot with this, but power alone is not enough. Many of the biggest challenges can only be addressed through collaboration with citizens and businesses. For the moment, this is something that most governments are reluctant to do. They’re also not investing in themselves, either, and therefore not able to match the speed of change in society and markets.

If they are serious about change, governments must recognise that they are not the only actors on the economic stage. Years ago in this column, I wrote about development in India being like a wagon drawn by the State, market and society, but the animals that represent these are not all the same size. Instead, our wagon is pulled by a horse and two goats. The asymmetry of power between those three – the dominant State, and the weaker market and society – has made the cart incapable of cruising, and the next stumble is never far away.

When that happens, the only recourse is to replace one or both of the goats with slightly larger animals, perhaps mules, hoping that the imbalance between the three will be reduced. Perhaps more consumer spending will kick things back into gear. Perhaps freer markets can nudge companies to hire more readily.

There are other reasons too. The Central government is like a bus with only a big brake, but it keeps thinking that it can press harder on the accelerator, which it does not have. The state governments have cars, and these are fitted with a small accelerator too, but in these too the brake is bigger. Local councils are like small two-wheelers, very nimble. And their vehicles have proper accelerators and much smaller brakes.

In this analogy, the only thing the Central government can do is lift its foot off the brake – this time by taxing the people a little less, and perhaps reducing the number of regulations for businesses. If we really want to speed up things, we have to move a lot more money to local councils.

We won’t achieve much if we take steps without conceding that there is a problem with disproportionate power wielded by the government, and that citizens and markets also matter a lot. Without such an acknowledgement, the public and businesses see every new decision as merely the latest in a long list of ad hoc measures taken to suit the moment. And another round of arbitrary decisions in the future could erase whatever gains are promised by these recent ones.

The broad reading of the Indian economy remains unchanged – a preference for certain large businesses to dominate some sectors, very high Difficulty-of-Doing-Business for the small and medium sectors, and instability of policy. Lower taxes on the middle class do nothing to change this; in fact, the monies released this way will probably end up being spent on the products and services of the formal sector. And it would not be very surprising if much of the deregulation that happens will further favour large businesses.

It is the instinct of those who wield asymmetrical power to preserve the asymmetry itself, even if they make tweaks to the power. The Starlink deals are a case in point, opening up India to a new way of connecting with the world but routing that – literally – through large businesses that are more likely to play ball with the government. In due course, one can raise an appropriate toast to this over a shot of newly imported American bourbon.

India hasn’t had a Thatcher or Reagan moment, let alone a Trump version, where a political leader comes to power with the intent to downsize the government, or even to reform it. Instead, political parties compete to demonstrate to voters that they can govern better, without asking themselves why they should be running alcohol shops or making lamps and wrist watches. Even when they speak about reforms, it is no more than a sound-bite for the moment. They don’t actually believe in them.

Faith in a dominant and centralised State is at the core of our politics, and there is no willingness to recognise that there is a limit to what governments alone can do. This is how it has always been. The political irony is that we are still governed by Nehru.