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Modi's minimum governance, maximum government

Sumit Mitra
Sumit MitraApr 13, 2015 | 11:09

Modi's minimum governance, maximum government

Narendra Modi came to power promising "minimum government, maximum governance", but so far he has done little to downsize the government’s omnipresence. The Planning Commission has gone, the Niti Ayog has arrived. The prime minister says he will not be selective about removing red tape to help "Mukesh Ambani". Fair enough, but that can hardly be the reason why India must keep sliding down the World Bank's ease-of-doing-business ranking — to the 142nd position, among 189 countries. Why has there been no Chief Information Commissioner (CIC) in ten months, no Chief Vigilance Commissioner (CVC) and no Governor in ten states? When it comes to government, or mai baap sarkar, the model is clearly patented by Congress under the Gandhi family. But Modi too surprisingly seems similarly disposed.

Much like in the Congress period, the CBI, the apex anti-graft agency of the Union government, has now got its strategy in the courts synchronised with the graph of ruling party’s political requirements. So the CBI Saradha chit fund probe may hasten or slow down depending on changing attitudes of Rajya Sabha members of the Trinamool Congress from West Bengal. On the other hand, the JD(U) government in Bihar may at last qualify for a "special case" depending on how the proposed "Janata Parivar" of Lalu-Nitish-Sharad-Mulayam-Deve Gowda pans out, and how Nitish plays his card out there — as a team member, or the conscientious objector. Modi was dead on when he identified the word "government" as an expression of acute public disapproval. Be it in the West or the East, nobody likes meddlesome governments. But there is another side to a minimalistic government, that of giving up control, which Modi will not accept. Nor is he like Margaret Thatcher, who sold off state-owned businesses without a blink. He loves the bullet train, but is not inclined to nod at the sale of an inch of the Indian Railways.

During NDA-l, Arun Shourie, a committed neo-liberal, turned disinvestment into a mantra. But do you hear about the sale of Air India, a cash guzzler, anymore? Or the maharatnas, navaratnas and miniratnas? Last year, the disinvestment target was only 50 per cent met. This year the target is large but "Team Modi" doesn't think it is not the government's business to run businesses.

The Manmohan Singh government, for all its inadequacies, was accused of "policy paralysis", but not of tinkering with a body like the Reserve Bank of India (RBI), which is regarded as out-of-bounds for executive interference, though it is not legally so. Raghuram Rajan, the RBI governor, is an exceptionally bright economist with an international reputation. But he is the blunt talking and straight shooting type, who was the first to punch holes in Modi's Make In India slogan — cautioning against its export-orientation like China and the consequent risks like those China is facing from the slow down of the world economy. It is likely that Modi didn't appreciate that. So the government appointed a committee for Financial Sector Legislative Reforms (FSLRC), which would help amend the RBI Act, leaving the governor with no power over supervision of banks and management of public debt, giving him only the charge to control consumer inflation within a band.

It is not a bad idea per se, but how can the RBI governor stick to the inflation target unless his voice is heard on things that may drive up inflation, such as the rates at which the state governments and PSUs borrow from the government?

The RBI's suggestion was to have a committee of five members, at most, with a governor, two deputy governors and two external members. But the Modi government has other ideas. It will neither settle for less than seven members in the committee, nor will it give the governor a casting vote. It is no wonder that the name of Rajan, a former IMF chief economist, is increasingly being heard as possible successor to IMF managing director Christine Lagarde when her term ends next year. For India, it will be a loss - not for Rajan's stature, but because the country needs an independent monetary policy regulator. Especially because India has a long record of loan melas, or binge default on bank loans, particularly before elections. 

There is another way, perhaps more offensive ethically, in which the government is fudging its promise of "minimum governance". It is not only going back on a past promise to sell out the state's stakes in large private sector corporations like L&T, ITC and Axis Bank, but also putting a political ally on the board of L&T, a cutting edge engineering firm. Significantly, L&T is likely to be a major beneficiary of the government's new policy decisions as it is a partner in private-sector defence production. It has bagged the order to make diesel-electric submarines that makes their own air, without surfacing to "breathe". Besides, its nuclear arm may work with global N-power majors, such as Areva of France.

Instead of selling off the eight per cent share of L&T held by SUUTI (Special Undertaking of PSU finance company UTI), the government used this stake to send BJP sympathiser Swapan Dasgupta to L&T's board. Dasgupta, who is a former managing editor of India Today, defines his identity on his Twitter handle as an "anglophile" who lives emotionally "in the 1930s". Besides, he is a friend of Modi's. He did his PhD from Oxford in History, but is certainly without any known qualification in engineering or business management. It is doubtful if he has anything to bring to the table of the L&T board. This appointment shows the way for party loyalists to eventually capture seats in large private companies where state-owned financiers hold high stakes. It has worked in China where corporate governance is negligible.

In India, it will undermine the independence of private business. It was from the Congress days that boards of directors of PSU companies began being loaded with all sorts of cronies — a hockey player, a brother of a party leader, and a Doordarshan news reader. Modi has only gone a step further, to a hi-tech company.

The more things change the more they stay the same.

Last updated: April 13, 2015 | 11:09
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