Modi has put an end to policy paralysis that marred UPA regime

Ease of doing business has been a key priority of the NDA government.

 |  4-minute read |   13-07-2016
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Over the past two years, the Modi government's economic agenda has had three pillars: infrastructure, ease of doing business and liberalisation.

The government has been successful in accelerating the creation of infrastructure and in ending policy paralysis.

But it has fallen short of liberalisation, especially compared to the high expectations that some had when Prime Minister Modi assumed office.

The infrastructure story is the most well-known. Buoyed by the windfall revenues from fuel taxes and decline in fuel subsidies, the government aggressively went ahead with its infrastructure projects. The pace of road construction and that of laying railway tracks is far higher than it was two years back.

Also read: Even Modi's 'biggest regret' is misplaced

The Modi government has cleared most of the problems created by policy paralysis during UPA 2.

As a result of delays in land acquisition and problems with environmental clearances, the growth in coal production had slowed down during the UPA's second term.

It meant many coal power plants were operating sub optimally. Over the past two years, coal production has increased to the extent that states have asked Coal India to slow down coal dispatches.

modi-embed-111_071216101921.jpg The Modi government is trying to put an end to this vicious cycle through the JAM (Jan Dhan-Aadhar-Mobile) trinity. 

Some of this increased coal production has been auctioned to non-power sectors, which reduced India's coal imports.

Declining gas production in Reliance's KG-D6 gas fields had left many gas-fired power plants stranded. The Modi government has put in place a competitively bid subsidy system that has enabled the stranded gas-based power plants to restart with imported LNG.

Also read: Forget 60 months, people are unwilling to allow Modi even 60 days

Telecom and oil and gas were the most controversy- and litigation-prone sectors during the UPA regime. The Modi government continued the policy, which was first started during UPA 2, of auctioning telecom spectrum. The government has also implemented a long-pending spectrum trading policy, which has facilitated the much-needed consolidation in the mobile sector.

The hydrocarbons sector was in the news for the wrong reasons during the UPA 2 regime. Modi government's new oil and gas exploration policy, which shifts away from the controversial profit-sharing mechanism, along with freeing up gas pricing will bring much-needed policy stability and transparency in this sector.

Ease of doing business is a key priority of the Modi government. Much of the media focus has been on India's progress in the World Bank's "Ease of Doing Business" rankings.

However, it is also important to understand the ideological underpinnings of the Modi government's policy. Deen Dayal Upadhyaya's philosophy of "integral humanism" is a key part of the BJP's conception of Hindutva. While being pro-enterprise, "integral humanism" favours family-owned small and medium businesses over big business.

As Modi said in an interview to the Hindustan Times: "Red tape nahin hona chahiye; ab red tape nahin hona chahiye matlab Mukesh Ambani ke liye red tape na ho aur ek common man ke liye red tape ho, waisa nahin chal sakta" (Red tape should not be there; it does not mean it should not be there for Mukesh Ambani, but be there for a common man)."

Raghuram Rajan, the RBI governor, diagnosed the problem of the Indian political economy as the dependence of the population, especially the poor, on politicians to access pubic services. This fuels a vicious cycle of illicit election finance - politicians depend on businessmen for "black money" to fight elections.

The government is trying to put an end to this vicious cycle through the JAM (Jan Dhan-Aadhar-Mobile) trinity.

If the public can get government subsidies directly in their bank accounts and access that money though their mobiles, their dependence on politicians to access public services will reduce. Over the long-term, by eliminating the intermediaries between the government and citizens, the JAM trinity can profoundly change the Indian political economy.

However, the Modi government has not pursued its liberalisation agenda aggressively. The government has liberalised foreign investment limits across a range of sectors - insurance, defence, railways, e-commerce and so on. And its effects are evident in the sharp rise in FDI inflows.

But many economic reform efforts at the Central level remain stuck - land law amendment has been abandoned and labour law reform at the Central level looks difficult. To be sure, some BJP-ruled states have moved to liberalise labour laws and ease norms for land acquisition.

The Goods and Services Tax (GST) remains stuck in a political gridlock. Unlike the Atal Bihari Vajpayee government, the Modi government has not pursued privatisation of PSUs. There have been no reforms to reduce government ownership of public sector banks.

The Indian media has regarded the Modi government to be "right of centre" using the West's yardstick. Hence the constant refrain about the lack of "big bang" reforms which would radically alter the role of the State in the economy.

The Modi government has set up a safety net - pension and insurance programme for the poor - but has made it contributory. The Modi government is pro-enterprise but it views the cutting of red tape as levelling the playing field in favour of family-owned SMEs. It is inappropriate to use a Western yardstick to evaluate the Modi government.


Gautam Mehta Gautam Mehta

The writer is a student of International Relations at Johns Hopkins School of Advanced International Studies.

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