It is unfortunate that prime minister Narendra Modi has, over a period of time, changed his government’s narrative from being pro-growth to being pro-poor. Both are, in a sense, related since you can’t reduce poverty without more growth; but without infusing confidence in investors—apart from FIIs who are coming in since most of the world is in bad shape—you can’t get investments, and therefore growth, to go back up. This, however, requires tough steps and, since losers tend to bunch up while those benefiting don’t stop to support/thank the government, the chorus of protest will always seem overwhelming. If the prime minister is going to get distracted by the noise, he is certain to fail to enthuse investors. In the case of agriculture, for instance, more irrigation is critical, but the only way to get the necessary funds is to stop the huge leakages in food subsidies—the progress in moving to cash transfers, however, is not proceeding fast enough, partly for fear this will alienate people; if half the population doesn’t get the grain it is supposed to, it is difficult to understand how cash transfers will alienate the population. Indeed, the prime minister would do well to learn from the previous government which decided to hike diesel prices steadily, and there was no protest after the initial few months.
In the case of areas like petroleum and telecom, this newspaper has written often enough, the government has yet to get its policy right, and that is keeping big investments back. While the Cairn and FII tax notices have once again given rise to the fear that the days of tax terrorism are not over, the government is only hurting its own case by creating all manner of hurdles to even legitimate arbitration by companies. That is why you have had voices like Deepak Parekh’s expressing disappointment at the pace of reforms.
While a voice like that of Ratan Tata asking industry not to lose the faith must come as a breath of fresh air, as the state of the markets testifies, the goodwill isn’t going to last forever—the Sensex rose 14% between when the BJP won the elections and December 31, and just 0.66% since. That is why the government’s stance on the land Bill has now become a litmus test for its appetite, and ability to deliver, on reforms. Given the way the Bill has energised the Congress party as well as various political groups most had written off, it is not clear if the government can get the Bill passed in Parliament any time soon. Since the government has already diluted the Bill, especially in the case of industrial corridors—this was the best way to acquire land for new cities—its best bet is to keep re-promulgating the land ordinance while continuing to acquire more land for roads and irrigation projects. This will both reignite the investment climate as well as put more money in the hands of farmers, giving the prime minister time to convince political allies and farmer groups of the land Bill’s benefits. Meanwhile, we need big decisions, such as some major strategic sales of PSUs, to get the investor mood back up. It was the promise of rapid economic growth that got the prime minister to where he is today, and it is only the fulfilment of that which will get Indians to discard caste and other barriers to vote for him again in the coming state elections. The Congress lost the 2014 elections, P Chidambaram said around this time last year, because while the party won the 2009 elections in mainly urban India, it continued to focus on rural India over the next five years. That’s a lesson the prime minister mustn’t forget.