There is a vast difference between being market-friendly and business-friendly.
When I talk to young people below the age of 25 years, I have found that one of the best ways to capture their attention — and regale them — is to tell them about “booking a trunk call” or “buying a scooter” in the good old days! Invariably, the listener will draw the following conclusions:
1. That I was inventing the stories/experiences. 2. That I am technologically challenged. 3. That I am older than his/her grandfather who died 10 years ago.
The truth is that every word of the stories was true. A full 65% of the population of India (that is under the age of 35 years) simply does not know what it was to live in a country where the governing economic principles were State control, primacy of the public sector, licencing, self-sufficiency, high tax rates, and suspicion of the private sector (except in the case of agriculture).
When autarky ruled
Not that our leaders and policy makers were daft. Many of our leaders were highly educated, undoubtedly intelligent, and lived selfless, spartan lives. Our administrators were drawn from the cream of young men and women who had the privilege of a university education and a genuine desire to be useful citizens (besides job security). Yet, while progress was made, it was painfully slow with the GDP growing, on average, at about 3.5%, and per capita income at about 1.3% a year for nearly 30 years after Independence.
That kind of economic regime has a name: autarky (meaning, self-sufficiency as an economic system). China shed autarky in 1978, India in 1991.
Autarky will never be dead and buried six fathoms deep. It has a way of rearing its head from time to time, and that is what seems to be happening now under the BJP-led NDA government.
There is a vast difference between being market-friendly and business-friendly. Since its founding, the RSS has been an advocate of economic nationalism, swadeshi and self-reliance. Its trade union, Bharatiya Mazdoor Sangh, is opposed to foreign investment. One of its frontal organisations, the Swadeshi Jagran Manch, is unabashedly in favour of autarkic policies.
Back to the past
In recent months, there is growing evidence that the BJP is reviving the instruments, that were discarded long ago, as part of its narrative of hyper-nationalism. Let us look at some examples:
1. The ‘market’ exists irrespective of the State. Markets promote economic efficiency and freedom. Markets must be lightly regulated and the State should interfere in markets only in few circumstances. Even countries that have embraced social democracy have found that the market economy is compatible with their economic philosophy (for example, the Scandinavian countries).
The BJP’s position on the market economy is dubious. While claiming to be business-friendly, it has re-discovered the virtues of import substitution, tariff and non-tariff barriers, quantitative restrictions, price control, and licences and permits. More instruments to control the economy have been deployed today than what were in place in 2014. Each decision can be traced to the lobbying of an ‘interest group’ that is usually a front for an individual business house.
2. Trade has been the driver of the unprecedented global growth witnessed since World War II. Millions of people have been pulled out of poverty. Small nations that were once considered unviable have flourished and have joined the ranks of high-income countries (for example, Singapore, Taiwan). The principal instrument for pushing countries toward freer trade was the bilateral or multilateral trade agreement; and, since 1995, the World Trade Organization. The BJP-led government does not seem to believe in the usefulness of trade agreements and, by choice, India is no longer a powerful voice in the WTO. The most recent example is the appointment of a committee to review the utility of the proposed Regional Comprehensive Economic Partnership that will bind 10+6 countries to expand trade among themselves.
Price will be heavy
3. The BJP-led government refuses to give up its obsession with levying retrospective taxes. The first thing it should have done in 2014 was to repeal the so-called Vodafone amendment to the Income-tax Act. On the contrary, not only is the tax demand on Vodafone being pursued, similar retrospective demands have been raised in respect of other transactions. Besides, the government tinkers with tax rates almost every month — for example, Customs duties and GST rates (to undo the original sins).
4. Following in the footsteps of US President Trump, Mr Narendra Modi has signalled his support to protectionist policies. Protectionism will hurt consumers, curb demand and lead to misallocation of resources and wrong investment decisions. I am astonished that a task force has been constituted to identify ways and means to reduce imports! The draft rules on e-commerce are the latest example of muddled economic thinking. Rules on discounts that can be offered and inventory that can be held are glaring illustrations of the protectionist mindset.
5. Autarky can thrive only by empowerment of the bureaucracy, especially tax officials and investigation agencies. The BJP-led government has done just that: conferring extraordinary powers (such as search, seizure and arrest) on more officials, and criminalisation of laws. For example, the Foreign Exchange Management Act was non-criminal; now it has a criminal law provision.
There was anarchy in policy-making — demonetisation and the deplorable implementation of the GST. Now, autarky has joined anarchy. I am afraid the country will pay a heavy price.
Website: pchidambaram.in @Pchidambaram_IN