Newspapers such as this one, that are traditionally right of centre when it comes to economic policies, find it easy to criticise a government, such as the Modi one, for not reversing Indira Gandhi-style socialism even while reviling her father Jawaharlal Nehru. So, we criticise the fact that, four years into his tenure, Modi has not privatised even one PSU even though they continue to erode value in a big way. Or the fact that he hasn’t removed the UPA’s Right to Education (RTE) Act and replaced it with education coupons that would force government schools to get their act together. Or that he continues with the Food Security Act that seeks to give heavily subsidised food to two-thirds of India. Or that he hasn’t tried to remove the fertiliser subsidy when he knows it is cornered by a small fraction of farmers. To be fair, Modi did try to change the UPA’s land acquisition law (LARR) even though he failed. And, he did partially reverse the coal nationalisation by opening up, last month, the sector to commercial mining. But he didn’t reverse the price caps on pharmaceuticals, indeed he added to them, and even went and introduced new price caps on cotton seeds. And, despite campaigning, among others, on the plank of tax terror, he never removed the UPA’s dreaded retrospective tax from the statute.
The sad truth, and this is where Modi needs to stand up and distinguish himself, is that the country’s MPs by and large tend to be left-of-centre when it comes to economic policies. In the case of a LARR, Modi was still able to argue, albeit unsuccessfully, that infrastructure-building like roads and irrigation was suffering due to this, and so LARR needed modification. What was he to argue when he sought to remove Parliament’s ability to impose a bad retrospective tax? That it would hurt FDI inflows? Pretty hard to argue that when FDI is at record heights. Similarly, as this newspaper has argued before, few MPs see the need for privatising PSU banks despite the massive loss in value since Modi came to power, and this is only going to get worse. When Modi came to power, PSU banks were valued at Rs 453,000 crore and accounted for 43% of the market capitalisation of all banks. Today, that is down to a mere 23%, suggesting that, in effect, PSU banks notionally lost Rs 330,000 crore in market value.
So, unless push comes to shove, it is going to be difficult for a Modi to convince MPs outside his party to support a Bill arguing for a radical reform. But, apart from the fact that leaders are supposed to, well, lead, the fact is that push has come to shove, and if Modi doesn’t act now, the consequences will be disastrous. In the case of banks, Modi has to realise that if they have lost so much of their value after he and Dr Manmohan Singh pumped in Rs 1.2 lakh crore since FY11, they will fritter away the Rs 2.1 lakh crore he plans to pump in over the next two years. The simple fact is, they way PSUs are structured, given the kind of manpower they hire, the reservations, the inability to take quick decisions, etc, they are going to continue to lose market share—since Modi came to power alone, their share in the loan business is down eight percentage points. In the case of education, a Modi has to realise pumping in Rs 53,000 crore in to schools each year isn’t going to help—as the Aser report shows year after year—if he doesn’t inject serious competition into the government schooling system through, for instance, school vouchers that allow parents to choose private schools instead.
In the agriculture sector, he has to contrast his spending on subsidies with the annual crises in agriculture—witness the 30,000 farmers that have just walked for days to Mumbai—and realise the need for more liberal agriculture markets and large investments. The Dalwai committee, in 2016, estimated the investment need at Rs 6.4 lakh crore (at 2011-12 prices) till 2021-22, and 80% of this has to come from the government. Yet, of the government’s Rs 3.7 lakh crore expenditure for agriculture and food in FY19, Ashok Gulati and Shweta Saini point out, only Rs 44,000 crore is to go to investments—Rs 98,000 crore is for input subsidies and Rs 2,24,000 crore is for safety net expenditure like food and NREGA.
In telecom, Modi has to trace the sector’s decline, and that in the revenues he gets from it, to rapacious government policy — and he hasn’t been able to fix this—and the massive hike in the share going to the government. Payments to government, including spectrum costs, rose from 11% of telco revenue in FY07 to 13% in FY17. While RJio did play havoc with telcos, the high levies made it infinitely worse. Few can doubt the great work Modi has done in terms of building roads or railway capex or irrigation or in providing the poor insurance or bank accounts, etc (goo.gl/LF58KH), but the short point is that India’s growth cannot come from the government alone. At Rs 10.8 lakh crore in FY17, the government capex—includes Centre, state and PSUs—is a fourth of the Rs 43.5 lakh crore in the entire country.
Postscript: Modi managed to, last month, allow private sector participation in the coal sector after decades of banning this. After opposing it for three years, he finally raised natural gas prices considerably when he found investments drying up and, after the twin balance sheet crisis, he’s presiding over banks readying for a 60-70% haircut on their loans. Despite Rahul Gandhi’s suit-boot-ki-sarkaar jibe in a different context, has there been even a murmur of protest? MPs or all members of Atal Bihari Vajpayee’s cabinet weren’t particularly reform-minded either, but he created his moments. Modi needs to do more of that.