Change needs action, not legislation

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September 28, 2015 12:19 AM

The Modi govt appears to be influenced by the Nehru-Gandhi economic model

Narendra Modi’s self-assured rhetoric led us to think that he knew what should be his economic and other policy directions as the Prime Minister. We thought he had the ability to carry them through. However, both assumptions have proved wrong. He can articulate objectives but they seem designed to impress, not act. In fact, there is no articulated plan of action. There is no organisational structure to ensure effective implementation. Many of his ministers also substitute words for deeds.

I had listed in an earlier article many initiatives that had been started but were taking time to bear fruit. The problem is deeper. The Modi government also carries the Nehru-Indira Gandhi economic mindset. It uses the excuse of lacking majority in the Upper House to defend a poor record.

What more did we expect from the Modi government on economic policies?

We expected that it would carry forward Atal Bihari Vajpayee’s initial attempts to change India from a statist to a market-oriented economy. This required many actions; Vajpayee could take only some. He had to cope with a national mindset of Nehruvian socialism; a coalition government; and a strong opposition. Modi has none of these constraints. But he has yet to do many things that would change our economic philosophy and direction.

Management of pubic enterprises must change. Instead of ministers and bureaucrats, professional managers should lay down objectives, targets, structure, staff, compensations, systems and procedures. This requires no legislation, only determination. It would improve performance efficiencies of public enterprises. At the same time, the Modi government should have developed a comprehensive and time-bound plan to privatise public enterprises. It should have begun implementing them. A transparent process for pricing public enterprises for selling them should have been developed. Nationalised banks should have been part of this programme. Appropriate timing to get maximum advantage from the stock market should have been assessed.

Coercion of banks to lend, special terms at banks’ cost for selected borrowers, writing off loans, forgiving delays in interest and capital repayment have been some of the many government directives to banks. They have practically bankrupted many nationalised banks. Their dire financial straits make it difficult for them to pass on reduced interest rates. Abandoning these measures requires no legislation, only clarity and will.

Ministries should have been given holistic responsibilities so that there is coordination in actions. Energy, health, transport are some of them.

For example, while coal and renewable energy are now under the minister of power, nuclear energy and natural gas are separate, making single-point decision-making impossible. The approach to power continues to be grid-based.

Rural electrification should not be mere stringing electric wires over the countryside. Power should flow on the wires. Since there is inadequacy, an alternative must be found. Why not distributed power with renewable energy for the countryside and operated by the panchayats?

Trading of power has grown but is a small fraction of the potential. Constraints are bottlenecks in inter-state transmission, and state regulators impose heavy cross-subsidy and standby charges on traded power. These make it unattractive. These policy changes bring market orientation. They do not need legislation.

Ultra mega power projects (UMPPs) which generate at coal mine pit-heads were a good idea. Giving coal mines free was illegal and the Supreme Court struck it down. Tariffs should take capital costs into consideration, which the minister does not want. But a single power regulator also regulating coal can lay down targets for captive coal mine efficiencies while determining power tariffs. Investors were allowed to have low equity in UMPPs (20%), while generators committed to power tariffs for 25-30 years. This is yet another violation of market principles. There should be a far greater choice of long-term funding; equity must be greater so that the investor is carrying the risk.

Tariffs need to be committed only for the period required by lenders, usually 12 years. All these add to market orientation and need no legislation, only ideas and will.

Another example of lack of market orientation that must change is in procuring defence equipment. The civil services has a disproportionate role and has made India among the largest importers of defence equipment.

Collaborations, imported technology and local manufacture will reduce the huge amount of theft through commissions and our increased vulnerability because of imports. Defence policy cannot be left to civilians and there must be military participation. This is self-evident and requires no legislation.

Poor government structuring in health services has led to India not being geared to prioritise prevention. Public health must have top priority in healthcare. Investment must not be only in cure—namely hospitals, nursing homes, pharmaceutical companies, medical and nursing education, etc—it must be in garbage clearance and destruction, pollution control, sanitation, safe drinking water, safe roads, etc. This change in priorities has not taken place. It does not need legislation.

The Modi government was expected to carry the Vajpayee economic philosophy forward. For this, the government needed to introduce urgent changes in administrative accountability, judicial reforms, police reforms, reducing unaccounted money in the economy, labour reforms to enable labour-intensive manufacturing on a large scale, making land easier to acquire for industry and infrastructure, single-window and time-bound government clearances, simplifying and accelerating bureaucratic procedures, inspections and clearances, reducing theft of government funds in projects and social welfare, and cutting unnecessary subsidies reaching the undeserving. None needs legislative sanction.

The superstructure of bureaucracy, policies and procedures, built under the Gandhis, was to ensure centralised planning, direction and control. They made India among the most difficult countries to do business in. They have to be swept away and a much simpler system installed. The Modi government shows no sign of even thinking of this. It does not need legislation.

It seems clear that this government does not know what it needs to do if it is to change economic direction. It seems only to know the Congress methods that keep the government at the Centre of economic policy-making and development. When change is considered, there are excuses of lack of majority in the Rajya Sabha and an obstreperous Opposition.

There are many other changes than what we have discussed which do not require legislative sanction and can be introduced. But the Modi government appears to be deeply influenced by the Nehru-Gandhi economic model, though they criticise it and pretend they want it changed. If the UPA was paralysed by corruption, the Modi government seems paralysed by an inability to develop policies to fit their stated economic philosophy.

The author is former director general, NCAER, and was the first chairman of the CERC

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