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Is 2019 in the bag for Modi? PDF Print E-mail
Friday, 28 July 2017 03:52
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Morality makes for great politics but can stop BJP from making the deals required to push investment

 

A week, as they say, is a long time in politics. So, when the BJP got trounced by the mahagatbandhan (grand alliance) in Bihar in 2015, many assumed the same strategy could be used to humble the BJP in Uttar Pradesh earlier this year; yet, the grand alliance never got stitched, and prime minister Narendra Modi’s party swept the state. So, when a Nitish Kumar jettisons his well-known hatred for Modi to break the mahagatbandhan and joins hands to form a government in Bihar, it is tempting to say the BJP has smashed into smithereens whatever is left of opposition unity, and 2019 is in the bag for Modi. More so since, while most expected the demonetisation-induced loss of jobs to cement discontent against Modi—the UP elections were held against the backdrop of demonetisation—the election results indicate the prime minister managed to convince people it was actually a blow for them, an attempt to flush out evil black-marketers and rich people (dhanna-seth) who were evading taxes. Even GST is being sold at a popular level as an anti-evasion measure.

 

NPAs can’t be fixed without making big concessions – the government has done well to ensure this happens but under court/RBI supervision

The anti-corruption plank is a good one, and there can be little doubt the details given of the benami deals of Lalu Prasad and his family members is what cemented the Nitish deal. While the cognoscenti will question Nitish Kumar’s flexible brand of politics that allows him to flirt with a Lalu—his reputation, after all, preceded him—and then condemn him, the narrative is the same; of a battle against corruption taking centre-stage. While an anti-corruption plank is a good one—assuming it works in 2019—it is a double-edged sword, and so, the government needs to be careful. The anti-rich rhetoric can easily get out of hand, and ignores the fact that it is the rich, mostly, who create jobs and while it is true there was a lot of corruption under the UPA, in a very large number of cases, what passes for pro-rich moves is actually just ridding the mess created by India’s very bad laws. In such circumstances, where the BJP’s faithful Twitter-army and friendly television channels are competing to expose one more corrupt UPA deal, it is not going to be easy for the government to make the changes in law or give the concessions that are desperately needed if investment is to get back on the rails.

Scrapping Pranab Mukherjee’s retrospective tax laws is a good example of this, and will do wonders for the country’s investment climate, but the reason why Modi has steered clear of this is because of the possible damage he thought this would do to his clean image. Freeing the below-market gas prices, similarly, was the obvious thing to do to get exploration going—more so since the biggest beneficiary was the government-owned ONGC—but the fear that Mukesh Ambani’s Reliance would also benefit kept Modi from doing the right thing for over two years; a period in which gas exploration ground to a complete halt.

To be fair, the government has also come up with imaginative solutions to tackle this problem. In the case of NPAs, it was always clear, there would be lots of instances where government-owned banks would have to exercise their discretion. Should loans to Essar Steel be written down by 50% if the promoters are not going to be thrown out of the company, should Bhushan Steel be sold to JSW, and so on. Given the government’s desire to steer clear of any controversies, this is a situation tailor-made for paralysis. Instead, putting RBI in charge and steering the process through a court-led but time-bound process has made sure NPAs will get resolved—obviously, though, we need to see some resolutions before a firm conclusion can be reached.

Another instance which will shed light on whether Operation Clean Hands is slowing government functioning is the telecom sector where an inter-ministerial-group is debating how to revive ailing telcos. As this column has argued before, the problem lies in government policy that created shortage conditions for spectrum, forced telcos to bid astronomically and did not move to scrap license fees since, unlike in the past, it was now getting the market price for spectrum—as a result, nearly a third of all revenues go to the government today and that’s without including taxes.
Several such examples can be given of where good politics and good economics run counter to one another. Modi’s success lies in whether he can use the political mileage he has gained to ensure good policies are not held hostage.

A related problem, if indeed the opposition does not get its act together, is of who will keep a check on bad government policy. Apart from the question of gau-rakshak atrocities, the new rules on sale of livestock need to be abolished immediately, not just because of what they will do to the meat and leather industry—where it is mainly Muslims who are employed—but also because of what they will do to the dairy industry. The Cabinet clearing uniform minimum wages, similarly, is a bad idea when the need of the hour is to boost both employment and competitiveness, but if most states are ruled by the BJP, who is going to object? A vigilant and independent press is clearly important, but the absence of a viable opposition will make the job very tough.

 

 

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