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Wednesday, October 28, 2020

Reforms without growth

Let Mr Modi deliver growth before he can aspire to a place among the pantheon of economic reformers.

Written by P Chidambaram | Updated: October 18, 2020 8:55:15 am
narendra modi, pm modi, indian economy, indian economic slowdown, insolvency and Bankruptcy Code, manmohan singh, p chidambaram, indian expressMr Modi. The idea of replacing the MCI was born in the UPA’s tenure.

There is one matter on which we can all agree: no ruling party or government has been as successful as the BJP or Modi government in propagating its views, policies and actions, and to that purpose they will spend any amount of money, bully any ally, threaten any adversary and bend any institution. Hyperbole comes naturally to them, so much so that until February this calendar year they were boasting that India was the ‘fastest growing large economy in the world’ when the truth was the Indian economy was sliding rapidly towards an abyss.

The sole aim of the propaganda is to raise Mr Narendra Modi to the pantheon of the greatest leaders of India. Faced with the worst economic performance in decades [8 quarters of declining growth rate culminating in a de-growth of (-)23.9 per cent in Q1 of 2020-21], the effort now is to portray Mr Modi as a bold economic reformer. The latest to join the cheerleaders is a distinguished academic, Dr Arvind Panagariya. His central thesis is ‘Mr Modi has established his reformist credentials alongside PMs like Rao and Vajpayee’. Note that Dr Manmohan Singh does not figure in that list!

To buttress his argument, Dr Panagariya lists five reforms.

1. The Insolvency and Bankruptcy Code: The idea germinated in the Raghuram Rajan Report (2008), was developed by a Committee of Secretaries (2013) and culminated in a draft Bill (2013-14). It was made into a law and passed by the Modi government. It had many defects that have been attempted to be repaired by several Amending Acts, but it is still work-in-progress. The results of four years of the IBC are unsatisfactory. Both credit and discredit must go to Mr Modi.

2. Labour Law Reforms: Codification of laws is an administrative act, not a pathbreaking reform. Except for raising the threshold from 100 to 300 workers for applying ‘hire and fire’ in establishments, the other provisions of the four Codes tinker at the margins. Even in capitalist countries where there are powerful unions, no worker can be terminated except for ‘good cause’. The unions will fight arbitrary terminations. In countries like India, where only a small proportion of workers are unionized, the only protection is the law. Even now, a worker can be terminated for good cause. Thanks to the new Codes, casualisation of labour and contract labour (through manpower suppliers) will increase. Security of job is a powerful incentive for efficiency and higher productivity on the shop floor. The little security enjoyed by workers is being whittled, and that is why even the Bharatiya Mazdoor Sangh (affiliated to the RSS) is protesting the changes. True labour law reforms need to be done in consultation with the unions and the working class.

3. Farm Laws: Less said about the new farm laws, the better. There are problems with the current system of procurement of agricultural produce and reforms are required, but the medicine prescribed by the new laws is worse than the disease. I reiterate my view that debilitating the imperfect mandi system is not the answer. The solution lies in creating thousands of Farmers’ Markets in large villages and small towns and obligating the buyer and the seller to conclude the transaction at a price not less than the notified MSP. Laissez faire, the entry of corporates and trading in a totally unregulated environment do not amount to ‘reform’. Before we buy Dr Panagariya’s argument, he must tell us why the most productive farmers of the country, belonging to Punjab and Haryana, are protesting on the streets.

4. Reform of Medical Education:

I do not understand what radical reform there is in replacing the Medical Council of India by the National Medical Commission. For many years the erstwhile MCI was controlled by a person who was, and is, a close friend of

Mr Modi. The idea of replacing the MCI was born in the UPA’s tenure. The proof of the pudding will be in the independent functioning of the Commission. The fear is that NMC will also be captured by the BJP, through the government or otherwise, as it has happened to many other bodies including Universities.

5. Liberalizing FDI: During the Narasimha Rao and the Dr Manmohan Singh tenures, the BJP opposed every step toward liberalisation of FDI. The first Bill to open insurance to the private sector including foreign investors that I introduced in 1997 was bitterly opposed — and defeated — by the BJP in opposition! The BJP also stoutly opposed FDI in retail. The Vajpayee government then, and the Modi government now, had a change of heart on FDI, and I welcome that, but it is not a reform that Dr Panagariya can attribute solely to his hero!

In my view, Mr Modi is a cautious leader with a strong bias towards crony capitalism. He supports incipient monopolies. If he wants to undertake genuine, bold reforms — which he can do given his absolute majority in the Lok Sabha, something that neither Narasimha Rao nor Dr Manmohan Singh enjoyed — a list can be put together. The ultimate test of a reform is whether the reform adds to or accelerates the growth rate of the GDP. By that unquestionable standard, the ‘boom years’ under

Dr Manmohan Singh make Dr Singh the reformer par excellence. Let Mr Modi deliver growth before he can aspire to a place among the pantheon of economic reformers.

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