Saturday, Sep 24, 2022

Modi government @2: Reassess the report card

They ignore the extremely high risk of an attempt at privatisation being effectively stillborn, unacceptable to state governments.

BJP, NDA government, Narendra modi, UDAY, modi government, modi government schemes, GST bill, FDI, indian express columns The government’s push on hard infrastructure, like national highways and railways, is well recognised.

Even after weeding out extreme opinions, of the diehard supporters and the trenchant critics, whose hard stances reduce the utility of their opinions, one can sense disappointment with this government’s performance. I find this surprising. Perhaps I had expected too little, given the scale of the problems and the sharply reduced role of the Central government in the economy, and the others too much, ingrained as they were in the Delhi-centric view of India. There are also differences between idealism and pragmatism, or theory and practice, to put it simply.

Take UDAY for example. It deals with one of the biggest challenges in India’s energy security, and one that I highlighted in these columns two years ago as one of the most important targets (‘Change Management’, IE, May 28, 2014): The need for efficient power distribution. It is also a state subject, complicating matters. Purists desire privatisation of state electricity boards, and to them anything short of this is a half-measure, bound to fail. They ignore the extremely high risk of an attempt at privatisation being effectively stillborn, unacceptable to state governments.

So UDAY for them is little more than a debt recast. In our view, it is a pragmatic mix of carrot and stick, and it seems to be working, which is what matters. One can think of many such developments across departments. In some, like in banking, the moves could have been more decisive and faster, but the pattern is the same. Eschew ideological purity, and focus on what can be done.


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Or take the seemingly simple procedural change of the Centre letting and helping states solicit FDI instead of doing so itself. This is not a headline grabbing “reform”, but seems to have unlocked major bottlenecks, and in our view has contributed meaningfully to record high FDI seen last year. Earlier, one can imagine anodyne pitches to invest in India, lacking the specifics that would convince, made by people whose lives would be unaffected either way. Now, a chief minister desirous of investments in her state making this pitch can highlight specific areas of the state of particular interest to the prospect: say, proximity to a port or an education hub. More importantly, when the prospect converts, there is no hand-off problem, as the person they have to deal with for most clearances (land, labour, electricity, etc) is the same. Projects can thus start faster.

There is also a refreshing acknowledgement within the government, and something of a departure from conventional thinking, that the 10-12 million jobs that need to be created every year cannot be done by the formal sector. With 90 per cent of India’s workforce working in the informal sector, and most of them in micro-enterprises, enabling basic infrastructure like electricity, roads and credit is much more important to help them grow and create jobs. Schemes like MUDRA, in which of the Rs 1.2 trillion of loans disbursed last year, nearly half went to 3 crore borrowers with an average ticket size of Rs 19,000, are an important first step. Lending by target is generally a bad idea, and one hears of irresponsible lending by banks, but even if half of these loans are productive, they would transform millions of lives.

The government’s push on hard infrastructure, like national highways and railways, is well recognised. What’s commendable is the attempt to reset expectations on what is achievable. For example, why stop at building 10,000 kilometres of highways every year? Why not 30,000? If there are organisational bottlenecks, for instance, the ability to order, enable and oversee three times the number of projects, then capability building in the overseeing departments should be the focus. When the Ahmedabad-Mumbai bullet train project first hit the headlines, most analysts (including this one) dismissed it as impractical. It still has a long way to go, but the feasibility of funding and constructing is no longer in doubt.

None of the above, like many other steps by the government, is a really novel idea. But then we’ve had smart thinkers for a long time: Implementation has been the issue. And that in our view has been the most observable change in government functioning: Execution of plans has improved. The delays that analysts like me assumed in every government step, and the cynicism with which one projected its success, are now being re-assessed. This is not to say every scheme has been successful, or has met its targets. But the success rate and timeliness have visibly improved. When a committee is set up, it submits its report in months, not years. Its recommendations are taken seriously, and often implemented.


There are also areas where one wishes more had happened. One is statistics. Management is impossible without measurement, and one wonders how policymakers in the government and the RBI work with macroeconomic statistics that are questioned by one and all; where there are persistent and glaring inconsistencies in the same data coming from different government sources. (Just to avoid confusion: Our view is that the new GDP series has flaws, but it’s an improvement over the previous one, and gets the ballpark of GDP growth right). It’s not about analysts wasting time debating what should be certainties: Building trust in economy-wide data is critical for business to get confidence and start investing.

Then there is agriculture. Our research shows that with our per capita calorie consumption falling steadily, and agricultural productivity improving as the farmer gets more information and better infrastructure, we now have too many people producing too much food (there’s some oversimplification there, but only some). Worse, without agro-processing and cost competitiveness, these surpluses cannot be exported.

The third most important area is housing. The government seems fully aware of its potential: Quality and affordable housing improves productivity of its residents, and its development creates millions of jobs. The trouble is in drafting the right policy. Like agriculture, this is a state subject, complicating the problem, but as we saw in power distribution, that need not be a constraint.


The coming years will likely throw newer and tougher challenges too. For example, once the GST bill passes, its implementation will require much effort; or structural problems at the public sector banks, well beyond the current bad loans and recapitalisation needs. Pragmatism and tight execution will be much needed.

First published on: 06-06-2016 at 12:00:12 am
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