The Centre we need

Written by Pratap Bhanu Mehta

January 1, 2015 

The prime minister rightly said that countries with ideologies falter, those with values endure.

New year resolutions, for the most part, are platitudes. This is because, to paraphrase Sherlock Holmes, it is the obvious that eludes us the most. The government is generating a lot of activity, but in a form more likely to cause greater economic uncertainty rather than restore clarity. And this is most true of the finance ministry, the economic face of the government. We all hope the new year will bring new resolve and clarity. But the signals are a bit confusing. So here are reminders in terms of the five key transitions needed in the new year.

First, the government was elected to restore institutional credibility, not erode it further. Frankly, the defence of the ordinance route for important legislation like coal and land acquisition is dubious on two grounds. The Opposition may have stalled Parliament. But the prime minister could have seized the political initiative with simple gestures like, “I will answer all questions in both Houses of Parliament for at least one hour a week.” A prime minister’s question hour would have restored the dignity of Parliament. It would not have given the impression that he is running away. And if, after that, the Opposition were still obtuse, at least legitimacy would be on the government’s side. There has not been a single major gesture by the government to restore institutional credibility. The prime minister rightly said that countries with ideologies falter, those with values endure. He should have added: Those with strong institutions thrive.

Second, the government needs to make a transition from “we are a too-clever-by-half lawyers’ government” to a people’s government. This hubris did the last government in. The land acquisition act needed modification, particularly on procedures. But the nature of the proposed modifications is a recipe for future problems. First, the social impact assessment (SIA) needed rationalisation. But this could have been done by promulgating rules. It did not need an ordinance. Second, the exemption granted to PPP projects will make the act liable to misuse. The courts will step in and we will be back to square one. A typical government manoeuvre: Preserve the form of the SIA but hollow it out. And third, the ordinance does not clean up anomalies in the act. (An odd one is that if the property of a minority education institution is acquired, the market value should be such that it would not abrogate the right of the institution to function, but the same protection does not apply to majority-run educational institutions. So, as a Jain, my private institution has more protection than as a Hindu.) The intent seems to have been more to create a splash. As my colleague, Partha Mukhopadhyay, colourfully puts it, this government seems to believe not in MGNREGA, but LEGA (legal employment generation acts).

The third transition is thinking about ends and means differently in public finance. Financial prudence and macroeconomic stability is a good thing. But making India competitive will require at least four wheels: infrastructure and energy, human capital, low morbidity and good regulation. Right now, we have about half a wheel. There is some activity in infrastructure and energy, though without credible financing plans. The ministry of human resource development is a black hole, more intent on destroying than creating. Health has always been low priority and we have not even begun to reckon with its costs to the economy. There are some interesting moves on regulation.

But building a credible state that can generate compliance will require massive investment — from information systems to the judiciary, from regulatory capacity to technical knowledge. The state will need to spend on all the areas it needs to get into. We have not seen a budget in years that has a credible financial plan to get all the four wheels going. Quite the contrary, the administrative form that budgetary compression takes usually means even less rationality in expenditure. In the short run, it will also be impossible to raise growth without public investment. Let the budget serve the needs of the economy, not the economy the needs of the budget.

We need to make the transition from crony capitalism to well-regulated capitalism. The inherited mess has left its imprint on every single institution, including the banking sector. Under pressure, some prosecutions are proceeding. But the government knows that chasing black money with special investigation teams is another one of those delusional too-clever-by-half solutions. It needs to create an institutional architecture that can create sensible accountability. Getting the infrastructure sector out of the mess it is in will require cutting new deals, renegotiating contracts and so forth. If the government does not have anti-corruption political capital, it will not be able to cut those deals credibly. But there is no evidence that the government has done anything to restore trust in its institutions on this score. This government was not elected to paper over the problem of plutocracy. It was elected to confront it.

Finally, a modern state has to be a welfare state. There can be a debate about which forms of welfare enhance participation in an economy and which lock citizens into low-capability traps. Welfare is a floor, not a ceiling. There can also be a debate about the instruments of delivery. Unfortunately, what we are seeing by way of reform is not a transition from dole to participation; it is simply cutting for the sake of cutting. Rather than ad hoc cuts here and there, the government will need to spell out its roadmap for a welfare state that is credible and effective. This is particularly so in a context where rural wages are likely to stagnate over the next year or so. A good welfare state is both politically and economically prudent. A government that lets itself be ideologically confused about this will be in trouble soon.

The last year saw one of the most astounding political feats in modern Indian history: The political victory of Narendra Modi. But the political audacity has not yet been matched by economic imagination, institutional regeneration or ideological assurance. The government still has lots of political capital. It has also been lucky with energy and food prices. So the immediate sense of crisis has dissipated. But, as the year came to a close, so did the sense of euphoria. Old pathologies are beginning to reassert themselves faster than new innovations.

Contrary to the defensiveness of the government, people want it to be a success. The criticism is to goad it into action. The new year resolution has to be “back to basics, not building castles in the sand”. The tides of politics wash those away rather swiftly.

The writer is president, Centre for Policy Research, Delhi, and a contributing editor for ‘The Indian Express’

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