Prime Minister Narendra Modi gave early indication that he was no ideological economic reformer, which the first BJP Prime Minister AB Vajpayee was. Vajpayee further opened up the economy before surprisingly losing power in 2004. The handsome economic growth in the first term of the UPA was solely due to the far-reaching decisions taken by NDA-I. For, the Manmohan Singh government was a prisoner of the allies, particularly of the anti-reform leftists. Modi, aside from setting aside through ordinance the rather stringent features of the land acquisition law of UPA–II , sought to do nothing major to open up the economy. His forced retreat on ameliorating the land laws framed by a cornered UPA in its dying days put him off from the reforms course. Admittedly, the creeping protectionism in the West, especially in the US which hitherto championed an open and liberal economic order with no barriers on global trade, may have contributed to his own protectionist zeal. Short of returning full-scale to the economically disastrous license-quota-permit-raj of the early decades of the Congress regimes, Modi’s tilt for swadeshi was very clear. However, he did lower the corporate taxes a bit but aside from that there has been no further liberalisation.
Yet, growth has not overly suffered due to a combination of global and local factors with the public spending on infrastructure gaining pace along with the rise of a booming services sector and the new economy start-ups. This was boosted by an increased flow of foreign funds in projects and financial markets. It is remarkable that the share markets have registered exponential growth during the nine years of the Modi government. Still, Modi’s ingrained swadeshi tilt was highly avoidable. An example of this tendency is the last week decision to stop the free imports of laptops, computers and notebooks. The ostensible reason is security and import substitution — the latter being the stock reason in the socialist era to justify ban on imports, which only resulted in expensive and shoddy goods. A day after the decision to channelise imports of laptops, computers and notebooks, the government relented somewhat, allowing a one-month window for global majors like Apple, HP, Samsung etc, to clear the orders in the pipeline. Nobody is denying that the import licenses for these goods will be fast-tracked, cutting out the usual bureaucratic red tape, but it does send a wrong signal at a time when foreign investors are looking favourably at India as a possible destination outside of China for locating new manufacturing facilities. An inward looking economic policy militates against the open invitation to western capital to move away from China and set up shop in India which has a huge domestic market besides ample raw materials and a relatively cheap skilled labour. In the same vein, one can fault the earlier decision to ban completely the export of non-basmati rice. Accounting for over 40% of the total world export, India’s decision has naturally pushed up the price of rice globally. If the objective was to arrest the rising trend in prices — which it was — the government ought to have tried moderating these through higher a release rice from its overflowing godowns. A complete ban upset the global markets, inviting adverse reaction from the affected countries. Higher prices of rice in the international market would hurt the poor whose staple diet is rice.
Stability in the broad economic policy sphere is an absolutely essential requisite for attracting western investment. Frequent changes in the tax and duty structures are highly avoidable. But increasing bureaucratic intervention in the economic sphere acts as a huge disincentive for foreign money. We may never be able to lay the red-carpet for foreign investors as China did in the early decades after opening up its economy in the ’80s, but we can at least offer a stable and long-term policy regime, allowing foreign investors to draw long-term investment plans. Controls and quotas are loved by bureaucrats but ill-serve the cause of economic growth and eventually hurt ordinary consumers. For decades, the Congress governments had justified most stringent controls on imports even of basic goods of daily use on the ground that it would help import substitution. It did not. All it did was to enrich some businessmen close to the ruling party while the people at large got shoddy goods, or none at all. We need to be rid of economic protectionism if our industry and business are to compete with the best in the world — of course, keeping national security in focus. Otherwise, government crutches will only prevent our entrepreneurs to stand on their own feet while the economy fails to compete with the best in the world.