The Government is faltering in the economic sphere. Even before the pandemic lockdown, the economy was slowing down. Since then, it is set to suffer a steep fall unless urgent steps are taken to moderate the deceleration in growth.
Unfortunately, the Prime Minister is not a great believer in economic liberalisation and reforms. This was amply clear in his first term. Schooled in the RSS-Swadeshi statist ideology, free completion, private enterprise, open domestic market and foreign investments, evoke suspicion and distrust. This might be partly due to the bleak record of the private capital during the license-quota raj. Under the guise of socialism, the ruling party colluded with a few favoured business houses, allowing them to enrich themselves enormously at the cost of the people. That corrupt system was supposed to end with the opening up of the economy in the early 90s. Unfortunately, the old ‘socialist’ politicians soon learnt to abuse the liberalised system as well, still bestowing favours on those who filled their private and political coffers. To cut the story short, Modi is squeaky clean. He has also seen to it that there is no corruption at the ministerial level. Therefore, he should be least concerned if he undertakes structural reforms in three critical areas, namely, labour, land and finance. He will be accused of a sell-out by the visceral critics and the usual left-liberal crowd. Criticism from the vested interests that he is pro-capitalist and anti-people will not find any takers. People are his biggest assets. They will not lend their ears to suggestion of corruption against him. Most regrettably, he was forced on the defensive early on in his first term following wholly unfair criticism of his decision to make the amended land acquisition law less harsh and less anti-development.
The UPA Government in its last year in office had succumbed to rabid voices in the leftist cabal and thus tilted so far out in favour of land-owners that the new law it produced under extreme duress discouraged industrialisation and other development. Modi beat a hasty retreat when Rahul Gandhi parroted ‘suit-boot ki sarkar’. It is notable that no major reforms in the financial, land and labour sectors have been proposed even in Modi 2.0 in spite of the fact that unlike the first he now commands a majority in the Lok Sabha on his own. Which brings us to the complete lack of professional expertise in the current political executive when it comes to the economy. Even now when he approaches the first anniversary of his second term it may not be too late for him to induct a trusted and credentialed economist, widely known to be regime-friendly, as finance minister. The late Arun Jaitley was not an economist, though he had the intellectual capacity and band-width to absorb expertise from various domain leaders.
The economy is in far worse condition now than at any time in Modi 1.0. It needs an economist to hold the hand of the Prime Minister at this critical time when two-thirds of the economy is under the shutdown. The Prime Minister’s hesitation not to break the fiscal discipline reflects the conventional learning about the pitfalls of overspending. But without breaking the FRBM shackles to deal with an extraordinary situation, the economy will certainly slip into negative territory. We cannot afford that calamity, not with our eyes wide open. Unfortunately, despite promising a second instalment of pandemic package for small businesses, despite well-publicised meetings with the Finance Minister and Home Minister in this regard, the much-promised package is yet to see the light of the day. We are now into Lockdown 3.0. Given the tough conditions prescribed for businesses and industries for opening up, in spite relaxation a wide section has refused to return to work.
And without offering small businesses incentives it is unlikely these will feel encouraged to re-open. For restoring near-normal conditions after the lockdown, it is important that the package of incentives is announced before the end of Lockdown 3.0. The prime minister needs to delegate more, needs to trust a top-rated economist to run the Finance Ministry, and, more urgently, needs to be out with his package for small businesses. There is no time to waste.