Governance

The first two years of Modi government

  • Blog Post Date11 May, 2016
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Pranab Bardhan

University of California, Berkeley

bardhan@econ.berkeley.edu

In this article, Pranab Bardhan, Professor of Graduate School at the Department of Economics, University of California, Berkeley, provides his perspective on the performance of the Modi government in its first two years in office.

Q: The Narendra Modi government is now close to completing two years in office. How do you rate their performance, especially on economic issues?

A: Let us start with economic issues though the damage done to our social fabric by RSS (Rashtriya Swayamsevak Sangh) thugs is much more serious, and we'll come to that later. I think this regime, what I call the RSS-Modi regime, has had a lot of hype. Modi is a good spin master, and he constructs catchy acronyms. But we have to look beyond the hype. Let me first start with what in the economic arena the government is doing right and then I will come to what they are doing wrong. To begin with, they are trying to do something about the ease of doing business and reducing red tape. But overcentralisation in PMO (Prime Minister's Office) for most decisions often clogs up the decision-making process and delays things. It is also good that, like Aadhaar1 for individuals, they are trying to have Unique Enterprise IDs. Similarly, there are steps towards single window clearances. There have also been some efforts to reduce the impact of 'Inspector Raj'2, especially under the Factory Act.

Introducing the Bankruptcy code is also a step in the right direction. But the code itself is not enough. In many cases, the courts will sit on cases for years. Courts need to be unclogged and, essentially, one needs filling judicial vacancies and in general judicial reforms. This not an issue specific to the Modi regime. It is a long-standing matter and previous governments, too, haven't done enough. This is a major hurdle for the Indian economy.

Similarly, the initiative to have subsidised crop insurance is also a step in the right direction. However, one should not underestimate the technical preparation because ideally this would work only if you have satellite and other data to figure out the crop damages on a particular plot. Doing this at a pan-India level is a huge exercise. I don't think any government as of now has the capability. But a right step all the same. We will have to wait and see how it is implemented.

Another example is the Skill India initiative to provide skill formation and vocational training. It has been there for a while, though — wasn't started by the Modi government — but little has happened. Even now, after two years, the number of people enrolled in the skill programme is extremely small relative to the need.

There has been a lot of fanfare about the 100 Smart Cities Challenge, but so far it seems to be mainly focused on 'IT solutions' and 'digitising' things rather than making urban areas more livable and improving quality of life.

There has been some good progress in policies for Infrastructure Development Fund, in roads and railways, but we have to see how well they are implemented.

Then there are some programmes, whether they like it or not, that are actually the continuation of UPA (United Progressive Alliance) programmes. For instance, the Aadhaar programme (though the recent hurried passing of the Aadhaar bill as a 'money bill' without scrutiny does not inspire confidence in how respectful the government will be of the serious privacy concerns). Then their support for MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), which is a welcome turnaround for the current regime (they are now even taking credit for it!). In MNREGA, a major problem is the delay in wage payments and some cutbacks. There are many parts of India where wages have not been paid for six months. Not only are some poor people going through hardships because wages have not been paid but more importantly, it undermines the very concept of MNREGA. That's because MGNREGA is a demand-based programme - that is, if you demand work, the government will have to give you work. Landless workers who are denied payments will stop taking the programme seriously and, as a result, stop demanding work. Thus the demand for MNREGA will fall. And then the government might justify its inaction by saying, "Look, there is no demand". The non-payments of wages (in addition to unmet demands) was a problem in the last days of UPA rule as well. The problem is now more acute with the drought in large parts of the country.

The reduction of diesel and LPG (liquefied petroleum gas) subsidies is another step in the right direction, a continuation of UPA policy. Another step that was happening in the last days of UPA was coal auction. Now the Modi government likes to claim that they are going about it in a big way but so far the amount earned from such auctions is paltry. In general, however, the auction process is now more transparent and competitive.

Similarly, a signature programme of Modi is Swachh Bharat. But this too is a continuation of the UPA programme called Nirmal Bharat. Probably they have built many more toilets now but millions of toilets had already been constructed in the UPA's rule as well. And instead of examining why those were in many cases not being used, he poses for photos with a broom and builds many more. This, at a time, when a neighbouring poorer country, Bangladesh, is almost free of open defecation. I suspect our Hindu cultural taboos about cleaning toilets must be among the relevant factors in the non-use of toilets.

Similarly, the Jan Dhan Yojana. The financial inclusion programme was going on under UPA as well, though not as vigorously. In fact, around 2008-09, when the government decided that MNREGA payments will be made directly into bank accounts, a large number of bank accounts for the poor were created. Moreover, one has to see how many of these accounts are active and how many are dormant. I understand on half of the accounts created so far a debit card has not yet been issued.

On the GST (Goods and Services Tax), which both UPA and NDA (National Democratic Alliance) want (except when they are in opposition) for the sake of commercial integration of the economy, Modi is as much responsible for its current delay, as he has taken an unnecessarily confrontational policy, even when Congress announced that they'll go along with GST if NDA accepts three conditions (one of which at least is very reasonable, that Gujarat and Maharashtra will not get a special waiver in imposing state-specific taxes). There was opportunity for negotiation and compromise here which Modi has missed.

There are many crucial issues in the economy which neither UPA nor Modi has tried to tackle. Examples are the very wasteful (and damaging for agriculture and environment) policy of continuing subsidising grain crops and chemical fertilisers, no civil service reforms or reforms of management in the public sector enterprises and banks, no real attempts at long-term solution of the looming water crisis, etc.

Q: One of the main failings of the UPA was on corruption and Modi came to power on the anti-corruption platform. How has he fared on this count?

A: Modi has recently claimed that corruption has gone down. What is the evidence? First of all, he is asking us to ignore large scams like Vyapam in a BJP (Bharatiya Janata Dal)-ruled state. Investigations are currently underway on large scams involving alleged over-invoicing in coal imports by companies including the Adani Group and gas reserves scam in the Krishna-Godavari basin involving Reliance.

Secondly, some big corruption scams during UPA are related to high-priced minerals in the world market at that time. One important reason was that there was a lot of money to be made on minerals. The Bellary mining mafia in Karnataka mainly involved BJP ministers, while the Congress was involved in [united] Andhra Pradesh. Now the mineral prices have crashed. So it is not that people are more honest. There is much less money to be made. By the way, a corruption-tainted politician has again been chosen as the BJP leader in Karnataka.

The third point I want to make is about the staggering amount of money spent during the election campaign of 2014. I have seen estimates that suggest that the BJP spent around US$1 billion in print and TV advertisements alone. The total amount spent, all inclusive, is estimated by some to be near US$5 billion. I have no way of knowing how good those estimates are, but who was paying these large sums of money? Must be the corporate sector. But corporates are not in this for charity especially when you are talking about amounts of money spent that are unparalleled in India's electoral history. In some way or other, this money has to be paid back. There are innumerable ways the government must be already in payback process, particularly through stealthy relaxation of regulations.

The main structural reason for large-scale corruption in India is election finances, and as long as that remains, with no election finance reform, Modi's claims about corruption should not be taken seriously.

Q: Transparency in election financing is not something that any political party, including the BJP, is willing to accept. What do you make of it?

A: That's true. What one needs is effective auditing of party funds. But forget auditing, no political party wants to come even under the Right to Information (RTI) Act.

In fact, on corruption, the last thing I'd mention is crony capitalism. There is no evidence of this declining seriously, and I would count it as part of the ongoing corruption. In fact, a World Economic Forum study for 2014-15, the first year of Modi, shows that, on an average, Indian firms pay 50% of total cost in real estate and infrastructure projects as bribes to get regulatory clearances.

Q: The typical retort would be that it is just the first year.

A: Then why do they claim that there is no corruption? Do the really think that by some miraculous process the 50% figure is much less now?

Q: Another key feature of the Modi rule has been the stress on federalism, both cooperative and competitive. But has federalism really strengthened?

A: Let us ignore the recently imposed Indira-Gandhi-style President's Rule in Arunachal Pradesh and Uttarakhand; not particularly conducive to federalism. It is a peculiar thing that Modi goes on talking about federalism and yet his tendency is to centralise all power in the PMO. Everyone knows that ministers do not have power; they wait for instructions from PMO. The recommendations of the 14th Finance Commission (FC), a constitutional body, on increased tax transfers have to be accepted and no government can claim credit for that. But as an example of the difference between what he says and actually does on federalism, just recall how Modi announced the special package for Bihar in a public election rally - "Fifty thousand, no, take eighty thousand, or may be one lakh twenty thousand crores", he shouted in an auction-like process. None of the Bihar officials were consulted on this. This is what I call federalism Modi-style. This is not federalism. This is more like a king giving largesse to his subjects. So, I find that Modi's inherent inclinations are not towards federalism.

Secondly, my sense is that in states where governance is not as strong, the extra money from the 14th FC will be misused in mainly paying salaries especially due to the 7th Pay Commission dispensations.

Thirdly, just look at how many cesses and surcharges have been levied not just in this budget but also in the previous budgets presented by the Modi and the preceding governments. The important thing about a cess is that you don't have to share it with the states. So it is opposite to federalism. According to estimates I have seen, the total amount of such cesses and surcharges is now about Rs. 2,500 billion. It is a huge amount and coming to a large percentage of the total transfers from the Centre to the states.

Number four is Niti Aayog, which is supposed to be our organ for coordination with states. But Niti Aayog did not inherit some of the financial allocation powers that the erstwhile Planning Commission had. Those have been now given to the Finance Ministry. And that is why quite a few non-BJP Chief Ministers don't take Niti Aayog seriously.

If the main purpose of Niti Aayog is to ensure coordinated Centre-state relations and activities then there is already a constitutionally mandated body called the Inter-state Council in existence since early 1990s. But no one takes it seriously. In fact, I am told that bureaucrats regard it being a punishment posting. I hope bureaucrats don't start seeing the Niti Aayog in the same manner soon. So I am not so hopeful about Niti Aayog.

Q: Another important issue that has come into sharp focus is that of job creation in the economy and the aspirations of the youth. Towards the end of the UPA, growth had faltered and job creation was a key demand among the electorate. How far has the Modi government succeeded in this regard?

A: To me, the lack of adequate job creation is the most serious problem in the economy. In 2014 Modi, rightly or wrongly, inspired a large number of young people especially in Bihar and Uttar Pradesh (UP) that he is going to replicate the Gujarat model in the rest of India and create many jobs. First of all, that was bit of a hoax. The Gujarat model had high growth but it wasn't a model of job creation. Nor was it a model of social welfare. Tamil Nadu was better in both respects. See, what Modi did as a Chief Minister in Gujarat was to give large capital subsidies to certain companies - Reliance, Essar and Adani among them. Much of this was in highly capital-intensive sectors such as petroleum refinery and petrochemicals. So a very significant part of Gujarat's high growth is not in labour-intensive and as such job-creating sectors.

Frankly, to be fair to Modi, no one has the power to create the number of jobs that are required in India. We often talk about this with reference to Modi primarily because he claimed he will create jobs, and appealed to the aspiring youth.

It is the most alarming economic issue in India today. Estimates suggest every month one million people enter the non-agricultural labour force and only a small fraction of them get decent jobs. Very soon these young people are going to get disgruntled. Coming as I do from West Bengal, I see what is going to happen in the rest of India especially North India. West Bengal had been de-industrialising for quite some time and there weren't enough jobs. So where did all these relatively unskilled young people go? They go into all kinds of unproductive and even criminal occupations. They join the local neighbourhood mafia. There are "syndicates" in West Bengal which control the supply of building materials. There are other forms of extortion, and these may spread to UP and Bihar because jobs are not being created. These parts of North India also have a gender imbalance in the population: such cases of too many frustrated young males per women are often associated with social violence. That's why I call it a ticking time bomb.

Q: Is that the reason why we are seeing two diametrically opposite demands — one for removal of all reservations in government jobs and another for reservation even in the private sector?

A: Yes, that's the other ticking time bomb and the consequences of the two coming together will be disastrously explosive. Why do the Jats, the Patidars and the Marathas want reservations for themselves despite their being dominant castes, while reservations were originally about remedying discrimination? What happens is that even though these are dominant castes a large number of young people even within these groups are not getting jobs. As these dominant castes cry out for reservations, the already designated backward castes are not going to take it lying down. Unless the pressure is relieved by extending reservations to the private sector (some parties are already demanding it much to the consternation of the private sector), I see a distinct possibility of a caste war - and this is due to long-term structural issues, Modi or no Modi, any government will face it. The growing strife over reservations is related to lack of jobs.

Q: The obvious question would be what can India do to create more jobs?

A: I am not sure there is an easy solution to this. Economists have not done enough research on this. China has succeeded in labour-intensive industrialisation. But why is that when China moved on to other things, the labour-intensive industries like garments have moved on to Bangladesh, Vietnam and Cambodia instead of India? Some economists and the financial media blame it all on our labour laws. As I wrote in an Indian Express column labour law reform might help a little but not much. The garment industry in Bangladesh employs a lot of women. Why have we not been able to replicate that? I have looked at the garment industry data for both formal and informal sectors together for India. Now labour laws require you to seek government permission in lay-off if you had hired more than 100 people. So I expected to see in the data some bunching just before 100, say 98 or 95, employees as a mark of labour laws holding back growth and job creation. But I found no such bunching. Instead, the bunching was around eight employees! Think about the eight-employee firm - perhaps our neighbourhood tailor - and my question is: What prevents it from becoming an 80-employee firm? Surely not labour laws. More likely is that the 80-employee firm will have to use some power equipment for which a regular and reliable supply of electricity is essential. Or credit, roads and marketing facilities. So yes, labour laws can be a constraint but I don't think that in India that is the binding constraint. One way out, short of providing enough infrastructure, is to arrange for wage subsidies which encourage more labour use. Capital subsidies and tax exemptions to the corporate sector are too large in India some of it may profitably be diverted to giving wage subsidies to firms.

Q: You have outlined some of the steps in the right direction, started or continued, by the Modi government. Are there any steps in the wrong direction this government has taken?

A: Yes, I'll give two examples. One has to do with the environment regulations. There is a lot of quiet and non-transparent watering down of such regulations and weakening of tribal land rights (given under the Forest Rights Act) for helping mining and other companies (including Adani Minerals). Similarly, the wings of the National Green Tribunal are being clipped.

The more important mistake is on the healthcare policy front. Earlier in the national health mission, there was some talk of going towards universal healthcare. But now the push (including from Niti Aayog) is all towards subsidised private health insurance. So we are definitely going for the highly defective and prohibitively expensive US model and away from the UK and French or, if you forget rich countries, even away from Thailand's model, which has universal healthcare. Already you have horror stories under the current RSBY (Rashtriya Swasthya Bima Yojana)4. There have been many cases of very young women getting an unnecessary hysterectomy done in private clinics. There are unnecessary medication and surgeries supported by private doctors who want to cash in on the government subsidy on the private healthcare. This will also turn attention away from the main problems of lack of public health and sanitation facilities that are behind many diseases for the poor people.

Q: Moving away from the economic issues, what do you make of the political developments in India especially with the whole debate on intolerance and treatment of minorities and Dalits5?

A: Modi has said that the Constitution is a "Holy Book" for him, even as RSS thugs (both in and outside government) keep on trashing the basic ideas and rights embedded in the Constitution. Most of the time, Modi is silent. Occasionally, he breaks his silence but even then he utters nothing but hollow homilies, which make it clear to the RSS thugs that he connives. In public, he asks them not to fall into the Opposition's trap. As if the Opposition trapped them. You go and lynch people and say that the Opposition trapped you to do such lynching and vigilante violence!

Unfortunately parts of the media are playing an ugly role today; they are now exciting the lynch mobs.

Q: Why do you think Modi has been so uncharacteristically silent on such matters?

A: Of course, there is speculation why he is silent. He keeps saying vikas vikas vikas6, although, after a few defeats, there is less thumping of his 56-inch chest these days. I feel he is silent because he needs the RSS foot soldiers for winning elections, as Modi magic is not as effective with the public as before. He needs them to knock door to door and do the legwork for him. So he doesn't want to alienate them. Also, and Amit Shah is an expert in this, they have figured out that in some areas of India, polarisation helps the majoritarian party. More and more of the Hindu majority will get insecure if you create enough communal suspicion in their minds. We have seen this in Assam election and it'll come in a much bigger way in UP elections next year. So Modi needs the RSS. Also, whether it is beef or love-jihad or whatever, he needs them especially to divert attention from the fact that he cannot provide enough jobs.

On all these matters Modi has always been too timid to face uncomfortable questions from the press. He is comfortable with only one-way twitters.

Q: Beyond the immediate concerns, are there some long-term issues that you spot?

A: Yes, there are many structural issues that need to be tackled. Of course, I am speaking from the point of view of people who adhere to some basic liberal values and have faith in the Constitution. The RSS doesn't really trust our Constitutional values. India is facing what I call forces of long-term institutional decay. And these issues will continue for some time, irrespective of the government in power unless we as people turn them around. Let me give a few examples, which were issues even during the UPA regime.

The first aspect of such institutional decay is a culture of impunity. You can vandalise, you can do vigilante violence, you can create hate and intimidation and you usually do not get punished. The police will look the other way, especially if you belong to the ruling party, whichever party, by the way. I am not talking about Modi alone; it's happening under most ruling parties in the states. We have weakened the institutions like the police and the bureaucracy, including the watchdog institutions like the CBI (Central Bureau of Investigation) and CVC (Central Vigilance Commission). And people have now accepted this as the norm. This lack of belief in the rule of law is a sign of long-term institutional decay.

Similarly, even though we believe in rights we do not believe in individual rights. We believe in group rights. So, if I say something, or write a book, or make a film or come up with an art exhibition, any of which may possibly, however remotely, offend some group then no one in India bothers if the thugs belonging to such groups trample on my individual rights. This is true even though our Constitution emphasised fundamental individual rights.

The third example is, and this has been going on for years, that all governments in India think that since they have given the money for education, therefore, they have the right to control educational institutions. Let me give you the example of the university where I teach — the University of California at Berkeley, which happens to be one of the topmost universities in the world. But unlike most other top universities of the world, it is a public university. It is funded by taxpayers, but if the government tries to so much even raise a finger about any decision by the university the whole campus will protest. No politician can say that since we give the money we can control – this is not how public universities are to be run. But in India, it is the opposite. In fact, one of Mamata Banerjee's ministers openly said this — we give the money therefore, we have the right to control. The same is the attitude of Smriti Irani at the Centre. This is the surest way of destroying education. This is an attitude shared by all governments in India, including the Congress and the Left. The only difference with the RSS-Modi government is that this government, in trying to reshape the running of institutions of art, culture and education, seems to have an unusually large supply of bigots, charlatans, and morons pressed to service in the process of this reshaping.

Finally, for quite some time it has been clear to me that there is a fundamental tension in our democracy, a tension between the participatory and the procedural aspects of democracy. Our democracy is rather weak when it comes to respect for human rights. I will not dwell on the atrocious abuse of human rights in Kashmir, Northeast and in the jungles of Central India that happen on a daily basis. We also have one of the largest numbers of undertrials in India. Mostly poor people have been rotting in jails without any trials. So I regard Indian democracy rather a sham in some essential aspects of democracy. The aspects of democracy that are vigorous in India are elections and political competition. But even that political competition is more and more constrained by the excessive use of money.

So in terms of depth, Indian democracy is rather shallow, but in term of breadth, democracy has spread wide. The latter, with more and more hitherto subordinate people participating in the process, is a very welcome expansion of the width of our democracy. But this has happened sometimes at the expense of some procedural aspects – the laws, the institutions, the governance protocols. Lalu Prasad Yadav was very candid when he was being taken to the jail after being convicted of the fodder scam. He said he may have lost in the court of law but he has won in the court of the people. This is born out of a kind of group pride that takes precedence over institutions. When charges of corruption abound about low-caste leaders, their supporters would justify it with a nonchalance; they say that all this time the upper castes have looted the system, now it is "our turn". We are thus participating more, but by taking our turn in trashing the institutions of governance.

Q: Is this a matter of time then? Would things improve after a certain amount of time?

A: V.S. Naipaul in his book, "A million mutinies now", says that it is just a matter of time. He says when the new groups come and become empowered, in the beginning they do not behave well but over time, they learn to play by the rules. But I do not agree with Naipaul, because there are some irreversibilities in institutional decay. Moreover, India is such a vast cauldron of heterogeneous groups that by the time one group settles down, another comes up and starts defying the procedures.

Q: But some people now make the argument, for instance when a Greenpeace activist was deplaned last year, that the economic security of the country is more important that individual rights.

A: But who gained by deplaning her?

Q: Well, the argument is that the country's prestige gained.

A: You mean by stopping her from criticising us abroad, our prestige gained in the world? On matters of a country's prestige, let me give you an example. Several months back Modi said that god Ganesha represents an advance in plastic surgery in ancient India. When the Prime Minister of a country says such things, it's a day of national shame. It makes India the laughing stock of the world. What happened to the country's prestige then? But Modi has every right to say such silly things; no one would propose deplaning him from going to one of his NRI (Non-Resident Indian) lovefests abroad.

People used to say that patriotism is the last refuge of the scoundrel. In the RSS-Modi regime, it has become the first refuge of the scoundrel. This is just a way of diverting attention from the real issues. They don't realise that they are trying to make India like a Hindu Pakistan, it is this Sangh Parivar7 agenda which is really 'anti-national'.

Q: There is an increasing sense that all debate is useless, that debate per se could be construed as anti-national. It is quite revealing how illiberal many of our fellow countrymen are.

A: Well debate may involve dissent. Those who are worried about this often suffer from an inferiority complex, a fear complex. It is related to the apprehension among some who think that liberalism makes us weak, debate makes us weak. So, they argue, let's unify and go for a strong leader. This kind of anti-liberal mindset goes against our Constitution, against the ideas of its founding member Dr. Ambedkar, whom by a peculiar irony of history RSS is now trying to appropriate.

At the same time, the Hindu Right correctly points out that the left and liberals are vocal in criticising Hindu extremism but on Muslim extremism they do not come out as strongly. Similarly, why is the Muslim Personal Law much more backward in India compared to even Bangladesh? The left-liberal position on this arises out of a concern. It is like the American liberals' reluctance to criticise the blacks, as the blacks are in a minority. It is about being protective about the minorities.

Q: But is that backfiring now?

A: Yes. My own position is that when something wrong happens it should be criticised regardless of religious or other group distinctions.

Q: Today that very same logic is being applied by the mob standing outside saying that their nationalistic sentiments are being hurt.

A: Well, democracy can't run like that. If my neighbour cooks beef and my sentiments are hurt, so what? He is not asking me to eat it. There is no end to such possible hurt. Tomorrow I'll say I am in Allahabad, but that some people in Hyderabad are eating beef hurts my sentiments.

This is a somewhat revised version of an interview taken by Udit Misra and Amrith Lal of the Indian Express: http://indianexpress.com/article/india/india-news-india/lack-of-adequate-jobs-serious-problem-caste-war-possible/

Notes:

  1. Aadhaar or Unique Identification number (UID) is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India. It captures the biometric identity – ten finger prints, iris and photograph – of every resident, and serves as a proof of identity and address anywhere in India.
  2. Inspector Raj refers to over regulation/supervision by the government of factories and industrial units.
  3. Money bills can be introduced and passed only in the Lok Sabha (Lower House of the Indian Parliament).
  4. RSBY is a central government-operated health insurance programme providing insurance coverage to Below Poverty Line (BPL) households.
  5. Dalit, meaning 'oppressed', is a term of pride used by formerly untouchable castes, lowest in the caste hierarchy, officially known as Scheduled Castes.
  6. Vikas means progress or development.
  7. The Sangh Parivar refers to the family of Hindu nationalist organisations which have been started by members of the RSS or drew inspiration from its ideology.
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