Is regulatory friction really unintended?

For seven years, like a broken record, I have been arguing that India can be on the path of super growth but for endless red tape creating friction for enterprises — the actual job creators. These days, job creators even have taunts and insults hurled at them by politicians. Businessmen usually take this lying down. However, it does seem that the serial economic follies of the past six years, combined with a punitive “governance”, is finally driving home a new realisation among people.

India’s growth will remain subdued for a very long time. While the economy will bounce back on a relative basis, there is no escape from the past. Businessmen are now at the end of their patience and waiting for a change. So, we saw two top businessmen complaining last week about overregulation, a rather mild descriptor for the toxic alchemy of extortion, rent-seeking, and pure procedural harassment that the state delights in creating for enterprises. 

Rajiv Bajaj, who has been claiming there is no slowdown so far, and even rebuked other businessmen for not being innovative enough, is suddenly singing a different tune. “It is overregulation that is killing the industry,” he alleges. Tata Sons Chairman N Chandrasekaran says, “India is fraught with micromanagement and suspicion.” If India needs to grow faster, we need to remove the obstacles that impede businesses, he says.

Since 2014, most Indian businessmen believed that a committed, nationalist government had been hard at work in building a new India. Prime Minister Narendra Modi was expected to replicate his much-publicised success in Gujarat across the country. He won in 2014 on the promise of development. As far as I remember, for the first time, a national politician talked of removing red tape in election speeches as Mr Modi did. When he asked the cheering youth “Apko naukri chahiye ki nahin chahiye?” (Do you want jobs or don’t you?), one naturally expected him to give enterprises freedom from mindless red tape. After all who creates job? From the corner grocery stores to mighty software companies, it is businesses, not the government, that do so.

Unfortunately, the real agenda of the government became clear in 2014 itself, even as businessmen, financial sector experts, and most of media continued to live under a mass delusion. The Modi government went about putting a computer chip on the myriad schemes of the Congress government — because everything was now digital — and peddled them as brilliant new ideas with new names. Every legislative change and policy only added to coercion, intrusion, suspicion, criminalisation, and punishments with jail terms even for small errors and omissions. In a corrupt country, these become tools for  private as well as state extortion. Meanwhile, the social and political agenda (cow protection, lynching, nationalism, Pakistan, Kashmir, the flaws of the Gandhi-Nehru dynasty) completely overshadowed economic debate.

One of the business segments hit badly is the 150-cc class of two-wheelers, a mass-market vehicle. The first blow it received was a Supreme Court order making it mandatory to buy a five-year insurance policy upfront. This added several thousand rupees in insurance cost to the vehicle price. In April last year, new safety norms imposed another Rs 8,000-10,000. As Mr Bajaj puts it, in just one year, there was a 20 per cent hike in costs, i.e. Rs 15,000 on a motorcycle that costs Rs 70,000, while the manufacturer takes a price increase of only 2-4 per cent every year. “I say this is overregulation. In a country where you struggle to drive at more than 20-30 km per hour, given the state of the roads, to impose an Rs 8,000-10,000 cost for safety measure like ABS is completely over the top,” said Mr Bajaj.

He went on to add, “It may be a politically incorrect thing to say that BS-VI is not the right thing to do but getting rid of old vehicles through a suitable mechanism would have been much more effective than squeezing out the last little bit of emission from BS-IV vehicles. Instead we are going for BS-VI from April and this will mean another Rs 8,000-10,000 increase in the cost of vehicles of the common man. That means in a one-and-a-half-year period, prices of the common man’s two-wheelers will go up by 30 per cent. To me this is a tangible hard issue on the ground. Does the government have the humility to reflect and roll back some of these?” 

Mr Bajaj should know that humility is not a feature of any state, irrespective of its political colour. And, this government is one that has offered no apology for Aadhaar deaths, was remorseless about the demonic impact of demonetisation, and has inserted insane provisions of arrests and jail terms into various revenues laws. 

The politics

It is good to see businessmen speak up about issues that hurt them instead of being politically correct. But that leaves unanswered the question: Why would the state be irrationally punitive? By what insane logic should politicians attack job-creators, and, why do we have laws that treat everyone as criminals rather than focus on enforcement and justice that catch the crooks? I am afraid, the Bajajs and the Chandrashekarans of the world are again missing the point by appealing to netas and babus to reduce red tape.

Just ask yourself: Why wouldn’t ministers and their bright IAS secretaries know the cost of delay in decision-making, innumerable rules, multiple licences, retrospective amendments, long pending court cases, irrational tax demands, and punitive laws? I cannot believe they don’t. It is intentional — to give them the upper hand and keep businessmen in their place. They don’t want to simplify things or give freedom. The smartest of businesspeople, begging for simplification in all earnestness, are simply naïve. They do not get the politics behind this intentional overregulation.

The writer is the editor of www.moneylife.in

Twitter: @Moneylifers