Modi should bury ghosts of Vodafone, make reforms centre-stage of politics

If Modi is a true reformer, he'll bury the Vodafone tax ghost for good and go to Bihar and campaign on his latest, politically controversial farm and labour reforms

Political commentators are sometimes lampooned as intellectual gymnasts. So here we are, living up to that description, by drawing a connection between an international arbitration tribunal’s ruling favouring Vodafone in its case against India’s Rs 20,000 crore retrospective taxation claim and the coming Bihar elections, the dates for which were announced as this column was being written this Friday.

Both cases, in their own different ways, provide a challenge and an opportunity on behalf of the new economy and politics against the old. The Vodafone order has come just after its author and probably the last three decades’ biggest believer in the older versions of both, Pranab Mukherjee, passed away. It follows that anybody who had those two sets of old beliefs was also a statist. Which he was.

In decades of interacting with Pranab Mukherjee, I can say that I came across no public figure as statist as he. His response to this arbitration order would have been a furious, who are they, we are the sovereign, spoken with gritted teeth. He would have immediately challenged it and put the might of the Republic against it.

Read the third volume of his memoirs which I wrote about in an earlier National Interest. Rather than be defensive, he had boasted that whatever anybody might say about his amendment, nobody had dared to reverse it in almost a decade. That included three years under Narendra Modi. The conclusion he drew from it was that there was such political oomph in his idea that neither the architect of 1991, Manmohan Singh, nor the ‘Gujarat Model’ reformer Narendra Modi had challenged it.

Then Bihar is the first election after a flurry of what the Modi government proudly describes as its most audacious reform, usually with a taunt for the critics: You said we hadn’t done any Big Bang reform? What will you call this? Both these, on agriculture and labour, are likely to cause short-term unhappiness among large voter groups already reeling from economic distress.

How Mr Modi and Amit Shah build this campaign is the most important indicator to watch. Will they flaunt their big new reforms, changes and risk-taking ability? Or, will they hide from all that and talk only about the free grain and cash payouts they gave away in the pandemic?

Political experience would tell you to avoid any talk of reform or a promise of future prosperity in a campaign. As Montek Singh Ahluwalia wrote in his memoir ‘Backstage’ and said in his conversation on our show ‘Off The Cuff’, reform in India happens by stealth.

Illustration by Binay Sinha

No politician sees economic reform as a vote-catcher. It’s the old, povertarian economy that gets the votes. I would underline Mr Modi’s big 2019 win in spite of an indifferent economy, predominantly because his welfare schemes like cooking gas, toilets and MUDRA loans had wide impact among the poor. What route will Mr Modi now take in Bihar, India’s poorest large state?

This is how the Vodafone arbitration order and the Bihar election both confront him with a twin challenge. Old economy and older politics would suggest that he challenge the Vodafone order, let it fester and go back to giveaways in Bihar. But if he’s bold, he would humbly — actually gratefully because it resolves an old problem — accept the Vodafone verdict, and go campaigning to Bihar talking reform and prosperity. Done together, both have the spark to ignite a new economic optimism in India. Whether they will guarantee yet another win for his coalition in Bihar, we can’t say.

 The old political argument against the reformed, new economy is formidable. The pain of reform comes immediately and affects many more. The gains come much later and will still leave far too many unhappy. Not necessarily because they are worse off, but they see some others doing much better: The familiar rich-getting-richer syndrome when the poor, even if they are doing better than before, feel even poorer in comparison.

Bill Clinton, when he visited India in 2006 after UPA came to power, made this point brilliantly in his short speech at the Rashtrapati Bhawan banquet. We are all surprised, he said, that Vajpayee’s government lost despite taking India’s growth rate to seven per cent. How can you lose when your growth rate is that high? Because, he said, those that benefit most visibly are much fewer than those that feel left out in comparison. This is hard politics.

In any case, once people benefit from reform, their politics can change in surprising ways. India’s urban middle classes, who owe much of their booming prosperity of the past three decades to Manmohan Singh and Congress, overwhelmingly vote for the BJP, 2014 on. In fact, they so deeply detest the Congress and the Gandhi family they will continue blaming them if the economy goes on declining, and keep voting for Mr Modi/BJP.

This was also the apparent logic for the Left Front and Lalu Prasad Yadav not letting modernisation and growth come to the neighbouring states they respectively ruled for decades. Let them rot in their caste and ideological bunkers.

The third problem with reform-generated growth is, it necessarily increases inequality. As the old logic goes, a rising tide lifts all boats, but it lifts the yachts first. Apply that to Bihar — a state at the lowest end of Indian economy’s value chain, an exporter of cheap labour to the fast-growing states.

It should follow that it’s also at the most distant end of the pipeline that reform opens up. Its farmers do not produce much surplus, and it is not about to suddenly begin creating millions of white or even blue collar jobs. It would be tempting therefore to avoid ‘pangas’ with this key election.

 Politics in Bihar is always complex and local factors formidable. But this one is our most ‘bad news’ election in a long time. The pandemic is raging, deaths are rising, the Chinese are being troublesome and the economy is in a free fall. Plus, we have the lived political experience of a talk of reform and growth not working in elections, especially when you are seeking votes as an incumbent.

We say that before you ask if Mr Modi did not promise growth in 2014. He did, but as a challenger. As an incumbent in 2019, he was besting Pakistan and busting corruption, not promising the ‘Gujarat Model of Growth’. In 2004, Vajpayee lost despite going to the polls on an ‘India Shining’ growth high. The Congress still believes that it lost 1996 and 2014 because of reform and won 2009 in spite of it. Why would Mr Modi take a chance now?

That is the reason this twin test is so important. If he’s truly a reformer and a believer in minimum government, he would bury the Vodafone ghosts now. He would also then go to Bihar, campaigning on his politically controversial reforms. Both will need him to dip deep into his accumulated political capital and risk it. On whether he does so will answer our central question: Will reform be brought to the centre-stage of our politics now? Otherwise, it will continue to be done episodically, by stealth.

By Special Arrangement with The Print