I am puzzled. I am puzzled by the widespread, and apparently genuine, dismay and disappointment at the Narendra Modi government’s early decisions and actions. And the reason I am puzzled is this: what did you expect? Were you not paying attention?
There is reason to feel a certain sense of betrayal if you were indeed naïve enough to believe the Bharatiya Janata Party’s claims that it would reduce prices within a short while of being elected. Inflation, especially food inflation, isn’t a lazy bureaucrat. It isn’t something that will start coming in early following a stern glance from a Strong Leader. It’s a structural problem that will take some time to solve. If you believed anyone’s claims otherwise, then you only have yourself to blame. It is not these people’s reaction that puzzles me.
No, what I am puzzled about is the confusion and bewilderment of those who were and are looking, in vain, for a big, pro-market vision. Again: were they not paying attention? In fact, Mr Modi’s government has proceeded in a manner exactly predictable from his claims and promises on the campaign trail. He will not change the bedrock of economic policy since 2004 — the reliance on private-public partnerships, for example. He will instead work towards quicker execution, lower taxes, and a less intrusive state.
These are not goals to be scorned — particularly not in India, the most intrusive democracy in the world. Indeed one idea that he himself has repeatedly pushed – to make self-attestation of photocopies the norm for government work – is incredibly impactful. It will make everyone’s life easier, and it is infuriating that it did not happen earlier. But it is not part of a strategy. It is just an idea Mr Modi pushed. Will such ideas be enough?
But Mr Modi will certainly stop short of the re-imagining of administration and policymaking that some were hoping for — and that many would say is essential. It was clear from Day One of a campaign focused on execution and personality that Mr Modi was not interested in ideas. Indeed anyone paying attention was left with a distinct impression that he distrusted them, unless presented as actionable PowerPoint bullet points by a secretary to the government.
The Budget provided the first indication that Mr Modi was uncomfortable with big changes. Such changes are implemented, usually, by what the philosopher Isaiah Berlin called a “hedgehog” — someone who knows one big thing, as opposed to a “fox”, who knows many little things. When it comes to economic policy, Mr Modi is the latter, not the former. Usually, that’s reassuring. When what India needs is a uniform, reformist vision, it is perhaps less so.
The recent scuttling of global trade negotiations by the government reveals the danger of this approach. Just a reminder: the entire 160-nation membership of the World Trade Organization agreed in Bali last year to adopt a “trade facilitation” agreement by July 31 this year. The idea was that traders deserved less red tape and delays at ports, so all 160 countries would harmonise their Customs procedures. This is the sort of reform that should excite anyone who is hopeful of the possibilities that markets provide, and who knows that India needs exports to grow if it is to gainfully employ its army of discontented young people. The last government understood this enough to put its concerns to one side and sign on. This government has instead chosen – in a burst of anti-West, pro-poor and pro-farmer rhetoric reminiscent of the Communist Party of India (Marxist)’s politburo at its most delightfully strident – to be the lone holdout. (My apologies. Cuba, Venezuela and Bolivia, those famously pro-market governments, also have a problem.)
What has led to this decision? Well, along with trade facilitation, there were other agreements at Bali. One was on agricultural subsidies. India is possibly in violation of a requirement to not subsidise agricultural producers by more than 10 per cent of the total value of a product in the market. This is both a technical and a structural issue. Technical because the prices used to determine violation are outdated — something that is easy to fix with a little bullying. Structural because it is caused by high “minimum support prices”, or MSPs, being set by the government for the foodgrain it buys for the public distribution system. This system is in any case problematic; the structure of food subsidies needs to be changed, to minimise leaks and – wait for it – to deal with food inflation. That’s why a reformist government would have seized the opportunity to change it in the ample time provided by the Bali agreement. But Mr Modi did the opposite. He chose to defend it, at the cost of making India look foolish, of scuttling much-needed reform, and of closing India out of the future trading system.
Mr Modi understood exactly what he was doing. According to insiders, he spoke to a committee of secretaries and took the views of his entire Cabinet before instructing his negotiators to refuse to sign the deal. Neither credit nor blame can be assigned to bureaucrats, as many disappointed partisans have taken to doing. The commerce ministry’s civil servants were not working to save or scuttle the WTO. (They were instead busy, I am told, with a series of vital meetings that led to India being the first country to ban the import of foie gras.) No, this was a political decision. I am told Mr Modi’s chosen commerce minister, Nirmala Sitharaman, has been studying and writing about protecting agriculture from foreign trade since she was a graduate student at Jawaharlal Nehru University. And Mr Modi himself repeatedly promised, on the campaign trail, a “50 per cent return” to farmers. He was committed to high MSPs. I ask again: what did you expect?
Perhaps, once state elections are won in Maharashtra and Bihar, more reform will be unleashed. But surely Mr Modi can win elections by promising reform, not hiding it? Was that not what set him apart from the Congress? Apparently not.
Perhaps I will be proved wrong about the WTO. Perhaps Mr Modi will win agreement on foodgrain subsidies and announce a grand deal to revive the Doha Round when he visits America in September. This is the scenario some are pushing, and it has the merit of sounding like something that would appeal to the prime minister. But it may be too late. Taking the risk looks like immaturity about what is needed to sit at the high table. Even if the risk pays off, what has India won? The right to keep distorting prices for rice and wheat. Well done!
Perhaps if Mr Modi trusted an economist or a technocrat enough, he might have been advised against this decision. But, at least now, he sees no need for such people. This has some advantages. But one disadvantage is that it means a coherent economic “vision” is not a priority. Why is that necessary in the first place, when there is so much that is obvious that can be done? Because the ship of state is unwieldy. One hand alone does not turn it. Many need to do so — secretaries, ministers, middle-level functionaries. They will do so if they are given a clear ideological direction — a vision. Nobody claimed that Ronald Reagan, for example, was a man who had too much time for intellectuals. But anyone in his administration knew instinctively what course of action he would likely recommend. That is how a country’s destiny is changed — for better or for worse.
But Mr Modi, unlike Reagan, was formed thinking about social policy, not economic policy — and, thus, has a clear, comprehensive vision about the former, not the latter. He understands the need for government to be easier to deal with; but he has not spent time thinking about economic orientation beyond that. Atal Bihari Vajpayee said about himself: “Once a swayamsevak, always a swayamsevak.” That is doubly true of Mr Modi. And perhaps it can be extrapolated to: “Once a swadeshi, always a swadeshi.”
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mihir.sharma@bsmail.in
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