Forty years ago, an India that was about to be dubbed “socialist” in the Preamble to the Constitution launched a raft of legislation whose consequences are with us today. Owners could not shut down bankrupt companies, employers were not free to decide how many workers they needed, the bulk of the manufacturing and financial sectors were made state-owned, to be managed by bureaucrats and politicians (who, being public-spirited, would not steal). The government fixed wages, and buying and selling prices. The courts too turned socialist. In West Bengal, managers were denied freedom of movement as well as access to food, water and the toilet for extended periods of time, while they were surrounded and abused by workers — and no court intervened.
Some of the crazier legislation has been undone (for example, the nationalisation of wholesale trade in foodgrain was overturned in a year). Some of the more egregious controls on business have gone too, and the courts have partially rewritten some socialist judgments. But labour laws continue to distort the employment market, and West Bengal saw a flight of capital that is still not reversed. Extortionate tax rates that crossed 97 per cent made most salaried people tax evaders, instigating a disregard for the law that has extended into other areas and therefore survives, like the black economy that the controls gave birth to, while businessmen took their money overseas.
Are we into another phase when parliamentarians write laws that the country will regret decades later? The food security law in the form that the National Advisory Council wants it could ruin India’s agriculture by placing impossible demands on supply, pricing and distribution. If 75 per cent of the rural population is to be given grain at the rate that propelled N T Rama Rao into power in Andhra Pradesh 27 years ago, why should any farmer grow grain? He can grow any of several other crop options and ask for semi-free grain — which the government would then have to import in quantities that world markets cannot supply. And what about targeted distribution? One proponent argued recently that the public distribution system had improved dramatically, because “only” 44 per cent of the grain was misdirected.
The rural employment law has become a giant boondoggle. Only the willfully blind will ignore the reports and studies that point to large-scale misuse. The proposed law on mining could render it virtually non-financeable by asking that a quarter of profits be taken away from the mining companies. Why would any mining company, faced with such a law, show any profits, when it could transfer the profits to suppliers or subsidiaries or associate companies? No one knows what will emerge on land acquisition, and what it might do to the development of industry. How many automobile projects must come up in Gujarat before West Bengal realises that Mamata Banerjee stuck a large knife into the state’s manufacturing hopes?
Overall, we may be about to embark on the most dramatic expansion of an unreformed government sector in our history. The combined financial burden of the new entitlements, and what it will do to the exchequer when India needs to lower its public debt, is a question that only some spoilsports in the government seem to care about. If the floodgates open, the government will pre-empt resources and growth will slow.
Ms Banerjee swept the elections, of course, just as Indira Gandhi did 40 years ago. But precisely because of the growing conviction across parties that populism yields electoral results, the country has entered a dangerous phase in which a deadly cocktail of good intentions, soft-headed political calculations and ignorance of economic arithmetic could end up doing lasting damage through laws that it will be politically impossible to overturn until we become another Greece.
