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Business News/ Opinion / Narendra Modi’s learning on the job
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Narendra Modi’s learning on the job

It is baffling why a government with cast iron majority should be diffident

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

The Nobel Prize-winning economist Kenneth Arrow once described two kinds of learning: re-inventing the wheel and learning to solve problems. The first kind is subject to rapidly diminishing returns.

After two months on the saddle, the Narendra Modi government is displaying both kinds of learning but with a marked bent for re-inventing the wheel. In India, this amounts to tinkering at the margins, trying to create political consensus where none can be had and hoping for the growth machine to purr again.

If India is to experience a growth renewal, the balance of learning has to tilt sharply away from repetition to solving of problems. And it is clear to one and all what needs to be done.

India’s growth and governance collapse of recent years had two dimensions. On the one hand, the previous United Progressive Alliance government deliberately derailed the economy by its populism. The Manmohan Singh government’s wasteful social programmes and ballooning of expenditure pushed the economy into a corner. On the other hand, each step the government undertook, even most minor matters, were calculated to electoral gain. Where India finds itself today is the result of this combination.

What was needed was a systematic reversal of all this. The Modi government’s huge majority in the Lok Sabha was not only a confidence-boosting measure but also a great political stabilizer for it to undertake bold reforms.

Some changes are already taking place, for example, in amendments to cumbersome labour laws, and raising the level of foreign direct investment in a host of areas such as insurance, defence production and railways. Contrasted with the previous government’s wilful slowing of the economy, these are indeed positive developments. But here’s the caveat: these moves are due to necessity and easy political consensus. For example, the impetus of labour law reform comes from some activist chief ministers who want to change things in their states; the Union government is only taking facilitating steps. Similarly, in the case of railways, the government has no choice. The railways have no money left at all for investment. Some private participation is unavoidable.

What are missing are the big-ticket reforms that India needs. These include repealing the dangerously anti-industry land acquisition law enacted in 2013 and doing away with social programmes with huge outlays. The Mahatma Gandhi National Rural Employment Guarantee Scheme is an example. The 2014-15 budget, the ideal instrument to make those changes, instead trod on the path made by the previous government. Freeing up this fiscal space is essential if the Reserve Bank of India is to successfully fight inflation and reduce interest rates. Unless that happens, economic stability necessary for growth to take off again will elude India.

Why is this government displaying such diffidence?

Historically, governments have taken reform measures at different times in their lives. Indira Gandhi began her prime ministership with devaluation of the rupee in 1966 and some trade liberalization in response to a crisis-like situation. Later, she aggressively undid the measures she took before and charted India in a socialist direction. P.V. Narasimha Rao was reformist through his tenure while Manmohan Singh’s decade as Prime Minister was decidedly spent in anti-liberal economic pursuits.

This pattern suggests two things. One, short of an economic crisis, Indian Prime Ministers believe in plodding a middling course. This has different code names—consensus, true federalism, democratization. Two, every decade or so, this muddling through lands the economy in dire straits, forcing wide-ranging reforms.

Modi was chosen by the electorate in the belief that he is a leader who will not shy away from difficult policy prescriptions because of his political strength. So far, he has not shown signs of taking those much-needed decisions. Perhaps his ministers need time.

But time is of the essence. Globally, the age of easy money that began after the 2008 economic crisis is at an end. Capital that washed the shores of almost all countries in search of returns is about to get choosy. India’s economic conditions do not permit learning on the job.

Why is the Modi government shying away from bold reforms? Tell us at views@livemint.com

Follow Mint Opinion on Twitter at https://twitter.com/Mint_Opinion

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Published: 11 Aug 2014, 06:53 PM IST
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