Over the past week, India has been celebrating the 100 days of Narendra Modi’s rule. I say celebrating because the dominant account of the new government is positive. Voters are happy with what the new Prime Minister has said. The atmosphere is apparently full of hope and self-belief in stark contrast to the profound sense of frustration and anger people experienced under Manmohan Singh and United Progressive Alliance rule.

At the same time, although in a smaller measure, observers and commentators have also celebrated the completion of Raghuram Rajan’s first year as the governor of India’s central bank.

The coincidence provides us with an opportunity to compare notes on the rather contrasting manner in which the leaders of India’s fiscal and monetary policies have gone about their task.

Both took over their respective positions at a time when the economy was, and perhaps still is, in doldrums. Both were faced with fairly stark choices. Their predecessors—Manmohan Singh and D. Subbarao—had left them with unenviable tasks. Rates for economic growth and inflation had swapped places. We were growing at less than 5% and had an inflation hovering around 9%.

Both leaders had to make a clear choice in their policy stance in order to prevail. They simply could not afford to carry on with the muddled approach.

For Rajan, it was choosing between promoting growth by reducing interest rates or controlling inflation and inflationary expectations by holding up the rates. The evidence of the past year would suggest that Rajan picked his battle and fought it well. He let go of any pretensions regarding promoting growth by reducing interest rates—rebuffing pressure from the political masters. Instead from day one he focused on setting the house in order—whether it be the articulation that his singular focus would be on controlling inflation or taking the baby steps towards addressing the systemic issues like the alarming level of non-performing assets (NPAs or bad loans).

Recently, his bold refusal to go along with farm loan waivers in Andhra Pradesh and Telengana on the count that they are purely populist measures without any data suggesting agrarian distress is a case in point. It is not surprising that Rajan has been hailed across the board. But beyond the accolades, Rajan has done himself a favour by being so clear-cut in his approach. There is no point fighting inflation twice every year and without the steadfast approach he has shown, he would end up doing just that. Bereft of this clarity, his eventual tenure would achieve little because he would have spent bulk of the time going back and forth.

However, Modi’s performance, albeit in a much smaller period, has been quite muddled. It may not be too inexact to compare Modi’s government and how it is being perceived since day one to the proverbial story of how the six blind men of Indostan viewed the elephant. For the most part, everyone seems to have a slightly different view of the government, which is partly correct but on the whole, wrong. The reason for this happening is the lack of clarity in policy.

Modi also took over at a time when India needed clear policy statements on the fiscal front. On big downside with the UPA rule was the middling performance of the rights-based policies like rural jobs or food entitlements. Manmohan Singh and Sonia Gandhi were castigated for pushing policies which focused on dole and did little to improve incentives in the system. Worse still, such policies were held responsible for India’s widening fiscal deficit. A better option would be to focus on growth and empowering people to decide for themselves and nudge them towards the correct decisions. So, instead of practically feeding them wheat and rice—inefficiently, at that—the new government was expected to try another track—policy focus on redressing the incentives.

It was not so much a matter of big-bang reforms but the approach. However, in the little time we have seen, Modi has chosen to replicate, if not expand, the same approach in newer areas.

Take toilets, for instance. Just like UPA was critiqued for not addressing the incentives in the system, the National Democratic Alliance too is missing the point. Enough research is available which almost unanimously suggests that building toilets alone will not help unless people demand it. Yet, Modi is pushing for it almost like the right to latrine. No wonder it has prompted jibes such as, “It is corollary to the right to food." Is it not out of place to find Coal India focussing on building toilets—committing no less than 235 crore—smack in the middle of the biggest coal crisis in the country?

Let’s take another example—the right to bank accounts, as it were. Again, the jibe is that this too is a corollary to the right to rural jobs. This is being done, almost at gun point, to ensure that everyone in India has a bank account. A story by Tamal Bandyopadhyay in Mint showed bankers met the targets laid down by Modi by opening new accounts for existing account holders.

The idea here is that opening bank accounts will reduce leakages from welfare schemes and bring about financial inclusion. But there are two problems here. One, the old criticism of incentives; if having a bank account is desirable, people will have them once they have a reason to have them. Without financial literacy, most such accounts might lie idle. The other problem is that the traditional leakages in welfare programmes were not because people did not have a bank account. At a policy level, the problem related to identification of the so-called beneficiaries. A bank account on its own does not allow you to identify whether a person deserves to be among the beneficiaries. That identification is a political choice and has nothing to do with whether a person has a bank account or not.

Two more policies for which UPA was criticised come readily to mind. One was the Right To Education (or RTE). The central argument here was that education outcomes will not change unless you focus on the fundamental issues such as teacher quality, teacher-student ratio, etc. Simply legislating the right was held counter-productive. What has been Modi’s approach to education. More IITs and IIMs. The policy approach has not changed and nor have the arguments against it.

Two, the UPA was criticized for confusing between universal healthcare and universal health insurance. The former lays emphasis on public investment in healthcare, especially primary healthcare. The latter reneges on the promise of minimum healthcare provisioning by the state, especially in areas where private players will not set up shops. Instead it outsources the trouble of healthcare provisioning to the private sector, irrespective of whether private firms take up the job or not. The government, in turn, focusses on the limited role of providing premiums for healthcare insurance. But what good is an insurance if you don’t have a clinic to go to? How has Modi followed it up? Yes, more insurance and more AIIMS to be set up.

In fact, with regard to the rights-based approach, the odd thing is that the Modi government has gone a step ahead. It has now focused on housing for all by 2022—still not a right though. Interestingly, Modi’s current tenure ends in 2019. Again, whatever happened to the argument that Modi and his team made—“don’t give them fish, teach them how to fish."

On the face of it, none of this is bad. India should have more toilets, more bank accounts, more houses, more schools, more IITs. But critics of UPA questioned the ordering and priorities of the government. Not much has changed since UPA was swept aside. The economic recovery is still iffy. In fact, next two quarters will perhaps reel under the impact of poor farm growth and its ramifications on the broader economy.

This analysis has little to do with whether one supports the rights-based approach or not. It is also not about supporting one party or another. The limited point is to point out the apparent incongruence between the bold mandate that Modi received from the voters and his diffident policy choices. Of course, these are early days, but these examples suggest that the more things change…

Policy Puddle runs every Thursday and comments on public policy developments.

Close