Photo: Danish Siddiqui/Reuters
Photo: Danish Siddiqui/Reuters

The Narendra Modi brand of reforms

The web of interweaving reforms spun around Make in India provides a framework to understand Modi's reforms process

Is Prime Minister Narendra Modi an economic reformer?" was the title of a (virtual) roundtable discussion I had the pleasure of participating in recently. Moderated with aplomb by Sadanand Dhume of the American Enterprise Institute, a Washington DC think-tank, other panellists were Mihir Sharma of Business Standard and Milan Vaishnav of the Carnegie Endowment for International Peace, another Washington think-tank.

As in all enlightening debates, the interlocutors agreed on the facts, but disagreed on their interpretation—and that is because, in my view, each was bringing a different interpretive lens, a different understanding of the possibilities and constraints of the Indian political economy, and of the meaning of reform. So if by economic reformer one has in mind someone of the cast of Margaret Thatcher or Ronald Reagan—right-of-centre politicians who zestily slashed public spending, cut welfare programmes, cut taxes, privatized government-owned enterprises, battled trade unions, and the like—then clearly Modi does not qualify.

But this is to set up a straw man.

As I have argued on numerous occasions and in various places, including this newspaper, Thatcher/Reagan never was a sensible benchmark against which to measure Modi, or any other Indian political leader for that matter. For an economy which emerged from a half-century of socialist central planning as recently as 1991, and in which the state continues to play an outsized role compared even to other economies which freed themselves from the shackles of socialism relatively recently, to expect an Indian political leader—whether Modi or anyone else—to make a muscular case for free markets over government control and individual liberty over collectivism is about as realistic as to expect a tobacco industry executive to preach the virtues of quitting smoking.

But if instead what you mean by economic reformer is a pragmatic, results-oriented, business- and investor-friendly political leader working to get the basics right—improve administrative efficiency, make existing regulations better, reduce red tape and corruption, streamline the clearances process, and empower states to grasp the nettle of reforms too politically difficult to pursue immediately at the centre (such as labour laws)—then Modi is your man.

And, in the bargain, as I have argued too in this newspaper, Modi is attempting to deliver this brand of reforms through a gradualist, rather than a radical, trajectory—very much in the mould of Canadian Prime Minister Stephen Harper, whom Modi will be calling on in Ottawa later this week. As I put it in the roundtable, not rocking the boat does not mean that the boat is not moving in the direction you wish it to. Indeed, rocking the boat may capsize it!

Thus, if the implications of Make in India are unpacked, they imply, and will require, a slew of reforms of factor markets—land, labour, and capital—as well as the provision of basic infrastructure such as 24/7 electricity, high speed Internet, roads, bridges and ports—everything that an entrepreneur needs to manufacture a good (or service) and then deliver it to a customer, whether situated in Mumbai or Madrid.

On land acquisition, contrary to the narrative that Modi has not invested political capital in controversial or politically difficult reform, the record of recent weeks speaks to the contrary. Here, indeed, he has very frontally challenged the stale rhetoric of the opposition parties that the land Bill is anti-farmer and anti-poor, and argued for the development and employment benefits of a more streamlined land acquisition process.

On capital markets, a series of interlinked financial sector reforms, the adoption of the new inflation targeting framework for monetary policy, and the proposed overhaul of bankruptcy law, create the possibility that India will, at long last, develop a genuinely deep debt market, not one controlled by a small group of cronies perched in Mumbai.

And, again contrary to the narrative that the Modi government is simply acting upon the unfinished legacy of the previous government—although even that would be no mean accomplishment, given the almost catatonic state of the Manmohan Singh-led government in its final few years—the vital bankruptcy reforms are very much the brainchild of the current government, finance minister Arun Jaitley in particular.

Finally, on labour law, the concept that politically contentious reforms such as this should be allowed to percolate up from the states, through the emulation of best practice and the like, rather than be thrust down upon them from the centre, is not an alibi for inaction, but rather a genuinely reformist model which is cognizant of the lived realities of the Indian political economy. And, indeed, other large federal polities have employed the model of cooperative and competitive federalism to their advantage.

This web of interweaving and slowly expanding reforms, spun around Make in India and everything that entails, then provides a coherent analytical framework within which we may understand the reforms process under Modi. Indeed, this Modi method is in itself very much made in India, as against the radical reform model it is said that he has failed to embrace. But then, that model was invented in a Harvard seminar room in the early 1990s, and has made sense in very few other places since.

Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.

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