A minimal role for government—restricted to the defence of life and property—was the cornerstone of the classical liberal tradition. This belief in limited government was based on deep distrust of the capabilities of government, which was seen as inefficient and prone to interest group politics affecting growth. Markets were trusted to do a much better job in allocating resources and lifting living standards so that the need for a massive welfare state and other populist policies were ruled out.

Narendra Modi’s election slogan “minimum government, maximum governance" reminded India’s urban middle class of such limited government utopia. As hopes of radical reforms were flying high in the lead-up to the elections—with many even comparing Modi to right-wing politicians in the West, like Margaret Thatcher and Ronald Reagan—the campaign, quite eerily, lacked any clear mention of what constitutes minimum government. Actions in the past few weeks, however, have clarified that Modi’s vision of minimum government is very different from the classical liberal notion of limited government.

For all heavy political rhetoric about smaller government, Modi has done little in moving towards reducing the role of the state. And judging by his policy decisions, the idea of “minimum government" in Modi’s lexicon seems to mean, at most, nothing more than an Indian state with a downsized bureaucracy. Thus, to those who had expected radical reforms scaling back the size of government, what was offered was a mere restructuring of government ministries. A slimmer bureaucracy was envisioned to implement policies, albeit the same old regressive ones that strengthened the status quo of an economy with very little economic freedom.

Just in case it may be too soon to judge Modi’s performance, his doubtful credentials as a reformer are unambiguous in many of his recent policy decisions. Amidst talk of enacting radical labour reforms to revive manufacturing, the Modi government started by announcing sops to industrial workers, including a minimum pension provision. When the decision to hike railway fares turned out to be an unpopular one in the wake of upcoming state elections, what followed was not iron-will to go ahead with the decision but a meek surrender reminiscent of the previous prime minister—one who was often accused of being weak and spineless by many, including Modi.

Quite naively, however, many talking-heads in the media continued to be enthused by the idea of a slim, efficient government moving the wheels of the economy that had ground to a halt after years of populism under the Congress. A state that did away with the practice of robbing Peter to pay Paul formed the core of limited government envisioned by the classical liberals. But, if anything, more populism is exactly what the budget presented last week promised.

With great pride, the finance minister said the government will not engage in retrospective taxation but recognized its legality. This, the finance minister believes, will get foreign investors brimming with confidence to invest in India and help growth pick up. But it is simply reminiscent of Jawaharlal Nehru’s buffoonish promise to foreign investors, “We want to encourage in every way private enterprise. We want to promise the entrepreneurs who invest in our country, that we will not expropriate them nor socialize them for ten years." Sadly, unlike Arun Jaitley or Modi who couldn’t care but for the next general election, many investors do possess time horizons over five years.

Some other “reforms" announced in the budget include an incremental raise in the income tax exemption limit that hardly makes up for double-digit inflation over the years, a little more foreign direct investment over which even the Congress would have made no fuss, and a promise to achieve an “ambitious" fiscal deficit target—the math of which works out to half the government’s revenue base—through, most probably, accrual accounting that allows shifting revenue and expenses across years at will. For all the heavy political rhetoric, that’s just how radical the nation’s “right-wing" prime minister elected with a thumping majority in Parliament could get.

Given its sizeable contribution to government spending, even a partial rollback of wasteful subsidies could have counted for “radical reforms" in India. But the government earmarked 2.51 trillion towards subsidies, more than what P. Chidambaram had estimated in February this year. The Mahatma Gandhi National Rural Employment Guarantee Scheme, the pet scheme of the Congress that was widely criticized for wasteful populism, was allotted a massive 33,353 crore—up from 33,000 crore last year. Adding to these, a massive 37,880 crore has been allotted to fund a Keynesian government infrastructure spending programme, and, as usual, a lot more money has been splurged on a number of pet projects to satisfy every vote bank.

To fund all of this populism, the government wishes to improve the tax to gross domestic product (GDP) ratio, sell public assets, and implement a nation-wide Goods and Services Tax (GST). The idea has been lauded as favourable to fiscal consolidation and helpful to create a single, uniform market across India. However, higher government spending—funded either through increased taxes or liquidation of assets—directly contradicts the fundamental principle of limited government, which is to cut down the share of government spending in the economy. A nation-wide GST, on the other hand, would once and for all end tax competition between states that is crucial to preventing draconian taxes.

The coming months are sure to offer more such statist hogwash cloaked as economic reform. On all counts, Modi-nomics would set many limited government classical liberals of the 19th and 20th centuries turning in their graves. And as the damp squib budget presented last week shows, even under the new regime there has been no fundamental shift in economic thinking in New Delhi. Big government in India is here to stay.

Natural Order runs every Monday, with a libertarian take on the world of economics and finance.

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