A redux of the Modi government’s Thatcher moment4 min read . Updated: 13 Dec 2020, 09:02 PM IST
It must seize this chance to make a principled case for farm reforms and win support for liberal policies
The government of Prime Minister Narendra Modi (2014-present) deserves credit for seizing the economic crisis induced by the covid pandemic and related lockdown as an opportunity to push through difficult but necessary structural or “supply-side" reforms—in particular on labour and agriculture. I leave aside the more contentious proposal to allow corporatization of the banking sector, which raises some uniquely thorny issues.
The firestorm of protests from a select group of farmers, who have received a megaphone from the domestic and international press, as well as opportunistic support from opposition parties, which finally see a possible wedge issue to use against Modi’s government, is a salutary reminder of what I have previously called, invoking a classical Christian metaphor, the “original sin" of reforms. Going back to the original reforms of 1991, important reforms in India have been undertaken under the cloud of an economic crisis—in that instance, a foreign exchange crisis. One notable and important exception was the set of reforms pushed under the Atal Bihari Vajpayee government (1998-2004), which seemed to carry a genuine ideological conviction. Of course, the long tenure of the Manmohan Singh government (2004-2014) was marked by a complete absence of major structural reforms.
The problem of reforming under the gun of a crisis is that policymakers do not need to articulate why they are necessary and make a reasoned case to voters. Another allied mode of doing reform in India has been by stealth—do a reform and hope that no one, especially would-be critics, notices. This has the same feature. The problem is that, when reforms are done in crisis mode or by stealth, one misses the opportunity to build a national consensus around reforms, and on liberal economic policy more generally. Opportunistic reforms are more likely to give way under pressure than ideology-driven, principled reforms. Thus, the original reforms under the P.V. Narasimha Rao government (1991-1996) lost steam midway through the administration’s term, after electoral reverses. Likewise, the Modi government, in its first term, abandoned a controversial land-acquisition reform in 2015 after pushback from farmers and opposition parties. In the face of Congress leader Rahul Gandhi’s “suit boot ki sarkar" jibe, alleging corporate influence, the Centre blinked.
When the land-acquisition reform was hanging in the balance at the time, I argued in these pages (‘Modi’s Thatcher moment’, 15 March 2015) that it was a golden opportunity for the Modi government to make a principled case that the change would be good for everyone, as a way to defang the politically-motivated opposition. Alas, this did not happen, and we know the sequel to that story.
It is also my belief that its bad experience in pushing the land acquisition bill dampened the Modi government’s enthusiasm for further structural reforms in its first term in office, again, leaving aside the controversial “demonetization" decision of 2016, which, whatever it was, cannot be called a conventional economic reform. Apart from some important technocratic reforms (the monetary policy framework and insolvency and bankruptcy code), and, of course, the goods and services tax (GST), the government held back on crucial labour law and agricultural sector reforms during its first term. One might have thought that Modi’s thundering re-election in 2019 would encourage the government to push ahead with aggressive reforms, but, again, we were disappointed. The government, rather, seemed to put the economy on the back burner and concentrate on its non-economic, cultural agenda.
The turning point evidently came with the covid crisis and its aftermath, which seemed to give a new sense of urgency to the government in pushing ahead with its unfinished reforms agenda. For this, as I said at the outset, it deserves credit. However, the lessons of 2015 bear recalling today. Reforms pushed opportunistically during a crisis are more fragile, and vulnerable to a U-turn under pressure, than principled reforms. Nor do they durably build a political constituency for further reforms, as Rao discovered in the mid-1990s. Nor will banners and charts tweeted by the government and its supporters win critics over. Even less useful is to blame India’s messy democracy for the difficulty in carrying forward reforms, as at least one prominent government official appeared to recently. Helpful or not, India’s brand of democracy, which requires the careful creation of a consensus among disparate interest groups, places automatic checks and balances on any government that attempts to ram through even good reforms that are insufficiently well “sold" to the public and directly affected groups.
Back in 2015, I argued that the land acquisition bill and the opposition it faced was Modi’s “Margaret Thatcher moment". Here was an opportunity to make a principled case to the electorate, and then to hold one’s resolve in the face of politically-motivated or parochial opposition to a reform self-evidently in the national interest—just as Thatcher had stared down the UK’s coal miners in 1984-85, and ultimately won. Unfortunately, in 2015, faced with the Thatcher test, Modi backed down, and the cause of reforms was set back.
We’re at a turning point again. One could argue that Modi in 2015 was new in power and cautious in picking his battles. Modi in 2020 is a seasoned, powerful leader. Let’s hope he fulfils the promise of the moment.
Vivek Dehejia is a Mint columnist