Frugal praise and rich criticism don’t do policymaking any good

There is not much to choose between children, adults and expert-elites. Children hanker after a toy that they do not have. Once they get it, they lose interest and start craving another. For adults, their toys are different, but otherwise they are no different from children. Experts will berate the government for not undertaking structural reforms. Once such reform measures are announced, they will try to pick holes in the manner of their announcement, they will move goalposts, and list reforms that are not yet done. The reforms announced would have been on top of their list of demands but once announced, they inexplicably become inconsequential.

Take the case of the labour reforms. Neelkanth Mishra and his colleagues at Credit Suisse are eloquent in their description:

“In a culmination of several years of work, 41 central labour laws have been reduced to four (12 repealed 2016-19, and 29 now subsumed). The number of sections fall by 60% (1232 to 480), one registration is now needed instead of six, one license instead of four, and decriminalisation of several (though not all) offences. Codes have been made contemporary (e.g., penalties raised; fixed-term employment introduced as 69% of incremental factory workers [in] 1998-2018 were contractors; social security introduced for gig workers), and firm-size thresholds raised to further ease compliance burden: from 10 to 20 to be called a factory, 20 to 50 for contract worker laws to apply, and 100 to 300 for standing orders (including for layoffs)” (Labour Reforms: a Historical Change, 28 September 2020).

Or, for that matter, take the case of the decriminalization of many offences under the Companies Act. Most of them were introduced in the wake of the Satyam Computer scandal. It is often the case that private sector behaviour leads to over-regulation and an intrusive state. That is often missed in the debate on state versus markets. The private sector is rarely held to account for its actions that give rise to executive overreach. It is analogous to the mindless commentary in America that blames Donald Trump for being a populist and for exploiting resentment among workers, without even a token acknowledgement of the underlying greed and unfair distribution of the spoils of globalization that gave rise to their discontent. In this warped logic, the consequence is blamed for the cause. That is what happened with the Companies Act amendments of 2013. Yet, rare is the government that rolls back its penal provisions. That has been done.

Sanjeev Sanyal, principal economic adviser to the government, wrote a column (Economic Times, 21 September 2020) explaining the significance of the ‘netting’ bill (‘Bilateral Netting of Qualified Financial Contracts’) that has been passed. It may appear to be trivial but the payoff can be transformative. The new law, as he puts it, is a major step towards enabling the financial system to expand and greatly lower the capital adequacy burden, since capital is now required to be maintained on net and not gross exposure.

Another bill on ‘factoring’ that allows many non-banking financial corporations to be a ‘factor’ such that receivables of small businesses can be easily sold and cash realized to enable working capital availability has been introduced in Parliament. Once passed, its impact over time will be as significant as, if not greater, than bilateral netting.

This column has written quite frequently on the threshold effect that has held back Indian enterprises from expanding. These have focused too much on staying below thresholds to avail of finance concessions and tax rebates. The reclassification of micro, small and medium enterprises (MSMEs) with enhanced limits for investment and new criteria on sales turnover partially addresses the tyranny of thresholds. It is still a work-in-progress. However, along with the new definitions, the government has revamped the process of registration for MSMEs at the Udyam portal. Registration there enables automatic MSME enrolment in the Government e-Market place, the Goods and Services Tax Network and also in the Trade Receivables Exchange. The benefits of digitization are just beginning to be felt.

Similarly, excessive fears appear to have been generated on farm sector reforms, which expand the choices available to farmers to market their produce. The system of minimum support prices serves as insurance, and portable ration cards that allow Indians to draw their quota of foodgrains from the public distribution system anywhere in the country necessitates state procurement from farmers. Full empowerment of farmers is still being worked on. Export bans and recourse to imports must be rare exceptions, at most. Nevertheless, what has been done is in response to a long-standing reform demand, and yet in its fulfilment some critics have managed to display parsimony in praise. Professor Ashok Gulati, though, called it India’s 1991 moment for agriculture.

Criticism will acquire legitimacy and be taken seriously when it is offered in conjunction with the acknowledgement and praise of good deeds. If not, the credibility of critics, more than that of the government, will be at stake.

V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister. These are the author’s personal views.