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Business News/ Opinion / Columns/  Opinion | Only Modi can end the climate of mistrust that prevails today
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Opinion | Only Modi can end the climate of mistrust that prevails today

To fix the economy, we must first fix our politics and restore trust among states and businesses

Prime Minister Narendra Modi (Photo: Reuters)Premium
Prime Minister Narendra Modi (Photo: Reuters)

Good politics may not always make for good economics and vice versa, for political and economic timetables may not coincide. However, there has never been a better time than now to align the two. The disruption of global supply chains because of the spread of Covid-19, the crises in several key sectors such as telecom, power, realty, and non-bank finance, and the fiscal constraints under which these problems have to be tackled clearly indicate that the Narendra Modi government has to focus 100% on getting the economy out of its ditch.

However, you can’t lift the economy without lifting your politics. The economy will take longer to revive if the political climate worsens, as seems likely after the Delhi riots. The over-played protests against the Citizenship (Amendment) Act, or CAA, have fuelled a sharp breakdown of community trust, and political temperatures are rising.

One man can single-handedly change this scenario if he commits himself to it: Prime Minister Narendra Modi.

Post-May 2019, Modi has let home minister Amit Shah take centre stage to steer politically sensitive legislative changes involving Article 370, triple talaq, and CAA, even as he himself has focused on the economy along with the finance minister. Given the mistrust generated in the business community in his first term, Modi has recently begun emphasizing his support for wealth creators and entrepreneurship, which is a good course correction.

However, there is one missing element. There is a gap between political messaging and action. One example: As part of the trust-building exercise with businesses, the 2020-21 budget launched a Vivad se Vishwas scheme to let direct tax cases pending in various appellate forums be settled by waiving penalties and interest on the original tax demand. However, the message given to tax officials is that they must get all parties on board for a settlement, which means the former will not merely nudge people to settle, but coerce them. News reports suggest that even some public sector companies such as Life Insurance Corp. of India are not amused that they are being asked to meet demands that they never saw as fair in the first place. The scheme may need further tweaks, where even the original demand can be adjusted through a compromise figure, or withdrawn after quick arbitration. Without this leeway, the scheme will generate more mistrust among businesses than trust.

So, whether it is politics or economics or ties with India Inc., the primary task facing Modi is the removal of mistrust.

It would help if the Prime Minister along with the finance minister were to meet various groups of businessmen, representatives of sectors in distress, small and medium enterprises, and big businesses, once a month so that he directly gets to hear of the problems they face and provide the necessary political direction for resolution.

The bigger challenges are political. Factor market and agricultural reforms are impossible without getting states on board, but this is not happening as the Opposition is not on talking terms with the Bharatiya Janata Party (BJP). The Prime Minister can break this vicious cycle of mistrust by making such adroit political moves that states would have to sign up. For example, he could offer a deal so that they stop opposing the humanitarian CAA law in return for accepting their proposals on the National Population Register and the National Register of Citizens.

A more important deal to offer would involve the devolution of power and resources to states and local bodies. The Prime Minister should call a meeting of chief ministers and offer to set up a constitutional committee to re-examine the concurrent list so that more subjects are shifted to states and cities, and more fiscal resources devolved to them. No state can oppose this, especially if the panel to recommend changes has strong voices from non-BJP states.

Two other incentives that the Centre could offer states to align with it on growth goals are a transfer of most food and fertilizer subsidies to states, provided they promise not to mindlessly offer farm loan waivers. Also, the fiscal cap for states can be raised from 3% of gross domestic product to 3.25% or 3.5%, again provided this is used only for investment in infrastructure.

Eliminating Centre-state mistrust is vital even for reforms already legislated, such as changes in the Apprentices Act and fixed-term labour contracts. States have not moved forward on these reforms and most micro, small and medium enterprises do not even know that they can hire apprentices at low cost or give fixed-term contracts to workers.

The Indian reality is this: 58-60% of government expenditure is incurred at the state level, so states need to be the driving force of the economy. However, this cannot happen unless Centre-state relations are on an even keel and Modi’s outreach has to focus on mending the equations.

If mistrust between the Centre and states, between government and business, and between tax assessee and assessor has to end, the directive for it must come from the top. Modi’s own hold on power depends on what he does politically, for the economy could partly fix itself if politics runs smoothly.

R. Jagannathan is editorial director, ‘Swarajya’ magazine

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Published: 03 Mar 2020, 10:04 PM IST
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