In the end, politics is all about exercising choices. In recent weeks, a furious debate has erupted on a simple issue: Whether short-term pain is a necessary precondition of long-term gain. This is the central issue confronting the Narendra Modi Government as it finds itself confronted by the tremors caused by his strategy of disruption. Whether it is former Finance Minister Yashwant Sinha’s habitual expression of dissent-this time directed at Finance Minister Arun Jaitley’s alleged mismanagement of the economy-or the belief that fixing the existing rail facilities is preferable to embarking on an ambitious Bullet Train project, it all boils down to the Prime Minister being pressured to manage rather than transform the Indian economy.
The debate is interesting in many ways. In the first year or so of the Government, when the Government was still finding its feet, critics charged Modi with having abandoned his reformist zeal and pressing with incremental changes. At that time, the pundits were unanimous that India’s take-off necessitated a tough battle against corruption, improving the ease of doing business, standing firm on the need to reduce the fiscal deficit and, above all, moving fast to secure the implementation of the Goods and Services Tax that had been pending for over a decade.
Today, with GST in play, demonetisation having enlarged the direct tax base exponentially and established an ownership trail of cash, the charge is that the Government has moved a bit too fast and caused distress. If only, it is being said, Modi and Jaitley had moved in a more sedate way, India’s GDP growth rate would not have suffered a dip in the previous few quarters.
The critics of the Modi Government can be divided into three broad groups.
First, there are those who remain unreconciled to the outcome of the 2014 General Election and have missed no opportunity to snipe at the Government. In the main-or at least until demonetisation and the GST rollout-their criticism has been on issues unrelated to the economy. They have charged the Modi Government of subverting the ‘Idea of India’, truncating the bounds of tolerance and facilitating the creation of a Hinduised polity that leaves minorities nervous. Modi has particularly been charged with promoting authoritarianism.
Second, there is the group that was most affected by the Government’s war on corruption and the cash economy. There was a large group of people, by no means exclusively in the trading sector, that had created a zero-tax business model. Given the series of steps, beginning with Aadhaar and extending to demonetisation and GST, they now find that tax evasion has become extremely difficult, if not impossible. The linkage of technology with compliance has forced many of those who avoided the tax net to either come clean-thereby adversely affecting their margins-or shut shop.
Since competitiveness in the zero-tax sector depended on not paying Government dues or bribing their way out, their business model has collapsed. This section had initially felt that the Uttar Pradesh election would give the thumbs down to the anti-black money drive. This didn’t happen. They have now focussed their energies on GST and the larger issue of slowdown.
Finally, there are those who feel that Modi’s focus on the economy and development is misplaced and that the Government should concentrate on changing the terms of political discourse and highlighting identity issues. This group includes a section of the BJP that has never taken kindly to the focus on modernisation, GDP growth and fiscal deficit. They would prefer to use the economy debate to steer the BJP back to identity politics.
On its part, the Government is not as beleaguered as it often seems in the mainstream or social media. For a start, the Prime Minister’s personal image has not been dented even remotely by these controversies. Second, despite the slowdown, India is not confronted by distress. While sections are dissatisfied over rapid modernisation, there is no mass grumbling over the one issue that could have been truly damaging-price rise. To its credit, the Government has kept inflation firmly under check. Third, out of the media gaze, the Government has succeeded in extending the scope of State-sponsored welfare schemes to large sections of the underprivileged. Women in particular have benefited hugely from the subsidised cooking gas supplies and the toilet-building schemes of Swachch Bharat. The enlargement of the scheme to bring electricity into every home is also likely to be a game changer.
However, this is not to suggest that everything is hunky-dory. There are some practical steps the Government can and must take to ease the birth pangs of GST. Anecdotal evidence, for example, suggests that the refunds due to traders and manufacturers are not being processed fast enough. This has affected liquidity. Second, the recapitalisation of public sector banks is overdue and the delay has seriously affected credit disbursement which is too low for a growing economy. There is also a mismatch between the priorities of the Reserve Bank and the Government that needs to be bridged.
Finally, unlike the highways programme that is proceeding at a very rapid pace, the upgradation of Railways has been erratic. Each railway accident and incidents such as Friday’s stampede in Mumbai create resentment and invite charges of Governmental negligence. More important, they undermine popular support for the Government’s long-term objectives and encourage the belief that modest change is the only viable path for India.
The important thing is not to be in denial over the problems of governance but to attend to them as soon as they surface. However, under no circumstances can the Modi Government take its eye off its long-term New India project. Modi was elected to transform India, not merely manage the status quo.