Big-bang reforms and their arch-enemies

The Modi government has been criticised for keeping the purse strings tight despite the demands for higher expenditure — for which it should have been lauded.

The grammar of public discourse has completely gone haywire. Nothing else explains the flak that the Narendra Modi government has been receiving for the fiscally prudent package that it has announced. It is being hauled over the coals for the move — of keeping the purse strings tight despite the demands for higher expenditure — for which it should have been lauded.

In the process, the real import, unprecedented reforms, has been downplayed. Opposition parties are angry that in the Rs 20-lakh crore economic package, government expenditure is not much. As if spending were a virtue. Senior Congress leader Anand Sharma said that the package just “adds up to Rs 3.22 lakh crore… It is 1.6 per cent of the GDP. It is much less than the 2 per cent of the GDP and not 10 per cent as the Prime Minister had very forcefully committed and announced.” But can a government spend its way out of an economic crisis?

More expenditure means more strain on an already depleting exchequer, a higher fiscal deficit, a greater burden on the taxpayer, and higher government borrowings. As it is, the fiscal deficit has been projected above 5.5 per cent of the gross domestic product of GDP. Finance Minister Nirmal Sitharaman had made a provision of 3.5 per cent deficit during 2020-21. Further, the borrowings have already increased from the budgeted Rs 7.8 lakh crore to Rs 12 lakh crore for the current fiscal. Typically, higher borrowings crowd out private borrowers.

This adversely affects business, which also results in lower tax collection and thus higher fiscal deficit. The best way to break this vicious cycle is to restrain rather than augment the spending, which the government has done. The government has talked about an economic, not a fiscal, package. The most important parts of the package pertain to the bold reforms that have been enunciated in several tranches by the Finance Minister.

It is a well-known fact that little has been done in the farm sector since the opening up of the economy in 1991. Even at that time, agriculture was not touched. Consequently, it continued to be governed by the laws enacted during the dark ages of socialism. The Essential Commodities Act, for instance, came into being in 1955, when food shortages were rampant and the fears of famines were real. But since the remedies socialists offer are invariably worse than the maladies, the legislation made things worse.

By the 1960s, the menace of mass starvation became imminent. India suffered the humiliation of being a ‘ship-to-mouth’ nation, the American food-grains keeping it away from famines. In fact, our socialists left no stone unturned to starve India. Even as America was feeding us, our pinkish foreign office kept slamming it for its war in Vietnam. US President Lyndon Johnson was so exasperated that for a while he stopped the food shipments, leading to a huge crisis. He was requested to relent; the Indians were not saying anything different from what the UN Secretary-General and the Pope were saying, he was told.

Johnson retorted: “The Pope and the Secretary-General do not need our wheat.” While Prime Minister Indira Gandhi said nothing in public about the incident, she reportedly told her confidants, “If food imports stop, these ladies and gentlemen won’t suffer. Only the poor would starve.” While India escaped mass starvation, the EC Act and other socialist devices like Agricultural Produce Market Committees (APMCs) strangled the farmer. The government has promised to end the EC Act and enact a Central law to afford “adequate choices to (the) farmer to sell produce at attractive price.”

For decades, champions of economic reforms have been beseeching the powers that be for legislative changes to do away the EC Act and APMCs. The announcements to that effect, if carried out in letter and spirit, will spell a paradigm shift in agriculture. The government has also announced the participation of private enterprise in the coal and strategic sectors. The idea is to attract investment, promote growth, and boost employment generation. The intentions are good, so also are the announcements, but there are also dangers ahead, the biggest being the institutionalised statist mindset. Its recent manifestation is price cap on air travel.

Civil Aviation Minister Hardeep Singh Puri has capped airfares for three months till 24 August. This comes at a time when airlines are bleeding; indeed, the entire tour and travel industry is gasping for breath. Quite apart from the financial losses the government is imposing on the aviation sector, it is also trying to micromanage airlines. “Tickets in this fare band are split into different buckets. We are putting a second rider. Forty per cent of the seats have to be sold at a fare that is lower than the midpoint of the maximum fare.

We are ensuring that the fare does not go out of hand and at the same time, it is viable for airlines also. It is only for the period of scarcity,” Civil Aviation Secretary Pradeep Kharola was quoted by a business daily. Buckets, riders, midpoints, fares not going out of hand — so typical of dirigisme. The deep pink state is striking back, even as the Modi government is planning to weaken its influence. The author is Editor, www.indianarrative.com.