The Narendra Modi government is finding it near impossible to deliver on the lofty promises made to the electorate when the Bharatiya Janata Party stormed to power in May 2014. This has become more apparent in the last few months.
For close to three years, writes political analyst Swapan Dasgupta, “Modi has been able to head off criticism with some audacious policy moves and a steady stream of jibes against the previous United Progressive Alliance regime that a fawning audience gleefully lapped up…..”
The most disruptive policy move was demonetization, an exercise that failed to achieve its original objective of unearthing black money. In spite of the overwhelming evidence that this ill-conceived plan destroyed the cash-dependent informal sector and knocked 2 percentage points off the country’s growth rate, the Modi government continues to shrug off the effects as transitory and a disagreeable necessity. “Modi has a way of coating every capricious and draconian policy measure with a patina of morality, which means criticism of any kind invites the counter-charge that it must emanate from people who stand with the corrupt.…
“The strategy seemed to work: people were tolerant and lulled into the belief that they were allied with the government in support of a noble cause. Industry leaders…. were too frightened to speak out against a government that had no qualms about amending a law with retrospective effect that removed the only vestige of protection against indiscriminate tax raids…….After the failure of two black money schemes, the government cracked down on so-called shell companies and deregistered two lakh firms and blacklisted their directors. No company that has any of these tainted directors can now file financial statements with the registrar of companies. The purge has begun in the boardrooms with the attendant problem of finding “good and fit” directors to replace them in a country notoriously short of qualified talent. A sullen Opposition, thrown into disarray by a string of electoral reverses, made just half-hearted protests.
“But after three years in office, the Modi government has a very patchy record of performance that mocks the rhetoric about creating a New India. Growth in the first quarter (April-June) has slowed to 5.7 per cent, which is the lowest level in 13 quarters. Private investment has crumbled in the face of low demand for goods and services; government spending… has failed to pump prime the faltering economy. A fiscal slippage looms…the government is at grave risk of breaching the fiscal deficit cap of 3.2 per cent – and breaking its promise to set its finances in order.”
Dasgupta continues to list the failures of the government. “Manufacturing sector growth has sputtered with the resultant loss of jobs. The services sector is struggling to match the dizzying growth levels of earlier years – and is no longer the guarantor of job growth. Growth in bank credit has tumbled to 6.8 per cent, the lowest level in more than a decade. And retail inflation…….is projected to rise to a level anywhere between 4.2 and 4.6 per cent in the second half of the year.…….The overall situation has been worsened by the so-called twin balance sheet problem. Banks are saddled with huge bad loans on their books and companies are at risk of defaulting on their loans because the business environment has turned sticky, crimping their free cash flows.”
And finally, criticism has started within the BJP. After Yashwant Sinha accused the Modi government of ruining the economy, the former disinvestment minister, Arun Shourie, called the current administration a cabal “of two and a half men”. The Larsen and Toubro chieftain, A.M. Naik has already said he sees no sign of recovery in the next two years and has blamed the slowdown on demonetization. Rajiv Bajaj of Bajaj Auto went further, terming the whole idea of demonetization plain wrong. “If the idea is wrong… don’t blame the execution. I think your idea itself is wrong,” Bajaj said bluntly at the Nasscom Leadership Forum.
Taking inspiration from a nobel prize winner, Prof Thaler
Clearly, the Modi government has much to do before 2019. His supporters will do anything that raises Modi’s stock with the voter. In this they are looking at Professor Richard Thaler who has been awarded the Nobel Prize in Economics for his contribution to behavioural economics. However, he is best known for his theory of “nudge”, which he describes as a tool that changes the behaviour of humans. The behavioural economist says that nudges is ethical and enables people to make economic decisions. Government as well private agencies can design nudges to help people in taking “right” decisions. For example, while booking a railway ticket online, one gets an option to buy travel insurance for a paltry sum. Thaler calls it a nudge.
The Tribune argues that that “nudges can be misused by both the government and private entities. In India, the government is using good nudges such as Swachh Bharat Abhiyan (clean India programme) and voluntary opting out of subsidy schemes. Then there are evil nudges that are used tacitly to alter food habits of the people. Thaler, who supports the market economy, is against any kind of coercion. Nudging should be devoid of any deception. People must have a choice to opt out of it at any moment and nudges must be aimed at general welfare.
“As we live in a global village, it is only natural that pro-Modi voices have sought to appropriate Prof Thaler by regurgitating his old social media post as the ultimate endorsement of the demonetisation drive. They conveniently missed the economist’s second post where he corrected himself hours after the demonetisation bombshell. Prof Thaler had initially said: “This is a policy I have long supported. First step toward cashless and [a] good start on reducing corruption.” But, his optimism was short-lived. After learning of the introduction of Rs 2,000 notes, a bewildered Prof Thaler course corrected within minutes; “really? Damn”. Prof Thaler’s two tweets prove that good economic policies are often not successful because of improper implementation. It is the same story with GST. Despite a national consensus on shifting to the new tax regime, it has been severely criticised because of implementation issues. Rather than trying to score debating points, the Centre ought to heed the Nobel Laureate’s homily about the evil nudges.”