10 Policy Initiatives That Matter
1: Jan Dhan Yojana
One of the most used and abused terms in liberal circles is “inclusive growth”. A corollary to this is the concept of financial inclusion. Gandhi family loyalists in liberal circles still sing praises in the name of Indira Gandhi for her bold 1969 policy move to “nationalise” banks as a master stroke that would help the poor. The same set of liberals prefer to maintain a thundering silence when there is any talk of arguably the most game changing policy initiatives of this regime: the Jan Dhan Yojana, which is basically a scheme to encourage poor Indians to open no-frills savings accounts in banks. For two years and more, after it was launched in 2014, most liberals scoffed at the policy. Newspapers, magazines and TV debates harped on about how the disproportionately high percentage of accounts with zero balances made a mockery of the scheme. Many suggested that the poor illiterate and ignorant Indians were hoodwinked into opening these accounts because they were promised bags of free cash. That is just an odious example of how liberals who claim to think and work for the poor actually look down upon the poor and think they are collectively stupid. Drop the partisan lens and you will see, the Jan Dhan Yojana has been a spectacular success. Close to 30 crore new accounts have been opened. Millions of poor Indians have realised much to their delight that money from social welfare schemes has started flowing directly into their accounts instead of being looted by middlemen. Once the JAM (Jan Dhan-Aadhaar-Mobile) push becomes a reality in due course, this policy will become a milestone in contemporary Indian discourse.
2: Ujjwala
If you have read about Marx or know about the thoughts of Hegel, there is a delicious dialectical irony in what critics of Modi perceive him and how he fashions policies of this regime. To a large extent, the massive electoral victories won by the BJP over the last three years is because of this yawning and seemingly unbridgeable gap between the two! For Modi critics, his government is a “suit boot ki Sarkar” whose policies are designed to enrich “evil” capitalists like Ambani and Adani. But reality has many other shades. One scheme that deserves applause even from critics is Ujjwala, through which the government provides subsidised LPG cylinders and free connections to poor families.
The success of the scheme is three-fold. First, it is completely devoid of any bias towards any region or caste or religious community. It relies purely on the income of a household. The second aspect is that it has directly and decisively transformed the lives of millions of women who were compelled by circumstances to rely on kerosene, firewood or coal for cooking. Many political reporters working on the ground level have suggested that quite a few Muslim women who were beneficiaries of this scheme voted for “Modiji” during the Uttar Pradesh assembly elections. Till April 2017, about 3 crore poor families across India were beneficiaries of this scheme, more than 60 lakh in Uttar Pradesh. The third aspect is most fascinating and it infuriates liberal critics of Modi. Used to all pervasive cynicism, liberal commentators did not even pay attention when Modi issued an appeal to well-off citizens to give up their LPG subsidies. Surprisingly, more than one crore Indians have responded and given up their subsidies. This is in sharp contrast to the UPA era where rampant misuse of LPG subsidies was considered to be a reality that had to be tolerated.
3: GST
Even Modi fans, who are objective, will admit that the imminent launch of the GST reforms is not something that this regime can solely take credit for. The fact is that the idea was first conceived when Atal Bihari Vajpayee was the prime minister. A lot of painstaking work on GST was done when Manmohan Singh was prime minister. In fact, it is possible that if the previous UPA regime had not been shattered by scams and if it had not become a lame duck, the GST reforms could have come into effect before 2014. But credit goes to Modi and team for navigating the choppy rounds of negotiations with a diverse array of state governments and finally bringing them all on board. Credit is also due to many non-NDA state governments for rising above political partisanship and working together to make GST a reality.
There is much debate going on at the moment about the multiplicity of rates and how it might result in confusion as well as corruption. As usual, there is a heavy dose of propaganda from partisans from all sides. Only fools would believe that the transition to a GST regime will be a smooth affair. In fact, there will be a lot of chaos and a large amount of disruption before things settle down. But make no mistake. Despite the many flaws, this is the single most important reform of the tax system in India since independence. For the first time in history, India will actually be a single unified market when it comes to both companies and consumers.
Eventually, when miles and miles of trucks waiting at state borders fade away, Indians will reap the real benefits of GST. And who knows. After some years, when governments have experienced GST, a few more steps would be taken to eliminate the flaws that still remain. A truly integrated pan-India market is still far away. But a great first step towards that would have been taken.
4: The Land Bill
This is easily the biggest and most spectacular policy failure of the Modi regime over the last three years. It is also an instructive lesson in politics and the art of perception management. During its twilight years in power, the UPA regime passed a land acquisition law that made it nearly impossible for private investors to acquire land for commercial activities. Of course, the fact remains that land acquisition, despite the sound and fury made by partisans over it, remains a subject under the purview of state governments as per the Indian Constitution. In its desperate efforts to appear pro-poor amidst scams and exploding crony capitalism, the UPA did pass a draconian land bill. It was widely criticised not just by Modi during the Lok Sabha campaign, but also by most independent analysts as suicidally populist.
After winning a historic mandate in 2014, Modi and his team were convinced that the Indian voter had given them an unfettered mandate to implement his vision and policies. High on the list was land acquisition. Without waiting for a political consensus to emerge like in the case of GST, his government passed an ordinance that nullified the UPA era land bill. Predictably there was massive opposition and Modi critics were literally gifted a handy stick to beat him with. In hindsight, Modi would realise now that while the economic logic for a new land bill was sound, the politics around it was disastrous. Sure, he and his ministers tried every trick in the book to convince people that the propaganda around the land bill was false and misleading. But politics is all about perceptions and Modi did lose this battle. The political cost was too steep. After reissuing the ordinance, a chastened Modi finally realised that it is wiser to accept defeat.
Land acquisition continues, of course, but many state governments are coming up with their own innovative policies. The most talked about has been the one launched by Andhra Pradesh Chief Minister N. Chandrababu Naidu, who acquired land without much fuss for the new capital city Amaravati. This failure also reveals the ability of Modi to absorb defeat and change course.
5: Mudra Loans
It is quite mystifying why the Modi regime has not been more aggressive in tom-tomming the seemingly invisible but material difference that Mudra loans seem to be making to the lives and livelihoods of millions of small entrepreneurs. This is all the more mystifying because the Modi government is deeply vulnerable to valid criticism when it comes to its three-year track record of creating new jobs. The fact is: there simply are not enough new jobs being created. If the UPA regime was marked as an era of largely jobless growth, the same holds true of the Modi regime. This can have devastating economic, social and political consequences since more than 10 million Indians are entering the job market every year.
What this obsession with jobs fails to mention is the stark reality that holds true for all countries and economies in the world: there will never be enough “jobs” for all citizens. Any economy in the world runs successfully not just because of high profile tycoons; they depend on small businesses and service providers who could be termed entrepreneurs. A lot of these entrepreneurs become one not because they have been inspired by Steve Jobs but because they have no other choice. Can you imagine an India without the millions of small shopkeepers, street vendors, plumbers, tailors, electricians and others?
The fact is that Mudra loans have empowered millions of such people who are not in the market for jobs. According to available data, close to Rs 1 lakh crore have been disbursed by way of Mudra loans to small entrepreneurs. Effectively implemented, Mudra loans will be the long-term answer to the jobs crisis. But hardly anything is heard about it. Perhaps it is Indian culture where small entrepreneurs are still looked down upon and a “safe” middle class job is considered the ultimate achievement. But are any jobs “safe” anymore anywhere in India and the world?
6: Demonetisation
This has been, by far, the most controversial, the most talked about and the most critically scrutinised policy move of the government. In November 2016, Narendra Modi sent shockwaves all around by abruptly announcing that Rs 500 and Rs 1,000 currency notes in circulation were no longer legal with immediate effect. At one stroke, more than 85 per cent of the currency in circulation was withdrawn. Inevitably, there was chaos and even mayhem as Indians rushed to banks to exchange or deposit their old currency notes. The stated purpose of the shock move was to flush out black money from the system. Serpentine queues in front of banks became the norm and India looked for a while like a land imagined by Kafka. As wily operators thought out smart moves to game the system, new rules kept being announced almost on a daily basis. There were horror stories of hardships as there simply weren't enough new currency notes available. Some media outlets started keeping a count of people who died while waiting outside an ATM or a bank branch. And barring Bihar Chief Minister Nitish Kumar, the entire opposition launched a vicious campaign against Modi and demonetisation. Former prime minister Manmohan Singh went to the extent of calling it “organised loot and legalised plunder” and predicted that there would a disastrous drop in GDP growth rate because of the reckless move.
At the end of the day, neither Modi fans, nor his critics found their predictions coming true. GDP growth rate did fall by almost 1 per cent. But there was no collapse. Life was back to “normal” as it was discovered people resumed taking bribes in the new Rs 500 and Rs 2,000 notes. The real impact of the move was in the political arena. Modi critics predicted that public anger would result in a massive defeat for the BJP in assembly elections. Exactly the opposite happened and the BJP won a near three-fourth majority in Uttar Pradesh. The jury is still out on what exactly have been the real benefits of the move for the economy.
7: UDAY
Like demonetisation, no one can say with any degree of certainty if the Uday scheme is a success or a failure. But it is ambitious, no doubt. If the scheme succeeds, the perennially loss-making state-owned electricity boards might actually become viable. But if the scheme fails, as looks more likely given the past track record and the state of political populism, it will be things as usual for the power sector in India. Shorn of the complicated jargon and complexities, the scheme attempts to make state electricity boards commercially viable in the long run. Almost all of them are saddled with massive debt and are completely bankrupt, depending on state bailouts for continuing survival. Uday, in that sense, is a bailout effort. state governments have been offered incentives to write off up to 50 per cent of the accumulated debt of the state boards through the use of innovative financial instruments. According to some estimates, the total accumulated debt of all the state electricity boards is in excess of Rs 10 lakh crore.
This has led to a piquant situation. Thanks to the energetic efforts of Power Minister Piyush Goyal, India now generates enough power to satisfy demand. But since State boards are bankrupt, they are not in a position to buy power from generating companies. So we have a situation of power surplus combined with crippling shortages. The key lies in State governments doing two things in the long run: reducing transmission losses (power theft is rampant and believed to be politically encouraged) and raising tariffs to at least cover costs. But can State governments gather the political will to end decades of “freebie” culture? Some states like Gujarat have long shown that even farmers are willing to pay market rates for electricity if the supply is reliable. Most other states have failed. In any case, it will be a few more years to assess if this bold policy move has worked.
8: Bankruptcy Code
Amidst the blizzard of policy moves and catchy slogans launched by the Narendra Modi regime over the last few years, the new and far reaching policy to deal with bankruptcies has not been given the attention it perhaps deserves. One of the most pernicious legacies of the old socialist era of the economy was that shutting down a bankrupt business was possibly even more difficult than launching a new business. All sorts of approvals and permissions were required and a company invariably has to go through a tortuous and often meaningless exercise in what was known as the BIFR. The end result was that businesses and companies that should have shut shop lingered on in official existence for years. This only helped unscrupulous businessmen and corrupt officials as complicated rules and laws were misused to siphon off money. One of the key reasons for the massive levels of non-performing assets or bad debts confronting the Indian banking system has been completely outdated bankruptcy laws and rules. Simple logic dictates that an unviable business or company should be shut down as quickly as possible and its assets sold to repay creditors even while offering legal protection to promotors. Sadly, most laws dealing with business in India defy logic or common sense.
The new bankruptcy laws will go a long way in addressing this issue. There are provisions whereby unviable companies that have no future can fold up with legal protection. The key provisions under the new law place the interests of workers and creditors as priority. The provisions also make it easier for the market to value the assets of a bankrupt company and for other entities including asset reconstruction companies to buy them at fair value. It is inevitable for companies to fail whether because of adverse market conditions or incompetent managements. The new law will ensure that failed companies will not go through a prolonged and agonising process of slow death even as workers and creditors suffer.
9: RERA
The real estate sector is the ultimate symbol of millions of middle class dreams of owning a house. Of course, it has also been the ultimate symbol of the depth and resilience of the black economy in India. It is indeed shocking that no serious attempt was made in the last few decades to regulate one of the most important sectors of the Indian economy. Real estate in India was like the Wild West where buyers were always at the mercy of often unscrupulous builders. It was common for builders to indefinitely delay completion of projects, leading to a life of misery for middle class buyers who invested their life savings. The agreements between buyers and builders were so loaded in favour of the latter that they made a mockery of a fair commercial agreement. Buyers were literally at the mercy of builders. Besides, real estate had emerged as the most attractive repository of black and illegal money.
The new law, which sets up a real estate regulatory authority, is an ambitious effort to clean up the sector. If you look at the new law in conjunction with the new Benami Properties law, it would be clear that the Modi regime is keen on moving beyond mere rhetoric to tame the hitherto unchecked black economy in the country. Virtually all the loopholes used by builders to fleece buyers or extort more and more money from them have been plugged. Builders who violate the new transparency norms will now face prison terms. In any case, we have already seen many cases where consumer and other courts have come down heavily on builders. The rot is so deep that the clean up process will take years. But middle class Indians can at least hope now that they will not be ruthlessly cheated without recourse to any legal remedy.
10: Udan
Way back about 12 years ago, Air Deccan marked a milestone in Indian aviation. For the first time, Indian citizens who could never dream beyond train journeys started actually taking flights. The UDAN policy recently launched by the Modi regime will be a logical culmination of that revolution if implemented effectively. Literally hundreds of small cities and towns will have fully functional, if basic airports and regular flights. To encourage “ordinary” Indians to fly, the scheme envisages a fare of Rs 2,500 per passenger for a limited number of seats, the subsidy to be recovered from passengers flying on trunk routes.
For more than a decade, research studies have repeatedly pointed out the real growth in the number of middle class and upper middle class Indians who buy cars, expensive smart phones, fancy double door refrigerators, star-rated air conditioners and LED televisions has been coming from small cities and towns. It was inexplicable why this rapidly burgeoning cohort of Indians could not get access to air travel. The UDAN scheme will record this glaring anomaly. In due course, more than 100 new destinations will be added to the aviation map of the country. Commercial operations have already been launched and full fledged operations are expected to start by early next year. Aviation industry analysts have no doubt whatsoever that there is huge untapped demand for flights lying untapped in small town India.
This year, India will become the third largest aviation market in the world with more than 110 million passengers. But that pales in comparison with about 700 million passengers in the United States and about 450 million in China. A few years down the road, small town India could add 100 million more air passengers. The impact on tourism and local businesses can be tremendous.
