Jokes sometimes have a way of capturing truth more effectively than analysis. The measure of the present government is captured by this one going around: What is the difference between the UPA and the NDA? In the UPA we had a government and no prime minister; in the NDA we have a prime minister and no government. This has an element of cruel exaggeration. But it highlights the central tension of one year of Narendra Modi’s government.
The PM is still riding relatively high in public popularity.
But the government is looking very ordinary. Areas where he devotes inordinate attention like foreign policy have some sense of purpose. Occasional schemes done in mission mode like Jan Dhan Yojana achieve their targets. There is a sense that overall transactional corruption at high levels is, at the moment, down. There is still an air of expectancy around big legislation like the goods and services tax. But government as a whole is floundering, getting tripped on execution and detail.
Admittedly, the expectations of the Modi government were unrealistically high. The inherited regulatory and administrative mess that the UPA had left were never going to be easy to clean up quickly. But Modi was also very lucky. He got the single biggest windfall any leader can want in terms of lower global energy prices, which automatically tempered his challenges on inflation and subsidies.
The government’s economic performance has been disappointing. Contrary to the prime minister’s own rhetoric, there is almost no decision that this government has taken that one could call bold. Some of the new welfare measures, like old age pensions and insurance, are necessary. But they are, in comparison to UPA’s welfare schemes, hardly trail blazing. The rationalisation of subsidies (other than petrol, started under UPA) has barely begun. With the continuation of Aadhaar a potential platform for a more rationalised welfare state is in place; but the future shape of welfare is still uncertain. Rather than being fixated on poverty lines the governments framework is rightly focused on access to key elements of inclusion, including power and infrastructure.
But the government is sending mixed administrative and financial signals on social sector spending. This will cost it political capital: In a time of stagnant rural wages, which are dampening demand, MGNERGA was the only instrument the government had for alleviating short-term agrarian distress. Demand is stagnating, and will not revive without an increase in rural incomes.
Second, the UPA brought the economy to a grinding halt by a combination of legislative hubris and lawyerly casualness. This government risks falling into the same trap. The finance ministry’s credibility to tax issues is, rightly, sinking to a new low and it will take time to recover. This session it did pass some significant legislation on insurance, mining, coal. But its strategy on two major pieces of legislation, land acquisition and GST, is perplexing.
The Land Acquisition Act of 2013 needed some amendment; but the government’s approach has been ill advised.
Instead of a sensible, workable middle ground, it is trying to move the clock back to 1894. It has also needlessly lost political capital in the process. The GST, when passed, will be a game changer. But it is inexplicable how the government has not done enough to ensure that the full efficiency gains from GST are realised. Not doing away with interstate levies risks, as one commentator described it, producing a moth-eaten legislation. Third, on almost every regulatory issue, from taxation to the environment, the Centre has steadily produced more uncertainty rather than less. It does not seem to have the support structures that can create modern 21st century regulation.
Third, this government’s speciality was supposed to be execution. In some ministries like the railways, there is a promising new energy; the ministry of power at least got Coal India to shape up on the production front. But the ability of this government to get public investment out of the door, a crucial element in getting growth up, has yet to be demonstrated. As FE reported earlier this week, there has been a decline even in public tenders for big infrastructure projects. The government does not yet have a credible plan for reviving stalled projects, most of which are not stalled because of land acquisition problems.
Fourth, the government’s biggest and unconscionable failures are on health and education. Admittedly, the mess in these sectors was also inherited. But these are two sectors where there is not yet even an indication of a framework to solve deep problems in this sector. The financial commitment to both these sectors is tepid in relation to the need; the regulatory frameworks are a complete mess; and the air of ad hocism and uncertainty makes for a dismal future for these sectors.
There is a sense that the prime minister wants to fly high. But whether the government has the engine power to support him is an open question. Since the economy is chugging along, helped by favourable external conditions, the weaknesses of this government will remain disguised for a while. But it needs to get its act together, before the winds blow a sputtering engine off course.
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