Narendra Modi’s fans expect him to extend his Gujarat model of development to all India. They think Modi’s “tough love” will lead to hard decisions that hurt immediately, but later yield handsome dividends. They believe Modi will, as promised in his campaign pledges, treat Indians not as recipients of doles and subsidies but as aspirants seeking the jobs and opportunities created by rapid economic growth.
Alas, a series of Modi’s decisions last week were so populist, dithering and spineless as to make Manmohan Singh look a lion by comparison. In February, Singh proposed an increase of 14.2 % in rail fares and 6.5% in freight rates, and set the cost of a monthly suburban pass at the equivalent of 30 journeys a month, up from the earlier 15.
The Election Commission postponed implementation till after the general election. Last week, the government said the Congress-proposed rates would be implemented from June 25, but backtracked after protests.
Experts say passenger fares need to rise 50% to break even. Suburban passengers working a six-day week typically make 56 journeys a month, but pay for only 15 journeys through monthly pass. Relatively well-off urban commuters gain most, above all those of Mumbai, India’s best-paid city.
Populist railway ministers have for decades levied ultra-high freight rates to subsidize passengers. This has artificially inflated industrial costs and eroded export competitiveness.
Now, Modi’s election campaign promised massive rail expansion, including an expensive quadrilateral of bullet trains. India needs to increase rail investment almost tenfold to catch up with China’s $90 b per year. This requires the Railways to be run as a commercial business.
When, as expected, commuters protested against the new fares, Modi should have explained that the increases were not only inevitable but grossly inadequate for creating a world class rail system. Instead, he surrendered without a fight. Second-class fares up to 80 km will be exempted from the fare increase. Monthly pass will remain massively subsidized at the equivalent of 15 journeys, not 30.
Why? Because Modi wants the votes of Mumbai’s railway commuters in the coming Maharashtra state election. This is as cynical and cowardly as anything the Congress can be accused of. Modi is providing greater rail freebies than Singh had proposed. So much for tough love.
India’s sugar industry has long been a mess because high ‘state advised prices” bear no relation to costs or economics.
They aim simply to buy the votes of cane farmers. Sugar mills suffer huge losses, cannot pay farmers, and so farm arrears of tens of thousands of crores pile up periodically.
This insane system needs scrapping.
Instead the Modi government last week increased subsidies for sugar exports, increased import duties on sugar, and increased the amount of sugar-based ethanol that has to be blended with petrol from 5% to 10%. These freebies and distortions are aimed at somehow enabling mills to pay cane dues of farmers. Far from reforming a monumentally stupid system, Modi has kept it alive through additional stupidities. Why? Because Maharashtra is a big sugar producer, and Modi wants to ensure that the state’s farmers will vote for him in the coming state election.
The Congress government had screwed up enough courage to virtually double the price of natural gas from April1, bringing it closer to global rates. This would have made it economic for companies like ONGC to produce gas from high-cost offshore deposits. Implementation here too was postponed by the Election Commission. Modi has now postponed gas price revision till September. Manmohan Singh was willing to bite the bullet, but not Modi.
The government’s exploration contracts offered to global bidders had promised that any gas discovered could be sold at the market price. Now, a market price should be discovered through open auctions. But in India, the “market price” is determined by Rangarajan Committees and Cabinet meetings, not the marketplace at all. The Supreme Court has ruled that natural resources like spectrum and coal must be auctioned. Gas must be treated the same way.
Modi can justify dithering on gas only if he ultimately accepts the global reality of high energy prices, stops trying to subsidize gas by hook or crook, and auctions gas like any other natural resource.
Modi must not be judged solely by spineless decisions in one week. We must give him more time to prove that he can indeed reform India. But that means matching slogans with actions. If instead he only talks tough and then retreats into dithering populism, he will deserve the Hindi epithet, “Sher ki soorat, khargosh ka kaleja” (looks like a lion, but has the liver of a rabbit).