Despite dismal GDP growth, the stock markets are buoyant. Market analysts hope that a BJP-led coalition will be elected in 2014, liberalising policies and boosting economic growth.
These hopes are grossly inflated. FirstPost editor R Jagannathan says, aptly, that Indian political parties have a consensus on bad ideas. A BJP-led coalition will be better than the UPA, but not by nearly enough to remove the deep structural impediments that have slowed India\’s growth. A Third Front government, predicted by many opinion polls, will liberalise very little.
The BJP-led government in 1998-04 under Vajpayee had a good record on economic reform. But Vajpayee has gone. Reforming the new licence-permit raj (relating mainly to the environment, forests, tribals and land) will be tougher than reforming the old barriers.
More Rules, Less Work
Fast growth in 2003-11 was facilitated by bribery. Clearances in the new difficult areas could be bought. But after 2011, an anti-corruption outcry, activism from the courts and CAG, and fear in the bureaucracy meant clearances couldn\’t simply be bought. And bribe-free clearances take forever, thanks to a rising tide of regulation.
The BJP has voted for several Bills criticised as flawed by liberalisers (including NREGA, the Food Security Bill, the Land Acquisition Bill, and others relating to forests, tribals and the environment). Such Bills were needed to rectify historical injustices. But they erred by including flawed clauses causing huge project delays and slumping productivity. Coalmines that were once cleared and completed in three years now take 10-12 years.
The BJP never protested that the well-intentioned new Bills would seriously hit economic growth and jobs. All parties sought more clauses in more bills to satisfy more lobbies, ignoring productivity (which alone has no lobby). The bureaucracy could not cope even with old laws, let alone the avalanche of new regulations, and was also terrified of being accused of cronyism.
Bottom of The Table
This has caused a deep structural problem. In many areas, business cannot be done honestly because of a thicket of rules. And, given the current anti-crony mood, business cannot be done dishonestly either. Hence many businessmen invest abroad. The BJP will not find it easy to tackle this structural problem.
There is a political consensus on keeping labour laws inflexible, preventing India from gaining millions of jobs from China. There is also a consensus on ignoring the flaws that lead India to be ranked just 134th of 189 countries by the Doing Business 2014 report of the World Bank. India ranks 179th in the ease of starting a new business, 182nd in getting a construction permit, 158th in paying taxes, and 186th in enforcing contracts. No BJP campaign at the central or state level focuses on these matters.
BJP\’s Own Populists
Indeed, BJP chief ministers have followed the populist path of giveaways and subsidies on a scale that leaves the Congress far behind. Liberalisers complain of constant rises in central minimum support prices for crops. But in Chhattisgarh, BJP chief minister Raman Singh announced a bonus of Rs 270/quintal of paddy over and above the central rate of Rs 1310/quintal. After Cyclone Phailon, the Congress claimed it would give farmers Rs 2,000/quintal if elected. Raman Singh countered with Rs 2,400!
He boasts of a health card scheme, tendu leaf collection scheme, and subsidised rice at Rs 1 to 2/kg, lower than the Rs 3/kg in the Food Security Act. He has included salt and gram in his public distribution system, which he runs efficiently. This is more efficient socialism, but not liberalism.
Shivraj Chouan, chief minister of Madhya Pradesh, has offered a wheat procurement bonus of Rs 150/quintal above the central rate. Chouhan also has a raft of welfare measures including rice at Rs 2/kg and subsidised salt.
Narendra Modi has better credentials as a liberaliser. He has the guts to charges farmers for electricity. Yet, Modi\’s campaign speeches are far from classical liberalism. He has criticised foreign investment as benefiting Italian businessmen (meaning Sonia\’s cronies), and claimed that reductions of LPG and diesel subsidies are \”cheating the people\”. He has opposed the Goods and Services Tax, badly needed to improve tax collection, reduce tax evasion, and prevent tax cascading. Modi has reform ideas, but does plunges into populism as needed. Besides, if he comes to power, it will be at the head of a ramshackle coalition where allies cannot be disciplined or ordered to toe his line.
Hence do not expect the new structural barriers to growth to disappear if the BJP comes to power. A global cyclical revival could help improve growth next year. But structural barriers to growth will be reduced only slowly and partially. Do not expect radical change.
1 thought on “BJP’s rhetoric and the behaviour of its CMs show no appetite for radical reforms”
I found the article very informative. This is the prelude to the general election of 2014. All the parties whether regional or national, are trying to woo the voters. There are many colorful promises and at the same time majority of the Indians are also fools. Why I call them fools, because they don’t have far sight. They are bewitched by the immediate petty gains and make wrong decisions thereby they elect wrong leaders and in turn these leaders exploit the same voters who elected them. And these foolish voters don’t learn from the earlier mistakes. Indian voters should understand one thing that anything subsidised or free from the government is harmful for the nation as a whole. Governments: Central or State should also understand the same and in same sense. These days the subsidized rice by Central or State governments for 1 or 2 Rupees a kilo is such a decision. To get 25 kgs of rice they pay only 25 Rupees. The dark side is that the subsidized rice made the people idle. The people do not go to the place of work. How can we thing of higher GDP of a nation where people are (made) idle. In my opinion, for the growth of GDP governments should initiate the activity based works for earning and every citizen of India should be made self-reliant, so that a citizen can be able to buy one kg of rice even if the price of rice is 50 or 100 Rupees in the market. More economic activities would gather momentum for more production and higher GDP in turn.