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Modi@1: BJP's 7 popular defensive tactics

By Mihir S Sharma
May 25, 2015 11:55 IST
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A simple guide to the strange defensiveness of the government and its supporters, and how and why the arguments they're making are wrong


For a government that is still largely popular, only one year into its term, boasts a pretty supple communication strategy, and which has not made any vast and visible blunders, there is certainly a lot of defensiveness in the air these days. We don't need to speculate too much as to why -- whatever the reason, it presumably has something to do with the expectations raised in 2014.

 Here, however, is a simple guide to the strange defensiveness of the government and its supporters, and how and why the arguments they're making are wrong.

Complete coverage: One year of Modi sarkar

A. "The government has actually done many big things": It has certainly been very energetic. It has, equally certainly, made many promises and laid out a rosy vision or two. But it has done little on the major economic problems facing India: on the questions of stressed bank assets, of frozen private investment, of a structurally high expenditure on fertiliser and farm subsidies, of the absence of factor market flexibilities especially in labour and land. Whatever it has done -- coal auctions, petrol deregulation and the like -- follow a playbook set out by the courts or the previous government. There is minimal new policy being designed, especially to tackle the problems that are currently holding back recovery.

B. "The government is playing for five years/10 years/ decades, not one year": A puzzling claim. If it is indeed playing for the long-term, where is the structural reform? Where and what is the road map for the reduction of subsidies? Where is the administrative reform plan or mechanism? Where is the skills policy that has already started being implemented? You can only credibly pretend to be thinking of the long-term if you can show how your plans concretely affect the long-term future. The government cannot, because it has no such plans on offer.

C. "Lots of little things add up to big things": This is related to the Economic Survey's line on "persistent, encompassing incrementalism adding up to "big-bang reform". In the words of The Economist's leading article this week: "No, it doesn't". It is, in fact, the opposite. For good reason. Incrementalism means some initiatives are put in place before others -- but we are at a point where most new reforms will, in order to work, depend on other reforms. Bankruptcy legislation depends on judicial reform. And much reform is all-or-nothing -- the Goods and Services Tax will not provide a boost to output unless it comes in as a net without holes.

D. "High-level corruption has been stopped". First of all, this is an incredibly low bar for "success". Second, how do we know? The allegations of corruption under United Progressive Alliance I only became common knowledge halfway into UPA II; and the government has left major anti-corruption institutions like the information and vigilance offices headless. Third, corruption is born of political financing problems -- and, at the moment, the Bharatiya Janata Party is flush with money. What happens when it isn't? We don't know. And fourth, it's worth noting that allegations of high-level corruption had completely ceased to be levelled at any actions in the last few years of the previous government, as well. So there is no change there.

E. "The economy was too much of a mess to fix easily": Nobody said it would be easy. But it wasn't in such a mess either. It's worth remembering that, according to the GDP numbers, growth had already started recovering well before the new government came in. Profits had begun recovering -- profit growth in the December quarter of 2013-14 was between 44 and 50 per cent, depending on your sample. Clearances had already started moving. Tax problems had largely been sorted by the UPA -- and as this newspaper has reported, were puzzlingly brought back to plague investors by the National Democratic Alliance. Inflation was moderating, and would further, thanks to global factors. Yes, stressed balance sheets would cause problems -- but then that should have been the government's focus, right? But it wasn't, and the government cannot blame anyone else for its dilatoriness on fixing the debt problem.

F. "Those complaining are crony capitalists": This line of argument has two variants, the weak and the strong. The weak argument is that economic recovery is underway, but because the reform carried out is so deep and structural (false, see A) it will take some time. This means that the crony capitalists accustomed to quick responses from government are those that are complaining. Sadly, there is little or no actual evidence that cronyism has declined. Further, the idea that cronyism can decline in the absence of actual deregulation is theoretically and practically unsound. Second: those complaining about the slowdown and the lack of reform are by no means the same as those who benefit from a lack of reform. If reform consists of deregulation, which hurts cronyism, then why would we expect it is the cronies who are complaining about the absence of reform? This doesn't hold up to dispassionate, logical analysis. And, indeed, many of the complaints come from consumer-facing companies like Marico, or from companies with especial reputations for integrity, like Larsen & Toubro. If they say too little is happening on the ground, it is unwise to blame the messenger.

The stronger variant of this argument was expressed most startlingly by Ambit Capital in a much-discussed report last week, which declared that India's crony capitalists were deliberately sabotaging the recovery in order to weaken the prime minister and cause him to compromise on his fight against cronyism. Typically, this sort of argument shouldn't need a rational response. But here is one anyway: entire sectors will not refuse to undertake capital expenditure if they think it is profitable, just to score a point in a political battle. They may withhold specific things -- such as natural gas from a well, say - but they will not knock a hole in their own profitability. If they are not investing, it is because they are operating below capacity, and see no return. This is borne out by corporate results. The idea that all capitalists are conspiring against the PM and aim to scuttle the economy is, to put it kindly, not borne out by the data. Certainly, if this report is giving voice to the government's own views, then they deserve far, far more criticism for being dangerously anti-corporation than does Rahul Gandhi.

G. "At any rate, Modi's better than Manmohan": As the old gentleman said, let history decide. You certainly can't. Not yet.

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Mihir S Sharma in New Delhi
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