CANBERRA – Reprising his campaign theme from the 2014 general election in a pitch to business executives during his recent U.S. visit, Indian Prime Minister Narendra Modi boasted that 7,000 reforms had made India a place of “minimum government and maximum governance.” Yet in the World Bank’s 2017 report on the ease of doing business, India ranked a dismal 130 out of 190 countries in the world. Three years into his five-year term, it is more accurate to describe Modi’s record as “maximum talk and boast, minimum action and results.”
Last Sept. 29, Modi ordered “surgical strikes” across the line of control into Pakistan-controlled Kashmir by the Indian Army and boasted that several infiltration launch pads had been destroyed. Similar raids had been conducted by previous governments without the fanfare of publicity. Any criticism of the publicity, which elevated the escalation risk, was held to be an anti-national attack on the army. Modi and other ministers have continued to strut their “cojones” in ordering the strikes.
Modi borrowed the language on Nov. 8 to order a “surgical strike” on black money, removing from legal tender the two highest denomination 500- and 1,000-rupee notes that accounted for 86 percent of India’s currency stock. Demonetization showed Modi confuses impetuous and headstrong for bold and decisive leadership.
In summary, it caused considerable damage and disruption to the economy and adversely impacted the material conditions and rights of the people, without discernible success in meeting the declared goals. However, although dubious as an economic decision, it paid off as a political gamble, proving Modi is a party politician, not a national leader. Modi has been determined to consolidate, expand and centralize state power more than unleash the creative business potential of the Indian innovator, entrepreneur and trader.
With 94 percent of illicit wealth held in noncash real estate, shares, jewelry and offshore accounts, black money was not recovered. Corruption continues unabated, with not one transaction where bribes and extortion are commonplace having changed habits. Instead, authorities have conducted numerous seizures of hoardings of the new higher-denomination currency. Fresh counterfeit currency has also entered into circulation. Militancy, if anything, has spiked, debunking claims that demonetization would curb terror financing. And the economy remain as cash-dominant as ever.
Kaushik Basu concluded: “The benefits of demonetization have been close to zero and the brunt of its pain has been shouldered by the poor and the lower-middle class.” In the book “Demonetization and Black Money,” C. Rammanohar Reddy concurs that the criminal and wealthy escaped the pain of demonetization. Meanwhile an unforeseen perverse consequence was that when women dipped into their secret savings to deposit cash in banks, their menfolk became angry at the “deceit” and there was an upsurge in domestic violence.
Market disruptions and economic shocks have cut overall growth by 1.3 percent (and by over 3 percent in the final quarter of 2016-2017 compared with a year earlier). Construction, India’s second-largest job-creating sector, declined by 3.7 percent. Even worse, the decision proved that private property rights are nonexistent. The government can appropriate, and grant or restrict access to, people’s own money as and when it pleases.
On July 1, India introduced a Goods and Services Tax. Unlike demonetization, announced overnight with no advance consultation, the GST was introduced after extensive consultations. But the resulting tangle of compromises and contradictions have led some analysts to reduce the projected growth stimulus to just 0.4 percent a year.
In principle, the GST is an excellent idea. The plethora of state-level taxes have erected barriers to the free movement of goods and services, divided and fragmented the market with variable sales taxes and entry and exit levies at state borders, raised the cost of doing business, and greatly increased the price to the consumer. Finance Minister P. Chidambaram of the previous government wanted to introduce GST in 2006, but the BJP strenuously resisted, putting petty party politics ahead of the national interest.
If designed right and implemented properly, GST has the potential to create a single continent-sized national market of 1.3 billion people, slash red tape, lower compliance and transaction costs to ease the cost of doing business, widen the tax base (at just over 11 percent, India’s tax-to-GDP ration is less than half the world and only one-quarter the EU average), reduce the scope for tax terrorism, and lift growth. Instead, Chidambaram noted, the GST rollout exhibited the worst pathologies of India’s state-business nexus. There are six rates of zero percent, 3 percent, 5 percent, 12 percent, 18 percent and 28 percent, while tobacco, luxury cars and fizzy drinks will incur still higher “sin” taxes. The GST on KitKat will depend on whether it is classified as biscuit or chocolate. Businesses must file returns every three months in each state in which they operate, plus annually, instead of just once each year.
For a country of India’s size and complexity, it is sheer madness to have one minister in charge of the two demanding portfolios of finance and defense. By carrying both, Arun Jaitley cannot do justice to either.
In an article in The Wall Street Journal ahead of his U.S. visit, Modi highlighted shared political values that bind the two countries. This is a bit rich after the spate of violent attacks that have left India’s religious minorities more fearful than in decades. In a pattern distressingly familiar, vigilante violence by Hindu fundamentalists is denounced by Modi weeks or months after it first manifests itself, but still without robust enforcement action against the perpetrators.
Further darkening India’s future prospects, there is no realistic alternative to Modi’s BJP. As the only other national party, Congress should have used the scale of the 2014 defeat and subsequent drubbings in state elections to introspect, defenestrate deadwood and rejuvenate as a credible alternative government. Instead, fawning sycophants circled the wagons around the Gandhi family — whose stranglehold on Congress is the disease, not a cure — to confirm that the party has no vision, program, energy or future.
Six decades of misrule, incompetence and corruption under successive Congress-led governments have sapped India of entrepreneurial talent and political leadership. In India, most parliamentary vacancies are filled by family. It is easier for a person of Indian origin to reach high public office in Canada, Ireland, the United Kingdom and the U.S.
It’s hard for the most ardent Indophiles to remain optimistic about India’s future. In 2019, Indians will choose between the Congress record of fleecing the public and Modi’s egotistical braggadocio. Between inexperienced captains, unskilled crews and unreliable charts, safe steerage of India’s ship of state to the desired destination requires a miracle.
Ramesh Thakur is a professor in the Crawford School of Public Policy, Australian National University.
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