After a year in office, Modi must reset expectations, recalibrate priorities

Image: Getty Images

PM Narendra Modi will have to reach out to opposition party leaders to get key bills passed

At the end of Narendra Modi’s first year in government, a verdict on his performance would read something like this: He has done better than UPA-II, but he has under-delivered on the promise that brought him to power in May 2014 —the promise of bringing a radically refreshing approach to governance and business. To be sure, the economy is reviving, but business confidence, while still positive, is now more muted than it was last year. There is also a sense that luck (especially falling oil prices) helped improve the economy’s performance on growth, inflation, and the twin deficits (fiscal and current account), but the government has not shown enough pluck or the gumption needed to harness favourable winds to put the economy on a much higher trajectory.

Luck without pluck is not a combination that can sustain. And incremental change—a little tweak here and a push in the right direction there—is not going to move the economy to double-digit growth any time soon.

It would be churlish to deny the government some of its obvious successes. The bill to increase foreign direct investment in insurance is law; so are the coal and mining and minerals amendments bills. The spectrum auctions have been a big hit, and the first phase of the coal mine auctions brought in big revenues for states with this mineral in sackfuls. Diesel prices have been decontrolled, and cooking gas subsidies are now paid directly into bank accounts (thanks to the speedy expansion of the Jan-Dhan inclusive banking scheme and the Aadhaar unique ID rollout). Two minor labour reform bills—one to exempt establishments with fewer than 40 employees from furnishing returns and maintaining registers, and the Apprentices Bill, to make it easier for factories to take on trainees—have also passed their respective legislative hurdles.

But the big-ticket reforms—the Goods and Services Tax (GST) and land acquisition bills—are still stuck in the works, victims of the Modi government’s political failures. The opposition is in no mood to play ball on these bills—at least not without making the government beg, plead, compromise and mangle the bills out of shape. Getting things done has just gotten harder.

In short, the crux of the problem faced by Modi at the end of his first year in office is simple: His economic agenda is hostage to politics, and it is his government’s political failures that are slowing down his economic agenda. Modi made the mistake of taking for granted the indulgence normally shown to new governments by not pushing the politically difficult bills through in his first six months in office; now, he will have to pay a high political price for every concession he wins from his opponents for important bills. Modi and his party president, Amit Shah, spent the first six months trying to win state elections, and their political success brought them the undying enmity of ally and enemy.

However, this does not mean the Modi government cannot recover its mojo in the remaining four years. The mistakes made over the last year can be corrected this year, but only if the government learns to talk a different language with its frenemies—allies and opposition. The strategic change in approach must begin from the top, with Modi himself. It cannot be left to assorted lackeys and sidekicks to negotiate with the opposition. Modi has to stoop to conquer.

The government’s success from here on depends on making course corrections—and stronger follow-up action.

First, it has to distance itself from the cacophony of discordant sectarian noises coming from his own party’s right-wing and the larger Sangh Parivar. Shrill (and politically embarrassing) rhetoric from right or left is hardly unique to the BJP. The US Republican party has to put up with loonies from the Christian right and from Tea Party activists who tend to alienate the non-committed voter (the Democrats used to have the same issues with the trade unions). But it still manages to project itself as a serious party in government. Modi has to assert himself with his own loudmouths and take control of the narratives surrounding his party’s programmes.

Second, he has to separate government objectives from party goals. The party’s job may be to grow its roots in places where it is weak, but the government’s job is governing. As long as the government’s agenda is seen as growing the party at the cost of allies and rivals, Modi will get no cooperation from the opposition and even allies (the Shiv Sena and the Akalis are chary of being seen as supportive of the government). To get key bills passed, Modi will have to personally reach out to many opposition party leaders, and especially the Congress and big regional players, to contain the damage done by past arrogance and triumphalism after May 16, 2014.

Third, the government now has to accept the reality of compromises in law-making. Given the fact that the NDA is hopelessly outnumbered in the Upper House, the BJP should automatically expect most bills to go to a select committee and face delays. But delay is better than defeat. It needs to use its covert powers —promises of political favours and penalties—to ensure that even though bills are delayed, they are not rendered impotent. It also means that the BJP has to be especially nice to its allies. Getting them on board is the key to breaking any logjam created in the Rajya Sabha by a united opposition, though the primary strategy should be to diffuse the opposition.

Fourth, the government needs to be proactive in tweaking the rules pertaining to existing laws and make ease of doing business its calling card. Corruption and inspector raj are not going to go away by bringing in more laws; they need to be eliminated by making government decisions transparent, keeping interactions between citizen, business and bureaucracy minimal through the adoption of IT in all fields, and simplifying rules and regulations so that compliance is easier. The case of the recent income tax return form is instructive. In the name of trying to detect black money, the taxman went overboard and made tax filing painful for even salary-earners. Excessive law-making and increasing regulation is not reform. It is the exact opposite. Setting up a permanent committee to simplify compliance with all existing laws—and encouraging states to do the same—will do more to improve the business climate over the next two years than trying to legislate more and more reforms, though some are sorely needed.

Fifth, Modi has to re-examine his own predilections on the public sector. Even though he has said that the business of government is not business, he has been reluctant to get the government out of the businesses it is already in. He has been unenthusiastic about privatisation, especially of capital-hungry banks. Both Air India and BSNL are bleeding ulcers that the taxpayer could do without. As for public sector banks, they are the most inefficient users of capital, thanks to overstaffing and excessive interference in day-to-day management by ministers and politicians. These banks are currently reeling under a huge burden of bad loans and need to raise capital immediately to start lending and revive the investment cycle. This means privatisation has to be brought back on the agenda—and quickly. This will need legislation, but a herculean prime ministerial political effort would be well worth it.

Sixth, Modi has to break up his to-do list for the next four years in two segments: One list must contain the things he just must get done, whatever the cost; the second list should comprise programmes for which he can provide the leadership, but which he need not stake his reputation on. The things he must do are the following: Liberate the factor markets through reforms (labour, land, and scarce resources like energy); generate resources for the Centre by a massive dose of privatisation; deregulate all key prices; put a lid on subsidies; and ease rules for business (and the average citizen) consistently and continuously. Some of these need legislation, others don’t. His focus must be on building a high-trust society, where the government is not suspicious of everything a citizen or a businessman does. If this means acquiring the tag of being pro-business, so be it. Modi should not shy away from being called pro-business. That was partly why he was elected in the first place.

On the other list, he should not invest too much personal capital in schemes like Swachh Bharat, bullet trains, smart cities, and such nice-to-have ideas that can work only if states and local bodies sign up to his dreams. Modi should be clear that what he cannot control, he can only incentivise and exhort. He should lead by encouraging states and municipal bodies to reform, and provide some incentives for the same. He can’t make a difference directly. Seven months after Swachh Bharat was announced, no city looks any cleaner. Modi should focus on policies that will make our cities cleaner, but trying to remove the garbage is a local responsibility. Delhi can’t do it by itself.

Modi has been a committed federalist— as the huge transfers to states through the 14th Finance Commission attest. Some 62 percent of the country’s tax resources go to states. Modi can only control the remaining 38 percent. He needs to run a lean, mean, focussed and execution-oriented central government. He was elected to do this job—not anything else. His next four years must focus on what the Centre can realistically hope to achieve. Nothing more, nothing less. And for that, he has to reset the public’s expectations from his administration. The time for that is now.