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Capital Grapevine  

Virendra Kapoor

Vital structural reforms missing from the agenda of Modi 2.0

Without pragmatic labour and land law clamps on growth will persist

Economic reforms do not find much mention in President Ram Nath Kovind’s address to a joint sitting of Parliament last Thursday. These are clearly a low priority for Modi 2.0 --- as they were for Modi – 1.0. The address detailed various welfare schemes already in operation, and a few more which are to be launched soon. Outlays are to be increased for cash assistance to hard-pressed sections, investment on the farm sector is to be vastly augmented, provisioning for loans to self-employed businesses to be increased, etc. etc. And of course there is a lot of self-congratulation, maybe justified after the huge mandate. And even the promise to explore the seemingly tough pet theme of one-country, one poll receives a mention. But what is missing in all of those 7,000-plus words of President Kovind is economic reforms, how to get the corporate sector out of the rut, out of the current slowdown, the unremitting burden of indebtedness.

It should not surprise those who know Modi. He is not an economic reformer, the way Vajpayee was. Or the way the life-long implementer of draconian socialism, Manmohan Singh, was obliged to become under the irresistible pressure of the IMF-World Bank combine. Those hailing him as the father of the reforms ought to know that only a few weeks before the `dream budget’, at a South-South meeting Singh sang paeans to controlled economy while he was under no compulsion to do so. Of course, Vajpayee was a votary of free but regulated enterprise. While bitterly opposing the license-permit-crony-capitalist Congress samajwad, which turned quite a few paupers overnight into billionaires thanks to the generosity of the powers that were, Vajpayee’s faith in a liberal economic order grew further.

As prime minister, he undertook several structural reforms, sold off a number of non-performing public sector units and generally liberalized foreign investment and, above all, opened up the telecom sector. This, despite the voodoo economists of the Swadeshi Jagran Manch constantly snapping at his heels. The founder- president of the BJP-affiliated Bharatiya Mazdoor Sangh, Dattopant Thengdi, was so unhappy that he called the Vajpayee government `the worst in my lifetime.’ And the Chennai-based chartered accountant who had the ears of L K Advani wrote newspaper columns criticizing the opening up of the economy.

Modi is fortunate not to have anyone in the wider Sangh parivar to offer a word in criticism of whatever he might choose to do. He is virtually an all- in- all. Unlike Vajpayee, who had to constantly watch over his shoulder to see what his presumed number two was up to, Modi’s overbearing persona deters his fellow party men from saying a word edge ways even in the privacy of their homes. Yet, he fails to undertake two key structural reforms which he neglected in his first term and which, as is clear from the President’s address, he seems to have no intention of taking up in his second five-year term as well.

Yes, he did try to undo the mischief the previous government, nay, actually Jairam Ramesh, did under the influence of the noisy jhollawalla crowd, by taking the land acquisition law from one extreme to the other. If the 1894 law empowered the State to grab anyone’s property even for no real public interest in mind and to pay pittance in compensation, the 2013 law, framed in the backdrop of the Anna Hazare anti-corruption protest, went to the other extreme, making it willy-nilly impossible to acquire land even for urgent national security. Modi was persuaded early in his prime ministerial stint in 2014 to try and moderate the provisions so that public and private sector development does not suffer for want of land. Even an ordinance was promulgated to inject pragmatism in the Jairam Ramesh law.

But he beat a retreat once Rahul Gandhi mouthed that clever line from one of his aides about `suit-boot ki sarkar.’ And the stringent, no-go provisions of land acquisition law continue to hugely constrain growth. Indeed, the provision of outrageously high compensation and pre-polling of land owners having become huge obstructions, Ramesh must bear some blame for the sky-high prices of land even for lower- and middle-class housing.

But Modi can correct the excesses of the UPA, which, acting under siege following various corruption scams, went out on a limb to enact a retrograde law. Making it balanced will help revive the real estate sector, free up vast tracts of land for industrial growth, and generally provide relief to millions of Indians in search of a roof over their head. It is notable that Kamal Nath Government only in this past week has reduced the reserved price of land in Madhya Pradesh, never mind the puffery that accompanied the lowering of the land price. And that despite bullet train being a prime project, in more than four years it has been able to acquire only 39 percent of the land required.

Again, another key reform pertains to labour. Manmohan Singh as Finance Minister had first talked of an `exit policy’ back in the early 90s. He failed to move ahead on this even after becoming prime minister. Several expert studies have unequivocally concluded that freeing up employers from the shackles of the socialist era labour laws would actually lead to greater, yes, greater employment. Flexible labour markets would incentivize regularization of payrolls, ensure greater discipline on the shop floor and increase productivity. Thanks to the antiquated labour laws, even prosperous employers resort to the subterfuge of contract labour and off-the-rolls work orders in the full knowledge of the factory inspectors. It is a con trick sanctioned by authorities because of the outdated labour law.

Reform of land and labour laws constitutes the core of structural reforms at this juncture. Modi was successful in freeing petroleum prices from the straitjacket of administrative controls. He has injected a measure of transparency in the financial markets. The banking code is a revolutionary step in ensuring that borrowers pay up or do time in prison. And GST was a long-overdue reform. Yet, Modi shows no inclination to revive the sclerotic land and labour markets, essential, along with the capital markets, to rev up the economic engine.

President Kovind in his address noted how in the last five years India had moved up on the Ease of Doing Business 65 positions to 77 and the objective now is to feature among the top 50 countries. Undertaking reform of land and labour laws is the simplest way to ensure that India gets into the top 50 bracket sooner rather than later. Modi can now afford to ignore that jibe about suit-boot ki sarkar, not because the jiber is down in the dumps but because his credentials as a pro-poor leader who has put money in their pockets are well and truly established. Besides, a strong leader never fears doing the right thing by the country regardless of what the self-interested critics might have to say.

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One better than the other

Shahid Afridi: Pakistan will have to win all four matches to enter semi-final.

Shoaib Akhtar: Pakistan will have to win all four matches to enter Pakistan. Amen!

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