‘Modysseus’ papering over India’s cracks | Business Standard Column–14.11.2017

A visitor to India would be bewildered. Political rhetoric from the government and the Opposition is harsh in tone and lacking in content. False, loud arguments are made about how much damage has been done in the past 12 months. To an outsider, India seems as disconnected from reality as Vladimir Putin’s Russia, Donald Trump’s America, or Brexit Britain. It is not Xi Jinping’s China. India seems trapped between two appalling choices: NaMo the dictator and RaGa the puppy. So, like Odysseus, it is navigating between Scylla and Charybdis.
Economically, India has regressed with 1-2 per cent lost output growth. Employment has been damaged, particularly for the poorest. Relative to its potential India has fared poorly. Politically, it is in stasis. Is that what was expected after 42 months of Mr Modi? Vikas and achche din are conspicuous by their absence. A presidential style of government centralised in the PMO has replaced the Cabinet government in a parliamentary democracy. It does not seem to be working well because it relies on a coterie du jour of (un)civil servants appointed not on merit but on seniority, loyalty, and submission to the RSS diktat.
On the anniversary of demonetisation, India is in confused, suspended animation. The Opposition may be overstating demonetisation’s impact. But, Mr Modi remains in denial that he did something foolish. Demonetisation reflected a poor understanding of elementary economics. This draconian measure was like using a nuclear weapon to treat chronic cancer. But then, Mr Modi is “knowledge-proof”. He believes that his election makes him omniscient/omnipotent. He still claims that demonetisation was essential and bold, despite evidence to the contrary, and that it will be remembered as a turning point in India’s history. In exactly what sense, remains unknown.
None of the objectives enunciated for disabling 86 per cent of India’s cash a year ago were achieved. Yet, that has not stopped all kinds of unintended ‘benefits’ (unsubstantiated by credible evidence) of this folly being cited; peculiar afterthoughts for ex-post justification. Contrary to Mr Modi’s claims, demonetisation was intended only to deprive his opponents of cash to contest the UP elections. India was damaged for communal, political reasons, to put in place an unqualified, incompetent, radical cleric of Mr Modi’s own ilk, as CM of India’s largest, most politically critical state.
His hype about demonetising high-value currency to rid India of corruption and black money was always hypocritical rhetoric. In India, it is impossible to fight elections without black money. Mr Modi cannot eradicate corruption. He can only monopolise it to win every election at any level. The Opposition can’t object because they are complicit in the same illegalities, on every such occasion.
Mr Modi is aware of the damage inflicted on India since November 8, 2016. That seems clear from earlier consideration of a fiscal stimulus. Thankfully, it did not go ahead. Mr Modi’s panic was reflected in resurrecting the PM’s Economic Advisory Council (EAC), after having harangued the former EAC viciously, when it was under C Rangarajan. It would be better for India if Mr Modi now admitted that demonetisation was a mistake, made amends for the damage done and moved on. He might even earn respect for uncharacteristic honesty.
Indians who know about economic and tax policy, believe that demonetisation’s damage was exacerbated by incompetent implementation of the GST which had much to recommend it. But, despite its benefits, India’s Ministry of Finance and tax bureaucracies demonstrated again that execution of any policy is not theirs (or India’s) strong suit. The goods and services tax (GST) was an absurd compromise, introduced in a manner bound to fail. There were too many slabs and a top rate far too high to induce compliance. The IT machinery for collecting the GST was inadequately tested to be applied in a country as enormous as India. The outcome was an avoidable disaster for which the hapless (hopeless?) finance minister has to bear responsibility.
With these self-inflicted wounds retarding India’s progress, why are there so many gleeful reports on India’s leap upwards on the World Bank’s Ease of Doing Business? Is that cosmetics triumphing over substance? No one in the World Bank knows how to do business — easily or otherwise! Why is Mr Modi so obsessed with its rankings? They do not result in outcomes that people think they do. They are shallow priorities for the GoI to have, while leaving India’s core machinery to rot at an accelerating pace.
Anyone looking at India is appalled by the glaring deficiencies in its core institutions. For example, India’s Presidency is invariably occupied by satraps without any discernible merit. Its Judiciary — whose populist activism necessitated by repeated government default — is dangerous for democracy. Its judgments are often prejudiced, illogical, inexplicable, capricious and meretricious. India’s Central and State Legislatures now function less respectably than most zoos. Its dysfunctional Union government governs by slogans and bombastic rhetoric, with little to show for it, other than crass Hindutva with bovine interests outweighing human ones. Its state, municipal and local governments range from awful to appalling, in capacity and effectiveness.
Its public health care system is a disgrace. Its public education system has islands of excellence, but churns out illiterate, innumerate, unemployable youth, when a million new jobs need to be created monthly. Its infrastructure remains pathetic with its megalopolitan cities choking on pollution, grime, filth, garbage and traffic. Its administrative bureaucracies (IAS, IPS, IFS, etc.) have relentlessly diminishing standards, low morale, poor capacity, are much too vulnerable to corruption, and disdain specialised domain knowledge, relying on ungifted amateurism and seniority, rather than merit. Its PSBs/PSEs are in a poor state, unable to infuse credit in a faltering economy. The revival package mooted has far too many flaws. India’s regulatory machinery is poor in every sector and subject to capture. The RBI is now led by a supine management that rolls over every time the PM sneezes.
When a visitor looks at those realities, and sees the government’s obsessions with shallow priorities, he/she wonders where India is heading. Mr Modi seems to be focusing on all the wrong issues while ignoring the critically important ones.
The writer is chairman, Oxford International Group

via ‘Modysseus’ papering over India’s cracks | Business Standard Column

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