Time to reverse regressive economic policies

Sushma Ramachandran

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Senior Financial Journalist 

MINIMUM government, maximum governance’ was the NDA’s mantra when it assumed office in 2014. This was explained in an interview only last year by Prime Minister Narendra Modi, who said projects and programmes will be speeded up while keeping red tape to a minimum. The mantra has clearly been turned on its head in the Modi government’s second term as regulations are increasing by the day while the narrative maintained by the economic ministries would do credit to the Left parties. Memories of the socialist-era rhetoric are being revived as foreign investors are lambasted and protectionism is being touted as the route to raising industrial output.

In the run-up to the 2020 Budget, the pronouncements being made indicate that instead of market-friendly reforms, the accelerator is being pressed on measures to bring the country back to an era of import controls and curbs on foreign investment. Domestic industry seems fearful as it considers the attitude towards business to be of suspicion.

One must consider first the widely criticised comments made by Commerce and Industry Minister Piyush Goyal during the visit of Amazon chief Jeff Bezos to this country. He dismissed Bezos’ enthusiasm about investing $1 billion here as not being a ‘favour’ as the e-commerce giant had made an equal amount of losses in its operations. Goyal backtracked the next day but continued to justify the remarks on the grounds that small brick-and-mortar retailers were hurt by e-commerce platforms. The brusque approach to a major foreign investor, however, has echoes of George Fernandes admonishing multinationals in the 1970s rather than the mature approach of a 21st-century leader dealing with one of the biggest global Internet giants.

It must be conceded that Goyal’s concern over problems being faced by millions of retailers in this country is not unwarranted. At the same time, the reality is that technological changes have led to massive job disruptions all over the world leading to evolution of work roles and upskilling needs for youth. On the plus side, this technological disruption has created millions of entrepreneurs here who have used the e-commerce platforms of Amazon and Flipkart to leapfrog into the market without any physical infrastructure. Whether there has been a net additionality to the domestic jobs market cannot be said with certainty but there is no doubt that market changes due to technology cannot be halted by regulatory provisions. Besides, the minister’s anxiety over the closure of mobile shops in another interview is akin to worrying over the closure of STD booths that mushroomed everywhere at one stage. These morphed into cyber cafes and now provide a variety of services for tech users. In fact, one of India’s big strengths till now has been its ability to move fast to use technological advancements to its advantage in both the telecom and information technology sectors.

It has to be pointed out that most of the developments in the IT industry in particular were during a largely laissez-faire era in terms of policy. In other words, little attention was paid to the sector by government which flourished as a result. In contrast, there is now a flurry of activity to ‘regulate’ Internet commerce. While broad issues certainly need to be considered such as data protection and privacy, it would be a good idea to consider the needs of consumers as well before finalising policies related to marketing. Predatory pricing has been cited as a reason to control the sector, but no action has been taken on predatory pricing in the telecom sector by a single company. Selective actions can give the impression of vested interests being at play.

The stress now on import controls as a panacea for the downturn facing industry also seems like an echo from the past. After 1991, this country gradually relaxed curbs on imports and reduced tariffs to bring about a revival in industrial growth. Now, there are apparently proposals to raise tariffs on a range of goods like toys and electronic goods, with the laudable but misguided aim of protecting domestic manufacturers and allowing them to grow without any competition. The earlier dynamic concept of Make in India is becoming something like the import substitution regulations of the sixties and seventies that crippled industry by not allowing imports of products, components or machinery till it was proven that they could not be manufactured within the country. This goes completely against the modern concept of global value chains in manufacturing whereby products are made and marketed in a series of locations. Raising import tariffs is not likely to facilitate the process of bringing this country into the global value chains (GVCs) which can involve raising import content of products meant for ultimate export.

In the face of this regressive policy approach, Indian corporates have raised red flags. In a recent lecture, Tata Sons Chairman N Chandrasekaran said obstacles facing growth need to be removed, noting the country is fraught with micromanagement and suspicion. “We need supervision…and we have suspicion,” he said. The Tata chief cannot be lightly dismissed as he is neither a maverick or an outlier in the corporate world. Similar comments earlier by Rahul Bajaj were immediately decried as being against national interest.

With the Budget around the corner, this is the right time for a review of policies that go against the original mantra of ‘minimum government, maximum governance’. Foreign investment needs to be welcomed rather than shunned, the fear psychosis affecting the domestic industry needs to be shed and reforms to reduce regulations and improve ease of doing business need to be brought into force. Economic growth is set to touch an 11-year low of 5 per cent in the current fiscal. Only a reformative approach in the Budget that provides an impetus to investment can turn the tide in the next financial year.