Modi’s I-Day Economic Speech From the Ramparts of a ‘Pink’ Fort

Despite PM Modi hailing market-friendly economy in I-day speech, will babus stop posing hurdles in policy-making?

Too caught up to read the story? Listen to it instead:

Main jaanta hoon ki aaj desh ek aarthik mandhi main hai; lekin main 130 crore desh vaasiyon ko yeh vishwaas deta hoon ki hum jald hi isko aarthik josh main badal dengey!(I know that we are currently in the grips of an economic slowdown; but, I want to assure my 130 crore fellow Indians that we shall soon convert this gloom into economic optimism!)

I was yearning to hear these words from the Ramparts of the Red Fort. I wanted Prime Minister Narendra Modi to use his legendary oratory and hope-generating skills to assuage the economy. But alas, he did not even acknowledge that there is a severe slowdown of demand and investment. Instead, his prescription was more of the same same, with an additional/unusual invocation to domestic tourists!

So I Turned From the Red Fort to the “Pink” Fort …

I have no hesitation in admitting that I was a vocal critic of Modi-nomics 1.0 from 2016-19. Do read these articles as proof: Why Modi Regime is the Most Statist and Interventionist Since Liberalisation and Modi Sir, Surgically Erase Ten Economic Stats if You’re Back as PM .

After hearing today’s speech, I had almost resigned myself to an unchanged Modi-nomics 2.0 until my eyes fell on this quote (from The Economic Times, 12 August 2019):

This synched with his near-deification of wealth creators today – almost an admission that his regime may have been too harsh on them until now. I began rubbing my eyes in disbelieving joy! Was Prime Minister Modi turning over a new leaf? Willing to admit the excesses of his babus (bureaucrats)? Conceding that the state was guilty of a dangerous over-reach on his watch? Finally trusting the preachers of private enterprise and coming good on his much-violated promise of “minimum government, maximum governance”?

PM Modi’s Wall Street-isms

So I dove deep into his three-page-interview-spread to make up for the deficit/silence in today’s speech. That sumptuous exchange was nothing short of an Independence Day Address for India’s Economy from the “ramparts of a pink paper”. He had used many feel-good Wall Street-isms, almost straining to sound market-friendly (the emphasised phrases, in black colour below, seemed to be liberally borrowed from MBA 1.0)

Countering PM Modi’s MBA-Crafted Lines

But Alas, the Babu-dom (Bureaucracy) is Alive & Kicking Hard

As I got into the weeds, I began to encounter the familiar, dreary dead habit of the bureaucracy. The shibboleths that had kept Modi-nomics 1.0 moored to statism/incrementalism were hiding in plain sight within Modi’s MBA-crafted lines:

Modi: I want to motivate our industrialists to believe in the India story and the long-term potential of the Indian market.

Me (counter): Modi’s bureaucrats had used this red herring of India’s “long-term potential” to cover up their abject failure in buoying the economy through five years of his first term. And now that we have slipped into a deeper funk right at the beginning of his second term, they are again deploying this “oh things are bad right now, but don’t worry, we shall get it right in the long-term” trick. I am tempted to use Keynes’s celebrated “in the long term we are all dead”, but that would amount to using one cliché to kill another. The fact is that Modi should now be thinking “utterly short-term” to fix the pervasive economic gloom. Just as one example, when the auto industry is in danger of regressing to production levels seen four years ago, you know “it’s the short-term, stupid” that you need to be paranoid about, not some abstract dream in 2025.

Modi: India’s “historic” rise in the “ease of doing business”… “remarkable that a nation of over 1.25 billion has achieved a rise of 65 ranks in a short period of four years”.

Me (counter): Dear Prime Minister, I know you extended it to a more general “ease of living” today, but please do not begin to believe your own mythology. Most of us assume, quite innocently, that the World Bank’s EODB Index is the gold standard of economic performance. In reality, it’s an extremely narrow, even misleading, summation of a few rules which matter to a tiny, very tiny, sliver – less than five percent of India’s vast population:

* EODB is derived from the subjective views of a few dozen experts in Mumbai and Delhi. That’s it!

* Most of the improvement came from just four rules that were swiftly changed in a “Kota coaching class” approach to “gaming the system”:

(a) Enforcing a single window clearance for building permits in Delhi and Mumbai

(b) Allowing exporters to seal their containers electronically, reducing physical inspections to 5 percent of shipments

c) Introducing a single form for company incorporation; and

(d) Lowering the cost of getting electricity

So, I’ll say it once more. That’s it! And never mind the fact that on three significant parameters – paying taxes, resolving insolvency and enforcing contracts – we actually slipped.

Frankly, it’s time for Modi-nomics 2.0 to quit using such trivia that only fools us into believing that “all is well” when there’s hardly any improvement in rigid factor markets, or stalled projects, or extortionary tax policies, or intrusive raids/inspections, creating a huge unease of doing business.

Modi: With capacity utilisation crossing 75 percent, we would see growth in investment from (the) private sector in the coming months.

Me (counter): You know when we first heard this “75 percent explanation” for the unusually weak amount of private investment? In 2014. Then in 2015, 2016, 2017, 2018… and now in 2019. Once again, this is a bureaucratic fiddle to hide the true culprits, which are:

• The Modi regime’s unusual hostility towards equity capital, which is the lifeblood of spurring an entrepreneur’s animal spirits. They restored long-term capital gains tax, did not abolish securities transaction tax, began taxing dividends in investors’ hands, but did not abolish the dividend distribution tax – so the same equity investment is taxed four times! Add “angel or valuation mismatch taxes”, and you really don’t need to ask why private investment is flagging.
  
  
• The Modi regime’s unusual penchant for keeping real interest rates the highest they’ve ever been. When, for instance, did you last see, in any sane/mature economy, that the central bank cut rates by 35 basis points, but the 10-year treasury bond gained 35 basis points in the next few days!? It’s perverse, but it just happened in India last week; proving that Modi-nomics has bloated the government to such an extent that private investment is being crowded out.

I can go on and on, but that would be just a lot of dense drivel. The fact is that Prime Minister Modi, in his address from the Ramparts of the “Pink” Fort, made a clarion call for a market-friendly economy; but his Raisina Hill bureaucrats continue to doggedly cling on to big-government-knows-best policies. This must change. How? Let’s keep that for another day.

For today, Happy Independence Day!

(Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.)