Dhiraj Nayyar writes: Three weeks from now, India’s Prime Minister Narendra Modi will mark his first year in office. He swept into office with a clear center-right message — “minimum government, maximum governance” — and the biggest mandate of any leader since 1984; one might have expected him to establish a policy direction and priorities fairly quickly. Yet his administration still can’t seem to make up its mind what kind of government it wants to be. The government’s policies seem pulled in too many directions — both toward reform and against it.
The budget released in February gave a big and welcome fillip to public investment, especially in infrastructure, to kickstart a stalled investment cycle. The government has held steadfast in its determination to amend a restrictive land acquisition law. Last week, it made the first big move to revise India’s equally onerous labor laws by proposing to raise the limit at which employers need permission from the government to lay off workers from 100 to 300 employees, a major incentive for Indian firms to employ more formal workers rather than relying on informal and poorly-paid contract labor.
Modi’s administration has simultaneously engaged in blatantly regressive moves, especially on taxation. The decision to apply the Minimum Alternate Tax to foreign institutional investors has seriously dented investor confidence.
The government also caved to vested interests by withdrawing two welcome proposals that had been included in the February budget. One would have transferred responsibility for managing government debt from the central bank to an independent agency.
The central bank has a serious conflict of interest as the setter of interest rates and the manager of government debt. An underdeveloped bond market would have been served better by the efficient SEBI than a conflicted RBI.
Perhaps the biggest disappointment, though, has been the government’s total failure to privatize even one of India’s massively inefficient public-sector companies. One of Modi’s loudest applause lines during the campaign was that the government shouldn’t be in the business of business.
Perhaps Modi, acclaimed for his stewardship as Chief Minister of Gujarat state for more than a decade, still thinks he can run the Indian economy on a project-by-project basis rather than developing a coherent governing philosophy. His penchant for launching big schemes is unabated.
