Ashok Malik : Virtues of Vasundharanomics

Vasundhara Raje’s bold reforms could convert Rajasthan from the Mecca of NGOs to the Valhalla of jobs and enterprise.

In August 2014, the Rajasthan assembly passed amendments to four legislations: the Factories Act, the Industrial Disputes Act, the Apprenticeship Act and the Contract Labour (Regulation and Abolition) Act. The government of Chief Minister Vasundhara Raje, whose party, the BJP, has a massive majority in the house, had little problem pushing through the changes and living up to her promise to update labour laws.

These changes are part of a set of reformist measures and policies that the Vasundhara government is committed to as it attempts to rebuild Rajasthan’s reputation as an investor destination. The seriousness with which the lady is going about her task is apparent from her willingness to take on entrenched lobbies and take tough calls. She has set up an advisory council that includes such eminent economists as Arvind Panagariya and Bibek Debroy. She is also planning to visit Singapore, the United Kingdom and Japan, in the first round, to seek business partnerships.

Taken individually, these steps may not amount to much. After all, an advisory council or a few trips to investor countries need not achieve anything. Yet, it is important to note the signals Vasundhara is sending. So early in her term – she won the state election in December 2013 and spent the next few weeks preparing for the Lok Sabha election that ended in May 2014 – she has decided she must get down to business, literally and otherwise. There is no complacency or period of rest and recovery after gruelling campaigns. The chief minister is clearly in a hurry.

Why is this so? To answer that question one needs to assess the circumstances of Vasundhara’s triumph as well as the general political mood in the country following Narendra Modi’s victory. In the case of the Rajasthan chief minister, she is conscious she has been given a mandate to energise her state’s economy. In her first term as chief minister (2003-2008), Vasundhara had significant achievements. As she often pointed out during the 2013 election campaign, when she took over in fiscal year 2003-04, Rajasthan’s fiscal deficit was 6.6 per cent of GDP. By 2007-08, this had come down to 1.75 per cent.

As part of what is today known as the Delhi-Mumbai Industrial Corridor (DMIC), the Rajasthan government of the time made great efforts to draw in Japanese investment, including incubating an automobile manufacturing zone in Bhiwadi, where Honda Cars set up a facility. Vasundhara had also made expansive plans for urban infrastructure and development.

Much of this momentum was lost during the term of Ashok Gehlot’s Congress government (2008-13). Aside from the usual political bickering and the unwillingness to give credit to an opponent who had lost the 2008 election only narrowly, there was a larger problem Gehlot faced. The Congress government in Delhi was slow off the blocks on the DMIC because it was worried Gujarat and Narendra Modi’s government there would get much of the initial benefit. As a result of the UPA government’s vendetta treatment of Gujarat, Rajasthan suffered collateral damage.

In its pursuit of welfare and giveaway politics, the Congress made Rajasthan a laboratory of many of its national programmes and of the National Advisory Council’s and Sonia Gandhi’s favourite ideas. The situation became so ridiculous in the run up to the 2013 state elections that a tabulation of (some of) the Gehlot government’s welfare schemes would invite derision. As the magazine Tehelka reported, there was an all-encompassing pension scheme; a 30 per cent rebate for women on bus tickets; free medicines, diagnostic tests and surgeries in government hospitals, with the government paying for cremating a patient who died; and of course that most welfarist of measures, free laptops and discounted apartments for journalists.

The vote in Rajasthan in 2013 was a vote against such excess and absurdity. What was the point of providing free medicines when conditions, and numbers, of hospitals were inadequate? Typical of a welfare binge, there was little attempt by the Gehlot government to address supply-side gaps, enhance capacities and create what young people want most: sustainable jobs. During her campaign, Vasundhara remarked more than once that the chant from the crowd – “Naukri, naukri, naukri” (“A job, a job, a job”) – kept ringing in her ears hours after she had left a public meeting.

Labour laws are on the concurrent list of the Constitution, which means both the state and the Union government have jurisdiction over them. In case of conflict, the Union government prevails. It is in this context that Rajasthan’s liberalisation of labour laws is a sort of pilot. Vasundhara has been assured the Union government, led by Prime Minister Modi, will back her legislative changes and give the necessary go-ahead. This puts the onus on better, more contemporary laws on state governments. It is for states to compete for investment by offering quicker clearances, greater transparency, better infrastructure – and now modern labour laws.

If Vasundhara succeeds in Rajasthan, if she fights off political criticism and actually delivers on investment potential, she could set a trend. Other chief ministers could attempt to be just as proactive. A virtuous competition between states – rather than a race to the bottom, which the prevailing subsidy and freebie culture has nurtured – would result.

Does Vasundhara’s decisive turn to the right indicate a defining ideological shift in Indian politics or even in her politics? Rather than attempt glib answers, it would be best to place things in a context. Instinctively and philosophically, BJP politicians such as Modi and Vasundhara – not to speak of a host of other party colleagues of their generation – are more alive to the possibilities of a greater role for the private sector in industrialisation, development and job creation than politicians in the Congress. In that sense, the shift is not new or dramatic.

To be fair, it is not as if either politician, Modi or Vasundhara, has suddenly and uncritically embraced the agenda of a Margaret Thatcher or a Milton Friedman. Their right-wing economics exists very much within the framework of Indian politics and what it can allow.

Yet, there is a recognition that precisely that final phrase in the preceding paragraph – “Indian politics and what it can allow” – has undergone an enormous transformation in recent years. Simply put, Indian politics can now “allow” a lot more. Expectations and aspirations have changed. The recent election results reflected this, both in Rajasthan and nationally. That knowledge is what gives Vasundhara the strength to undertake her economic reforms.

That apart, Vasundhara – and perhaps other enlightened chief ministers as well – sense the “Modi model” is not so much about Modi replicating what he did in Gandhinagar in Delhi, but about other state governments and leaders learning from what he attained in Gujarat. Modi has demonstrated economic and social achievements in an individual state, and the projection of those achievements, can become the building blocks of a national campaign and take a chief minister to higher office, making him a pan-Indian phenomenon along the way.

That is the demonstration effect of the “Modi model”. Today, it has set Vasundhara on a bolder path; tomorrow it could give ideas to other chief ministers. In time, it could convert Rajasthan from the Mecca of NGOs to the Valhalla of jobs and enterprise.