Congress Critique Of Modinomics Has Some Good Points, But Bulk Of It Is Blah And Even Lies

by R Jagannathan - Mar 26, 2018 02:10 PM +05:30 IST
Congress Critique Of Modinomics Has Some Good Points, But Bulk Of It Is Blah And Even LiesPrime Minister Narendra Modi. (GettyImages)
  • The reality is that large parts of this report card on Modi government’s performance are half-truths – or even lies.

The Congress party released its critique of Modinomics at the last session of the All India Congress Committee (AICC). This critique, contained in its ‘Resolution on Economic Situation in India’, is worth reading for it is a strong indictment of the National Democratic Alliance’s (NDA’s) “mismanagement” of the economy, including measures like demonetisation.

Some commentators – both on TV and in print – have chosen to get bowled over by one single line in the resolution, which runs something like this: “The Congress Party believes in the twin goals of inclusive economic growth through private enterprise, a competitive and viable public sector and a robust social safety net through a strong welfare state.”

New meanings have been read into this line, as if the Congress party is fundamentally moving towards the economic Centre in terms of future policies.

This is likely to prove as big a misreading as was the case with Narendra Modi’s pre-2014 statement that government had “no business to be in business”, or that an NDA government under him would provide “maximum governance with minimum government”. While in terms of emphasis, the Modi government’s focus has been a bit more on empowerment than entitlement, the BJP under him has – in actual practice – moved to the Left from its position earlier.

So, one has to contend with the reality that the Congress party’s stray phrases on “private enterprise” and “entrepreneurship” may not mean any fundamental change in its worldview. After all, despite its socialist rhetoric, did the United Progressive Alliance (UPA) not back private businesses, especially cronies? For it to accuse the BJP of backing cronies is, at best, a case of the pot calling the kettle black.

The resolution also sought to contrast its policies with that of the BJP, which it has caricatured thus: “The BJP believes in a coercive economic regime that favours a few, a trickledown effect for the middle class and leaving the very poor to fend for themselves. The BJP’s economic philosophy is blind to India’s size, scale and diversity and rests on an artificial principle of “oneness”. The Congress party’s economic vision recognises India’s plurality and a federalist structure that is opposed to the imposition of a “one nation, one policy” doctrine.”

One does not know what it means by “coercive economic regime”, unless this is a reference to the post-demonetisation effort to corner tax evaders, and the use of Aadhaar and PAN linkages to eliminate benami bank accounts and real estate holdings. One could argue that some pressure to comply is needed to make Indians more tax-complaint. The critique of “one nation, one policy” is hypocritical, since it was the UPA that began this process of covering the whole of India with one law, from the Right to Education Act, to the Food Security Act, or Land Acquisition law. The one-cap-fits-all policy was started by the Congress party, and the worst you can say about the BJP is that it has followed in its footsteps.

In fact, in its 2014 manifesto, the Congress party promised even more one-cap-fits-all legislation, including the Right to Health, Right to Pension, Right to Homestead or Housing, Right to Dignity and Humane Working Conditions, and Right to Entrepreneurship – whatever that means.

That the NDA under Modi is attempting to meet most of these goals – from the Ayushman Bharat medical insurance cover for 10 crore families, to the Atal Pension Yojana, to interest rate subventions for rural and urban housing, and encouragement to start-ups – indicates that the Congress and BJP are essentially singing the same song, but at different pitches.

The resolution claimed that “the Indian National Congress stands for a much simpler GST framework with a moderate and reasonable standard rate of tax, abolition of cesses outside the GST structure, a transparent mechanism for revenue sharing with the states, and a robust system of refunds”.

In theory, a single rate works best, but would the Congress party not then have gone to town saying that the BMW owner is paying the same rate as the poor man buying toilet soap? Also, the cesses exist in order to raise revenues to compensate states for any initial shortfall in tax collections; if they go, how does Rahul Gandhi plan to compensate states? The truth is this: in order to get states to sign up to GST, these compromises were necessary. Once states see higher revenues flowing from GST, the rate structure can be incrementally cleaned up, as has already begun to happen. Last November, GST rates were slashed on over 200 items.

Then there are outright lies and half-lies. Talking about growing inequalities, the resolution makes a reference to a study by Thomas Piketty and Lucas Chancel. It says: “contemporary economic development paradigms that favour returns to capital over returns to labour have resulted in an alarming disparity in income and wealth among individuals. Recent research by economists Thomas Piketty and Lucas Chancel has documented that individual income inequality in India has widened significantly in the last three years.”

The very title of the Chancel-Piketty study gives the lie to this claim. The study is titled, Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?” and does not cover developments under the Modi tenure. And yet there is the claim that inequality has widened in the “last three years”.

On the bad loans problem, the Congress party claims that “banks which hold people’s money in trust were allowed to be brazenly looted by the likes of Vijay Mallya, Nirav Modi, Mehul Choksi and Jatin Mehta who were allowed to flee the country with the connivance of those in power. India’s banking sector is in deep crisis due to the undermining of the institutional integrity of regulatory institutions and failure of regulatory oversight”.

While the Modi government can certainly be blamed for allowing these defaulters (and some fraudsters) to flee, surely the loans to Mallya’s Kingfisher and Nirav Modi’s diamond companies began when the UPA was in power. Was the integrity of the regulatory institutions compromised only when Modi came to power?

On the public sector, the resolution reads: “The Indian National Congress believes in the need for transparency, efficiency and competitiveness of the public sector that will place it on par with the private sector. The Modi government, keeping with its track record of hollow slogans and promises, indulged in a rhetoric of privatisation but instead has created an opaque and inefficient public sector.”

Is that so? Who damaged the public sector oil companies by forcing them to subsidise diesel, LPG and kerosene? Who ran Air India into the ground?

The resolution also claims that “the starting point of the banking crisis was the unwarranted criticism of the telecom, coal and power sector policies of the UPA government that was trumpeted by the BJP and that has inevitably brought many telecom and power sector enterprises to the brink of bankruptcy”.

This is a clever way to say that former telecom minister A Raja’s arbitrary ways of allocating spectrum, or the Coal Ministry’s opaque decision-making on mine allotments were somehow right. Not so. The telecom industry is not on the ropes because of high spectrum prices (at least, not only due to spectrum), but the entry of Reliance Jio with super-low initial rates. And the power sector has, in fact, been put on an even keel by the NDA’s UDAY scheme. As for coal mine auctions, we will know how they have worked only after a while. But the NDA’s legislation to allow private merchant mining of coal is probably the right way to make the industry, currently dominated by Coal India, more efficient.

The Congress claims on agriculture are relatively correct, and it had this to say: “agricultural growth has been an anaemic 2.7 per cent during the Modi government compared to 4 per cent growth during the entire 10 years of UPA. The UPA government also waived nearly Rs 72,000 crore of farmers’ loans. Minimum support prices for paddy, wheat, arhar, sugarcane, etc, increased 2.5–3 times during UPA’s 10-year tenure. This reflected in a healthy 40 per cent increase in real incomes of farmers (after adjusting for inflation)”.

While this is substantially true, we need to add some caveats: the UPA era saw a general global rise in food prices, and resulted in high inflation. Under NDA, inflation has been largely under check. Also, the first two years of the NDA were marked by consecutive droughts, and only the last two years have been better. So, comparing a four-year tenure – of which two were drought years – with a 10-year record may be wrong. We need to wait a bit before we pass this judgement. UPA’s benefits to the farmer came at a high cost – soaring retail inflation.

In its most devastating paragraph, the resolution says: “the Indian National Congress reiterates that the abysmal economic management of the Modi government has resulted in lack of jobs for millions of India’s youth, stagnant real incomes for hundreds of millions of farmers, collapse of the manufacturing sector, destruction of micro, small and medium businesses, paralysis of India’s banking sector, a severe dent in business confidence and rising inflation expectations of households. The economy is in the hands of ignorant and incompetent policy makers who have derailed economic growth through reckless and bizarre policies such as demonetisation and a hasty imposition of a flawed Goods and Services Tax regime”.

The criticism is obviously overstated and partially misleading, but it is not possible to dismiss all of it as pure political rhetoric. There is no doubt that jobs growth remains a challenge, that farm distress is real, that demonetisation has not delivered, that the banking crisis ought to have been addressed earlier and more comprehensively, and that the goods and services tax (GST) could have been designed better.

But, the reality is that large parts of this statement are half-truths – or even lies. It wasn’t as if the Congress party had any better ideas about jobs than the NDA. Jobs grew less in the high-growth UPA years than in the slower growth years under Atal Behari Vajpayee. The GST was not designed by the BJP but the GST Council, and even if the Congress had been in power, it would have had to make compromises to get it through. The BJP compromised in order to get GST off the ground, and is now busy cleaning up the tax. The banking crisis is being fixed with the help of the Insolvency and Bankruptcy Code (IBC), and most of the bad loans anyway originated in the crony capitalist era of the UPA years. It is only demonetisation that can be pinned on the NDA as its own unforced folly.

The resolution blasted the government for squandering a golden opportunity. It said: “the Modi government was presented with a golden opportunity to catapult India’s economic growth to a new high through a near perfect alignment of stars – an upswing in the economy, macro-economic stability after the upheaval of the 2008 global financial crisis, low oil prices (from over USD 100 to under USD 40 per barrel), robust global economic growth and an absolute majority in the Lok Sabha. Sadly, the government has squandered a golden opportunity”.

But, as far as golden opportunities go, the UPA got more than its fair share. In 2004, the NDA had left behind an inheritance of low inflation, a current account surplus and a rising economy. Global growth was just about to take off vertically. But while the UPA benefited from this tailwind in its first four years, it did little by way of reforms. When global growth tanked after 2008, India was up the creek without a paddle. UPA-2’s record includes rank mismanagement of the economy, having allowed oil subsidies to rise to over Rs 8.4 lakh crore during its 10 years. The fiscal deficit was out of control till 2013.

The resolution’s most relevant critique is the one on jobs, and how small and medium enterprises are critical to the solution. “India's most pressing problem is jobs for hundreds of millions of our youth. Good, productive jobs can be created in large numbers by India's private sector driven by trade, manufacturing, construction and exports. The Modi government has instead unleashed economic oppression, harassing our entrepreneurs with tax terrorism, motivated litigation, veiled threats, demonetisation and an ill-conceived GST. The Indian National Congress resolves to win back economic freedom for India's entrepreneurs, especially the micro, small and medium business persons, protect them from harassment and provide a stable business environment.”

A good point to make, but UPA’s record was one of retrospective taxation, and policy paralysis. Hopefully, a future UPA will learn from these mistakes.

In another paragraph, the resolution indirectly pooh-poohs a recent study claiming that nearly seven million jobs were created. “The Indian National Congress expresses its deep anguish on the lack of jobs for India’s youth. Every single day, there are 30,000 youth who enter the job market looking for a job and just 450 of them get jobs. Instead of crafting policies that will create jobs, the Modi government has chosen to live in denial of India’s jobs problem, hiding behind a façade of compromised research claiming that the economy generates more formal sector jobs than any other country in the world. The demonetisation and reckless GST implementation has greatly damaged the backbone of the mass scale employment generating unorganised sector as well as small and micro industries along with self-employed labour. It has resulted in large scale loss of employment in the informal sector.”

There is little doubt that the Modi government woke up to the reality of the jobs challenge a bit too late to be able to fix it before the next general elections. Also, it is far from clear that the formal jobs data thrown up in the study by Pulak Ghosh and Soumya Kanti Ghosh is actually about new jobs rather than a mere recording or recategorisation of existing informal sector jobs. At best, we now have a new metric to study payroll jobs as opposed to jobs data teased out of five-year National Sample Surveys.

It is also far from clear that the Congress party has any clear solutions to the jobs issue. But then, as an opposition party, it only needs to show where the government has tripped. It needs to provide no answers of its own until it comes back to government.

The Congress economic resolution is at its best when castigating the Modi government for its lapses; it is least believable when it talks about its own approach, which does not go beyond motherhood statements.

Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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