By M D Nalapat
Only a bureaucracy still impervious to the modernism of the Prime Minister could have brought down the rate of growth to a level almost as low as 5%.
At least a tenth, if not a third, of those inhabiting the Lutyens Zone claim to know Prime Minister Narendra Modi well. Let it be admitted that this columnist neither lives in the Lutyens Zone, nor knows Narendra Damodardas Modi at all well. However, the very limited contact he has had with the architect of the BJP’s 2014 Lok Sabha triumph, reveals an open-minded individual, who welcomes honest appraisals of any situation. During his 13 years as Chief Minister of Gujarat, Modi built around him a team of individuals who avoided publicity or show, but who worked very hard at helping him ensure that the state broke several international records in governance. However, finding those of a similar temperament within the Lutyens Zone may be more of a challenge, and this has most recently been illustrated by the reaction in some official nooks to the news that almost the entire volume of cash that had been rendered worthless on 8 November 2016 was returned to the banking system. During the initial weeks of turbulence caused by the manner in which the Reserve Bank of India and others responsible for the rollout of demonetisation handled the fallout, they had numerous times claimed that a huge amount of the cash withdrawn from circulation would, in effect, be burnt or buried, and that this would not only serve to punish holders of cash, but enrich the RBI and therefore the exchequer. It is therefore disconcerting to hear from the same individuals who had made such a claim that in fact, the return of practically all the old currency was a major plus for the scheme. Growth during the last quarter has fallen to below 6% (or half of what is needed to prevent the widespread social unrest that is raising its head in several parts of the country in the form of caste, community, diet and lifestyle protests). Presumably, this reduction in growth represents a still bigger success of those who have been given charge of the economy by the Prime Minister precisely to ensure double digit growth. Not just the public, but it is the duty of those in authority to ensure that the information they present to the Prime Minister is accurate, rather than representative of fantasy.
Prime Minister Modi has worked with zeal since 26 May 2014 to ensure honesty in administration. While in the past, about a quarter of those in the middle and higher rungs of the government clearly lived way beyond their recorded income, this seems to have been reduced to about a tenth, and hopefully will diminish still further. Hence, it ought to have been obvious to those tasked with implementing the 2016 demonetisation that centuries of oppressive and overbearing governance in India have ensured that the population of this country have acquired the skills of Houdini in escaping the regulatory snares placed in their way by bureaucrats looking for bribes. Unfortunately, the colonial system of administration in India that has been carefully preserved and added on to by Jawaharlal Nehru and almost all his successors, has resulted in the more crooked having an advantage over the honest citizens in avoiding getting caught in the hundreds of thousands of rules and prohibitions that are the norm in what is considered to be a democracy. While the Income-Tax Department may send notice upon notice, the net increase in collections as a consequence of such exertions is likely to be small. Although in theory demonetisation should have hit the holders of vast sums of undeclared currency the hardest, in practice the blow fell hardest on the sector that has ensured that the country has thus far avoided bouts of violence of the level witnessed in the past, including during Partition—the “informal” sector. To say that this is a rogue sector is to be unaware of the fact that most of the employment in the economy is from this sector, as well as the market for the output of the manufacturing sector, apart from the fact that substantial sums get paid as “informal” taxes, i.e. bribes. The RBI and other agencies ought to have made continuing liquidity in this sector a priority, rather than ignoring the effect of withdrawal of 86% of cash on output, income and employment in this all-important segment of the economy. Had liquidity in the form of new currency been pumped into the economy on a scale sufficient to fill the gap caused by the 8 November 2016 withdrawal of old currency, the economy would have been boosted by the bold measure. It is clear that Prime Minister Modi approved the move to demonetise only because he was confident that the agencies tasked with implementation would perform properly rather than poorly. In practice, the way in which banking regulations, for example, were changed almost by the hour has made at least the Reserve Bank of India an object of global ridicule.
It remains to be seen how many of the new taxpayers who have come into the system after demonetisation will continue in the tax net. What is certain is that much more gentle methods of compliance (such as low rates and amnesties) would have ensured several tens of millions more taxpayers, all of whom would have been willing, rather than forced. A colonial-minded bureaucracy looks only at its own interests and convenience while designing and implementing measures that may affect millions, and the way demonetisation was rolled out is an example of this. Only a bureaucracy still impervious to the modernism of the Prime Minister could have brought down the rate of growth to a level almost as low as 5%. “Naya soch” is needed, and this includes analysing problems objectively rather than through the distortion of PR machines. To ensure double digit growth, Prime Minister Modi needs objective assessments from his team, especially post-mortems of programs that are being implemented. This is what those chosen by Modi for responsible positions need to ensure during the remainder of his term, so that by 2019, the country’s rate of growth gets back at least to 8% in preparation for the double digit growth mandatory over the next five years to avoid unbearable social turmoil.