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that a huge amount of the cash withdrawn from circulation would, in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.
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