Will Modi 2.0 show more appetite for reforms?

In handing over a landslide victory to Prime Minister Narendra Modi, voters chose to weigh lightly the economic hardships of the last five years, many of which did result directly from the policy decisions taken by his first government.

Voters did not judge Mr. Modi for his record on the economy, but will his second government show more appetite for reforms necessary for the material progress of his voters?

More than anything else the answer depends on Mr. Modi’s interpretation of the mandate he has received.

If his interpretation is that the victory represents voters’ will to strengthen his hands for pressing ahead with decisions considered so far, including by his first government, politically risky, then he will show an appetite for reforms. But if Mr. Modi’s calculation is that he can go on winning elections without reforming the economy, the record of his second government may not differ vastly from the previous one.

Many of his supporters are interpreting his victory as a ratification by the voters of the turn his first government had taken in 2015 towards politically less risky but economically inadequate policies. If he too believes so, then chances of transformational reforms of the sort seen in the 1990s and early 2000s remain bleak.

By all accounts, it was a conscious decision driven by political calculus that had held back the first Modi government on reforms.

In fact, in its first year itself, the previous Modi government had put in place an economic strategy spanning initiatives of Make In India and labour and land reforms along with a host of other potentially transformational ideas.

The plan was abandoned after the Bhartiya Janta Party (BJP) suffered electoral losses in 2015, first in Delhi, followed by Bihar. Until then, the party had bagged every state that had gone to polls after the Modi government was sworn in 2014: Haryana, Maharashtra, Jammu & Kashmir, and Jharkhand. The rout in Delhi in February 2015 was disorienting for the government. If the loss that November in Bihar had the party worried about the durability of the ‘Modi Wave’, 2016 brought more defeats. Out of the five state polls held in 2016 – in Tamil Nadu, Puducherry, Kerala, West Bengal and Assam –the BJP won only one: Assam.

As party strategists retreated to the drawing board, the anti-reformers and the status-quoists in the Modi Cabinet played up the ghost of the India Shinning debacle of 2004 and argued reforms do not get governments re-elected, and derailed the proposals that were in the pipeline.

The late Ananth Kumar succeeded in vetoing the overhaul of the fertiliser subsidy despite a series of consultations led by then Finance Secretary Rajiv Mehrishi in the Prime Minister’s Office. Similarly, the Ordinance for amending the land acquisition legislation was allowed to lapse after being promulgated multiple times. Proposed changes in labour laws were forsaken after labour unions, including those affiliated to Mr. Modi’s BJP, fiercely opposed planned amendments in a meeting with the prime minister himself.

In a supposed course correction, the Modi government started talking up “pro-poor welfare schemes” and proceeded tentatively and gradually on the insolvency reform. The new direction ultimately led to the ill-advised demonetisation that was intended to and succeeded in giving Mr. Modi a pro-poor image, and yielded half-baked reforms such as the messy GST and the tentative insolvency provisions. The much-needed clean-up of the rot in the banking system was not taken up.

If the pursuit of an economic reforms agenda does fit into Mr. Modi’s political priorities this time round, one way of avoiding a repeat of the lacklustre performance and leverage his historic mandate for transforming the economy from middle income to high income status would be to get sound advice.

Getting the right advice

Reforms need a logic, a roadmap, a healthy regard for expertise and a good team to be in place –elements that were not evident in the few reforms the first Modi government pursued. Even the performance of politically important schemes such as Namami Gange and Smart Cities was dismal.

Mr. Modi will be better off relying on trained technocrats, bureaucrats and external experts for driving change. He should consider tasking a carefully constituted and competent group to draft, strategise and execute a blueprint for reforms. This is easier said than done. It calls for maintaining a fine balance, as the risk on the one hand is of respective Cabinet and Parliamentary procedures and approvals getting reduced to perfunctory rubber stamps. On the other hand, politicians can be expected to, as they did in case of GST, strive to preserve their clout and economic controls, defeating the purpose.

Careful selection of the panel can minimise similar tendencies of bureaucrats. The prime minister needs advisers who will put across the dangers of the status quo or half-baked reforms to him in time and without beating about the bush or fearing loss of position.

The experience of past governments, especially the one led by PV Narasimha Rao, showed that the pursuit of reforms demands fine balance between politics and expertise. Even the consensus builder AB Vajpayee could not overcome the resistance from the anti-reformists in his Cabinet to many of his initiatives including Air India privatisation. If Rao’s record remains unbeaten, it is also because he picked a peerless team led by AN Verma, his principal secretary who headed the PMO. This team slogged behind the scenes crafting, polishing and fine-tuning reforms and strategies.

Thankfully, the Opposition was not and is still not in a position to obstruct decisions. In supporting the GST in the Rajya Sabha, the Opposition, and in particular, the Congress, was more mature than the BJP had been during the tenure of the UPA II government. Given the drubbing it has received at the polls, the Opposition is unlikely to recoup in the first year of Mr. Modi’s tenure. An early start will help.

(Puja Mehra is a Delhi-based journalist. Her first book, The Lost Decade (2008-18): How India's Growth Story Devolved Into Growth Without a Story, has been published by Penguin Random House)