MAKING the point that India needs to accelerate reforms, a recent comment in Forbes magazine noted that when Narendra Modi became prime minister in May 2014, ‘Some Indians saw him as India’s Ronald Reagan, ready to liberate his nation from overweening regulation… Modi should launch a deregulatory blitz before concern for future elections drains away his remaining will to act.’ But at the half mark of his tenure, it is clear that the state has a big role to play in Modi’s plans for social and economic change. The prime minister’s policies and politics possibly qualify as ‘compassionate conservatism’ – a project where a vaulting ambition to alter social behaviour is wedded to governance – and technology is the tool to deliver official programmes.

It is a governance strategy closely fused with a strong view of how society needs to be shaped. But it reflects a strong reformist impulse rather than authoritarianism. It is true that Modi’s reforms, such as Swacch Bharat, Ganga clean up, demonetization, Aadhaar-linked welfare schemes and start up India, are centrally driven by a powerful PMO (prime minister’s office) and the power of Modi’s personality. But they are not authoritarian to the extent that they are subject to the test of India’s demanding political calendar marked by regular state elections, a noisy Parliament and a deeply critical commentariat. Seen as a means of fostering social change and a more rule based society, Modi’s policies are closer to the ‘nudge’ theory of behavioural economics that seeks to steer people towards making better choices.

 

Despite criticizing UPA (United Progressive Alliance) flagship programmes such as MNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) during his poll campaign as non-productive and setting up a committee to review the Food Security Act soon after winning the 2014 election, Modi did not scrap either. In fact Congress leader Rahul Gandhi often accuses the prime minister of having run down UPA’s pet schemes but choosing – the charge is that Modi acted cynically – to continue with the initiatives. Despite the chagrin in the Congress camp, Modi has carried on, changing the way MNREGA works in keeping with his vision to make it a more effective means of asset creation. Finance Minister Arun Jaitley’s claim in his 2017-18 budget speech that the target of five lakh farm ponds from MNREGA funds is likely to be exceeded is an example of this reorientation.

There were strong arguments against MNREGA and FSA (Food Security Act) . Congress leaders such as Jairam Ramesh (rural development minister in the UPA) said the scheme needs to be more than an exercise in digging ditches. There was a serious question whether pouring billions of dollars a year into a programme that was not creating sufficient tangible assets was a terrible misallocation of resources that could have gone into building health or education infrastructure. Similarly there was something inherently amiss in a food security programme that identified 67% of the population as beneficiaries, raising the distinct possibility that the really needy will not be served as well as they should be.

The FSA concentrates on delivering cereals and depends on a creaking system run by the Food Corporation of India that has often been accused of corruption. A Supreme Court appointed committee in a report presented a decade ago found that shop owners, transporters, and officers collude to deprive the poor. The difference between state controlled and market price is so wide that it provides a powerful motive for diversion and illegal sale to the black market that no amount of policing is likely to stamp out.

 

The Modi government quietly shelved the Shanta Kumar committee report to curtail the FSA while also moving to making significant changes in MNREGA that enlarge the scope of permissible work, concentrating on asset building and ensuring electronic transfer of wages. The big push for Aadhaar linked transfers was intended to reduce fake entries and middlemen. And after considerable effort, Ram Vilas Paswan, Minister for Consumer Affairs, Food and Public Distribution, announced in November 2016 that the FSA has been rolled out in all states with Kerala and Tamil Nadu also doing so.

The decision to persist with MNREGA and the FSA was shrewdly intended to counter anticipated criticism that the new government would be elitist, and to deprive opponents of the opportunity to cry ‘I told you so’ in validation of their claim that a BJP regime was bound to act against the interests of the poor. The new BJP leadership seemed to instinctively realize that efforts to improve, rather than undo, the programmes might prove politically wise. The criticism the government weathered over allegations that it cut allocations to social sector programmes underlined that the caution was well considered. Though the government has argued that the ‘reductions’ are compensated by increased financial devolution to the states and are due to an inaccurate reading of budget documents, the charge would have hurt much more if the rural job guarantee and FSA had been rolled back.

 

The decision does not seem to be all about political optics either. Candidate Modi had targeted the faulty implementation of the rural job guarantee scheme but his actions once in office indicate that he saw merit in its utility as an emergency income in times of distress and as a means of boosting rural consumption. The increased claims during demonetization might in fact have helped assuage some of the hardship and anger over the sudden scrapping of Rs 500 and Rs 1000 notes. He might have considered reducing its scope to more deprived areas, but this would have created a division between have and have not states, not to speak of politically contentious disputes over deprivation – the previous government paid a heavy price when it sought to set the ‘poverty line’ at Rs 32 a day.

To more than one conservative think tank in the West, these actions seemed a negation of Modi’s catchy ‘minimum government, maximum government’ slogan. A detailed report in the Economist in May last year marking two years of ‘Modi sarkar’, took stock of 30-odd official promises made by the government and concluded: ‘He occasionally praises small government, but the list contains a striking number of big tasks for the state. Half of the goals involve grand, state-heavy expansion, including a commitment for state banks to open millions of new accounts, as well as building 30 km of new roads every day between now and 2017, 100 m toilets by 2019 and 100 new ‘smart cities’ by 2020.’

 

Despite the enhanced role for the state, there is no abandonment of reform principles as seen in legislation to change labour laws, reform the bankruptcy code, quicken green clearances, the aversion to big jumps in minimum support price, a commitment to roll out GST, the recast of the Planning Commission as a policy think tank and now the decision to wind up the Foreign Investment Promotion Board. At the same time, efforts to change the land acquisition and rehabilitation law have been given a quiet burial as the initiative was seen to be politically problematic. The government has instead left it to the states to frame rules and regulations that substantially undercut the act.

In fact, pro-business expectations have been belied by the Modi regime. The government’s decision, soon after assuming office, to pare down the cost of gas from Reliance’s offshore in the Krishna-Godavari basin and lack of privileged access for business groups used to having their way reflect a wariness about being accused of cronyism – a charge that hurt UPA in coal and spectrum allocations. Rather, corporate circles often grumble about nothing much happening on the ground while private investment, despite rosier hiring projections, remains muted. The stock market values of Reliance and Adanis have not appreciated much, some commentators have pointed out.

This could, of course, be a function of the general investment climate and the lacklustre performance of big business is not necessarily cause for joy; after all industry creates jobs. But the focus of the government has been more on reducing red tape and using technology to quicken decision making. Some see an intrusive intent but a more even application of rules can be somewhat disconcerting for sections of the corporate world who thrived on picking natural resources and loans from state run banks by tapping political connections. As the busting of a ring of private persons working in connivance with officials at the petroleum ministry in 2015 revealed, the ‘dalals’ had struck very deep roots in the official machinery. So leaky had the system become that it was an easy option for some journalists to approach corporate offices for cabinet notes rather than seeking out official sources.

 

On balance, Modi may be better seen as a ‘modernizer’ rather than pro-market or pro-business. His conservative approach to privatization indicates as much. Here again he has disappointed those expecting large-scale sale of state business, often seen as corrupt and inefficient. He has instead opted for some closures but has stopped short of considering big assaults on the state sector such as privatization of Air India. He has chosen to make PSUs more accountable through regulators who are gaining a stronger and as yet insufficiently recorded role. This is most evident in pharma and health, where the regulator is actively intervening to cap the price of medical devices, regulate junk food and set norms for over the counter sales of medicines.

Technology is the key to Modi’s plans. The prime minister is described by officials who interact with him on a regular basis as something of a policy wonk. He is able to sit through meetings and reviews endlessly and intervenes only occasionally, picking up points that seem to reflect his long experience as chief minister. He can be demanding in setting targets and while he is polite, officials are aware that he can catch a shoddy piece of work. The weekly reviews and assessments and big initiatives like jan dhan accounts, streamlining of cooking gas and other subsidies (it is a matter of time before farm subsidies are re-targeted) depend on technological innovation and the UPA’s Aadhaar programme is at the heart of the Modi government’s efforts.

 

The UID programme is yet to cross the final hurdle in the Supreme Court where it faces a challenge on the grounds of privacy but it is the cornerstone of the jan dhan-aadhaar-mobile trinity. Ensuring accurate transmission of welfare benefits through Aadhaar linked accounts and enlarging access through mobile platforms are central to Modi’s socio-political agenda for a more efficient economy and increased political support. The increasing use of Aadhaar by private enterprise which has begun to recognize the benefits of using the platform for know your customer processes seems a validation of UID’s reliability.

The reliance on technology is also reflected in the effort to monitor infrastructure projects and marks a big step up in the initiatives taken up at the end of UPA II’s tenure when a project monitoring group was set up. The delays of a majority of projects at the time were due to lack of green clearances and a fallout of the coal scam, a factor that required the intervention of the political leadership rather than officials.

Modi could well have imbibed a lesson that good public policy schools tell their students: economic viability and market principles are important but it is crucial to recognize their limits in government decision making that deals with complex human problems and seeks to meet political goals as well. There is evidence in proposals such as enhanced maternity leave, stronger laws to protect scheduled castes and tribes and the initiative for a wider deprivation index that the government has displayed a strong bias for social welfare and equity.

 

In their best-seller, Nudge: Improving Decisions on Health, Wealth and Happiness, University of Chicago economist Richard H. Thaler and Harvard law professor Cass R. Sunstein make a case for ‘libertarian paternalism’ where governments ‘nudge’ people in the direction of better decisions such as enrolment in pension schemes and healthier eating habits, while remaining accountable in the process.

Modi’s style of governance could be seen in this perspective. He is administering a nudge in a fashion that is no doubt top down (though it incorporates a strong feedback mechanism), personalistic, direct and interventionist. This is evident in the manner in which executive privilege has been wielded in curtailing tenures of top bureaucrats and setting aside the principle of seniority in appointments.

As Modi’s monthly broadcast ‘Mann ki Baat’ indicates, the prime minister is keen to use his personal popularity to propagate messages like swacch bharat and use of online payment Apps like BHIM. As he did during his 2014 campaign, he talks directly to his audience. In fact, the media – as when TV channels telecast his speeches and rallies – is not much more than a means for this purpose. And as the postdemonetization budget reflects, the decision to scrap high currency notes is clearly linked to seeking big changes in social and economic behaviour through adoption of cashless transactions and higher tax compliance. The scale of the interventionist and reformist ambition it reflects is remarkable and certainly disruptive.

But it would be wrong to label it as authoritarian. Consider a comparison with Barack Obama’s signature healthcare plan – ‘patient protection and affordable care act.’ Obamacare was subject to a highly divisive debate in the US. Some felt that the penalties prescribed for not buying health insurance were an intrusion on personal choice. But the legitimacy of the executive action, ratified by Congress and scrutinized by the US Supreme Court, cannot be questioned. The Manmohan Singh government had the right to sign the civil nuclear cooperation agreement with the US despite the opposition of political rivals and anti-nuclear activists. It is, therefore, rather odd to argue that a ‘weaker’ government ensures a better guarantee of democratic rights!

 

There is an inherent tension between liberalism and democracy with social thinkers pointing to a likely conflict between individual rights and majority rule. Yet, democracy gives governments the legitimacy to take decisions. If demonetization receives parliamentary approval and passes the challenge it faces in the Supreme Court, it will be a politically and constitutionally legitimate decision. In fact Indian examples seem to offer a better prospect of consensus as the protracted negotiations over GST (General Sales Tax) – and UPA’s negotiations with BJP over FDI in insurance – have yielded fairly robust political acceptance. In contrast, President Donald Trump has lost no time in attempting to undo Obamacare.

The Modi government will continue to face a stern test in Parliament right to the end of its term with a lack of majority in the upper House. As has been evident, even a much diminished opposition has been able to stall proceedings repeatedly in the Lok Sabha. The government has had some success in using parliamentary committees to vet bills but political factors remain unpredictable. Modi and the BJP will be keenly aware that the excuse of a noisy Parliament for non-performance will not wash with voters in 2019. The prime minister has made it clear he does not intend to complete his term without some landmark initiatives. ‘Did you think Modi will just come and go like other political parties?’ he asked a rally in Goa in November last year.

 

With demonetization, Modi has made a bold attempt to substantially enlarge the BJP’s support base, even at the expense of annoying traditional backers like merchants and traders. The move is marked by Modi’s risk-taking ability previously seen in both his ‘sudden’ visit to Lahore in December 2015 to attend a wedding in Pakistan Prime Minister Nawaz Sharif’s family to the decision to order surgical strikes on terror launch pads across the line of control in Jammu and Kashmir. It also reflects a restless quest to alter the status quo as well as a desire to make inroads into a section that has often been influenced by the populism of parties like Congress and more recently AAP (Aam Aadmi Party).

But if BJP found itself disadvantaged by populism it could not mimic and was ousted from office in 2009 for its India Shining slogan seeming too elitist, Modi seems keen on avoiding a similar fate. Like successful batsmen in modern T 20 cricket, Modi has displayed a fondness for playing the ‘switch hit’ – a cricket shot that can turn the opposition’s field setting, and assumptions, on its head. As he seeks a wider constituency, Modi is not abandoning the BJP’s middle class supporters in his quest for new votaries. The argument that tax records show there are only 24 lakh persons in India with incomes of more than Rs 10 lakh a year resonates powerfully with the salaried classes. Without political support, the best of reforms are doomed. So far, Modi has not lost sight of this truth.