Watershed moment

In Indian politics, it can be hard for a politician to defend wealth creators in a public forum. Despite the success of three decades of liberalisation (lifting controls on production, lowering barriers to trade and opening up the financial sector in a calibrated way) in lifting millions out of poverty by unleashing entrepreneurial energy, politicians would rather not say that they are for ‘capitalism’. On Wednesday, however, the Prime Minister chose to be forthright. On the floor of the Lok Sabha, he made two major points: One, the country needs wealth creators or producers in the first place for that wealth to be distributed, and that they should not be unfairly attacked; and, two, the idea of the government running public enterprises has outlived its time and that the bureaucracy in any case should not be running them. Scarcely ever has any senior politician, let alone a prime minister, spoken with such candour in Parliament in recent years. It took China’s iconic leader Deng Xiaoping to make a rhetorical break, when he famously said, in the 1980s, ‘it does not matter whether a cat is black or white (capitalist or socialist), so long as it catches the mice’. He spearheaded China’s transformation from a closed economy to a market-oriented one.

Modi’s statement comes against the backdrop of the farmers’ agitation, which has accused the government of being pro-big business. It also signals an intent to stop being defensive in the face of Rahul Gandhi’s ‘soot boot ki sarkar’ jibes that largely set the agenda during the first term of Modi. His assertion marks the final burial of the ghost of ‘India Shining’ — the BJP’s loss in the 2004 general elections, which was attributed to a perception of the Vajpayee government being pro-rich. The Prime Minister’s articulation of his economic philosophy is a welcome change and is of a piece with recent policy moves of the government such as the reduction in corporate taxes and the strong push for disinvestment in the recent budget. Suspicion of business was a central feature in Indira Gandhi’s Congress rule, featuring large scale nationalisations, controls on production and prohibitive tax rates which were seen as responsible for holding back India’s growth. The ideological lineage of this government can be traced back to Rajaji’s Swatantra Party, and to an extent Lal Bahadur Shastri and Morarji Desai.

Economic Survey 2019-20 made a detailed case for promoting wealth creators, making a crucial distinction between being ‘pro-business’ and ‘pro-crony’. In practice, however, cronyism has been the norm in the financial sector, leading up to the NPA mess in 2011-13. Ineffective regulation has stifled genuine competition and distorted markets. A greater understanding of how markets work as institutions and their regulation should accompany a renewed commitment to reforms. The Prime Minister’s speech should be accompanied by a confident and transparent approach to disinvestment.