As Modi Sarkar enters its third year, a number of its economic policies are now firming up from promised outlines in election speeches into distinct working structures on ground. As is with any popular government, BJP under Modi gets voted to power from a varied population base with different expectations and priorities. Given a large populous country like India, these divergences only become more acute. Of course the full scope of expectations, promises and policies would span the entire governance spectrum and would be a minor thesis of looking at BJP’s manifesto and the governance model across all domains, but we would all agree that economics was one of the key parameters where a break from business as usual was promised.
It is often said that BJP is a business friendly party, and draws its support from the merchant and entrepreneurial classes, the “suit-boot ki Sarkar” though misplaced understanding of these classes was supposed to be a jibe at the same. It is also true that a significant section opposed to the socialist left wing economics have supported BJP. It cannot be said that the expectation that these groups have from BJP is misplaced as Modi himself has been a champion of increasing business in Gujarat through considerable outreach and his expression of maximum governance and minimum government. Taken together the various pre-poll promises, track record and unfulfilled expectations from previous governments led to filling in of the blanks of unsaid promises to create an expectation of a “strong right wing economics” based government. It is of course natural that the constituencies which have supported the government would evaluate the government against the same. These in turn found Modi government fall short of the unstated economic model that some of their more vocal supporters on right wing spectrum were expecting.
It is here and now where we start running into this extremely ironical situation of opposition blaming the government of being business friendly and some of its constituencies being upset for exactly the opposite reason. It is a bit of a puzzle to see the same government being accused of two exactly opposite things at different points of time. Clearly the answers to the conundrum in part lie in the different expectations and agendas, but also in part of what right wing economics really mean, especially in the Indian context.
The agenda of the opposition is of course easier to deconstruct, since to blame a clean government is nonsensical especially after running the longest span of blatantly crony capitalism where wheeler dealers had replaced ministers and the government was essentially an instrument to scam public goods for personal profits of some. The anger of the opposition is therefore not towards any shift of governance towards supporting big business, but at the frustration of having their preferred bag-men reduced to the same status as any other citizen and the drying up of their personal revenue sources. The angst of the supporters is a little more puzzling, since they voted against the laissez-faire of crony capitalism in the first place and surely can be excepted to understand the new dispensation. It is here where the lack of a strong clear definition of expectations comes to play.
What is after all right-wing economics ? Does the word right wing even mean anything in India which has never seen a left and right divide in public opinion in the European sense ? What is a government which is business friendly expected to do ? Are there global definitions ? Can a set of universal definitions, if any, apply in India ? Yes, there are of course broad agreements on the right end of the spectrum, and lower taxes and reduced government spending with balanced budgets is something we all agree on. Ease of business is also a given objective for the right. That part is not simple. The issue is, when we say lower taxes, how low ? Reduced government spending is good, but then what is acceptable domains for the government to spend on and where should it not ? What expenses are welfarist and what are legitimate public spending ? How much of government spending in any given domain is still valid and where does it cross the line ? How much should a government be supported and in what way ? For a robust theory to truly emerge, there needs to be much more spirited discussion within the ranks with a particular emphasis on Indian traditions.
Sadly, while the academia burdened by the left-communist rent seeking statistics have regurgitated borrowed tomes from discredited universities outside, the stifling environment of obsequiousness left no space for a genuine discussion on truly prevalent existing systems world over, let alone Indian systems and best synthesis and adaptations of existing Indian views with emergent economies of the world over. The greatest damage as a result of this, is that the definition of right wing economics seems to stay rooted in the Marxist definition of capitalism as colonial extraction based capitalism. Sadly this seems to have been assimilated by a section of right wing in what to expect. The wiki article on right wing associates it with laissez-faire capitalism, and there is where Marxist hagiography has left it locked. There is a knee-jerk reaction to ALL government regulations, any spending which is not on protection of property and dislike of any social schemes of government, almost in a blanket manner. The expectation is that government is merely to be referee in a contest to obtain maximum riches within the society and devil takes the hindmost. While this is very much like what the English and other European crowns approached the colonial period leading to industrial revolution as, to make it axiomatically the complete picture of capitalist economy would be to do it disservice. We know that all Indian societies valued capital and capitalism was inherent part of society, but did the Indian system look like the caricature expressed before ? Today the entire world barring the basket case economies of Venezuela have opened up from imagined paradise of socialism to real world of open market economies, and do they all look like the limited picture presented ? To do justice to the problem statement as defined above, an article does not suffice, it needs a thesis running perhaps into a book or multiple books. Gurucharan Das for example, has attempted to do something similar with his work of anchoring capitalism in Indian systems, and while is exact historical basis is still somewhat hobbled by western views, his broad thesis is valuable. Other works include works by Sumedha Varma Ojha and Sanjiv Sanyal mentioned in references. What we can do however in reasonable scope of an article is to discuss some of the key aspects of Modi Sarkar and how does it line up against a broader understanding of conservative economics.
Let’s tackle the first bug bear, taxes !! Taxes and public spending. In the rightist view of the world, taxes are not forbidden but to be used judiciously, the judicious use very much includes public spending. Arthshastra asks a king to promote the welfare including economic of its people, and various other texts exhort the kind to look on its citizens as it would care for his children. At the same time they ask the king to collect taxes as a bee would collect honey, and keeping the level of taxations tolerable is mandated. Yet Arthshastra asks for 1/6 share of crops, which at 16% is not dissimilar to the tax rate for the bulk of population. In addition indirect taxes are present for nearly every transaction, including road taxes for shipping goods, the tax rates varied between 10% to 25%. Interestingly again very close to GST rates. This trend is seen modern fiscal conservatism the world over, where the need is not look at absolute reduction of taxes for their own sake, but on the overall impact. There are in addition calls for right wing Keynesian economists to re-emerge. What this gives us is an understanding a new framework in which fiscal conservatism would seek taxes and expenditure much like a company would see borrowings and expense.
For a classical capitalist every tax is not an income, but a borrowing from people, to be repaid to them in kind.
What it means is that a government must not be judged as being right wing simply on the basis of whether its collecting taxes or spending them, but on the basis of what kind of taxes its collecting and how its spending them.
A capitalist government would look at spending as investment into society for creation of valuable soft and hard assets which will pay back the investment in terms of monetary aspects of increased overall tax revenue as much as social aspects. It would similarly look at tax carefully as companies do with borrowing. What is the cost of taxation ? Does it take money from individuals in way which would impact distributed capital creation and investment ? Is the cost of borrowing offset by additional goods that the state may create over individual ? When is the collective hand of state better than fragmented individuals ? This neatly ties into the maxim in Mahabharata The king, O Bharata, should always act in such a way towards the Vaishyas [merchants, commoners] so that their productive powers may be enhanced. Vaishyas increase the strength of a kingdom, improve its agriculture, and develop its trade. A wise king levies mild taxes upon them’ Therefore a payout towards Swacch Bharat raises the health level and a productive population is a good building of economic asset for investments, where as a dole paid out as unemployment benefit is a onetime expense for the government and not a valuable economic activity for the state.
The above also brings us to the part of ease of doing business versus the regulations of state. While Arthshastra asks for growth in trade, and encourages imports, it, at the same time asks regulation of trade when it asks for it to be balanced to safeguard against the loss of bullion. It also asks to encourage the import of goods domestically scarce yet asks for higher duties on luxury goods. This is by no means an economic prescription where state is indifferent to quality of trade. Yet it asks for government policies should be easy to understand and administer. To an economic ideologue the above would seem a travesty. How can someone who speaks for growth of mercantile society asks for regulation of trade, they would ask. Free markets is for them an article of faith, and the belief that freer the market the better is the growth is axiomatic, irrespective of the on ground outcomes. The same attitude resulted in the massive economic destruction of the great depression and 2008 sub-prime crises. Ideological fanaticism on economy even if couched under fiscal conservative is something which is suited to literalism of the left and does not deserve a place in real world. Let’s remember that Trump, as much a right wing politician as can be, came to power against the laissez-faire of so called liberals in context of international trade. There is no doubt that for a right wing government, higher overall growths would be balanced with regulation for overall national priorities, it cannot be and either-or situation.
Ideological positions on economy never work, but a realistic balance with eye on national interest is hall mark of right.
As Deng Xiaoping, the man who set China on its free path of growth put it, ”It does not matter whether the cat is black or white, as long its catches the mice.”
So far, what we see is a Modi government most acutely following an Arthshastra like strategy.
The indirect taxes are now ranged between 0-28% in GST, very much in line with the ancient text. Incomes below 5 lakhs are practically free, those up to 10 lakhs are 20% again close to the Arthshastra number. The GSTN though still getting off the tarmac, would be a significant step towards ease of doing business which the GST with freedom from state tax already is becoming. The continuous reduction of number of governance rules is also a strong indication of promotion of ease. Reduction of corruption as seen by global rankings is yet another very much directive from Arthshastra. The demonetization exercise again brings to the fore the emphasis that Arthshastra pays on keeping the mint supreme and money supply free from fake currency in circulation, apart from of course the prescription of danda towards those who would steal the due taxes. On the expenditure side there continues to be a focus on getting the fiscal deficit in check. This is coupled with long term trends of reduction of current account deficit. Again a very pragmatic policies informed by the right. Marginal fluctuations in GDP growth numbers are offset with the balance of overall economic health and long term vision of strong free market system at a foundational level. The quality of expenditure too has been targeted towards investment and not expense, with NREGA being re targeted towards asset creation at a micro level. The focus on Mudra bank to provide capitalization to the smallest Vaishya is quite in keeping with what classical Hindu mercantile system would ask the king to do. The most significant parts of spending are on capital outlays of infrastructure development like roads and ports. The Ujjwala scheme helping millions of poor women, is not a dole, but a way to cut down carbon emission and investment in quality of man power, not to mention it replaces a statistic approach of subsidies and welfare with targeted economic intervention. So it is with focus on generic drugs.
The more we see of Modi’s economic policies, the clearer it gets that it is informed in great parts by classical capitalism of the Arthshastra, and it is to be expected that future acts could be again out of the same playbook, still valid after all the years.
The government is to be lauded for staying on course to the true spirit and actions of a right wing fiscally conservative government with balance of overall national aims with economic growth bravely in face of uniform attacks from ideological left and its cousin the crony capital right.
As an aside; there has been in recent past a little too much angst at rising fuel prices, this was particularly comic as it supposedly came from self-professed right wing ideologues, who had clearly missed the point that no taxes had been raised, and the price rise was a consequence of the international price fluctuations. As speakers for free market economics, a stable tax regime coupled with non-interventionism towards price fixing should have been welcomed instead of decried, and the hypocrisy did go a long way in exposing the supposed supporters of capitalist economics.
[An Analytical Study of the Relevance of Arthshastra in Modern India ]http://www.iosrjournals.org/…/pape…/vol5-issue3/E0533235.pdf
Leave a Reply