The announcement regarding major liberalization in the foreign direct investment (FDI) regime is arguably the biggest economic reform the Narendra Modi government has carried out so far. Equally, if not more, important is the fact that there is not likely to be any rollback, despite the pro-forma reservations expressed by RSS-linked bodies like the Swadeshi Jagran Manch (SJM)and the Bharatiya Mazdoor Sangh.
The SJM has claimed that the move would adversely impact job generation. “Opening up sectors like retail, defence and pharma to FDI and by relaxing norms is betrayal to people of the country. In doing so, this government has not done good to the country in general and local businessmen in particular,” SJM’s national co-convener Ashwani Mahajan told PTI.
Then there are communists and the Congress who oppose the liberalized investment norms because they have to oppose anything the government does. Thus, it is mainly resistance from the saffron camp that matters.
It is significant that the RSS itself has not opposed the relaxation in FDI rules—which is not surprising because it is very likely that the government has already taken it into confidence before taking the decision. For it is a well-known fact that the government and the RSS are working in tandem. A lot of people recommended by the core saffron organization have been accommodated within the system; its agenda is also being implemented in various domains, especially education. There seems to be a trade-off: we liberalize the economy but also further your cause and employ your people, so you keep quiet.
It is not a very happy situation, for ideally efficiency or efficacy should not be the vehicle to carry reforms forward; they cannot go beyond a point if unaccompanied with the moral-philosophical rationale. Such a rationale, unfortunately, is nowhere in sight.
To be fair to the Modi regime, we must emphasize the fact that liberalization as a policy has never been nurtured by principles; it has never been accepted or politically sold by anybody as a policy based on a sound political philosophy. Liberalization in our country is like a brothel-keeper whose services are always needed but whose company is frowned upon. Even in 1991, when economic reforms commenced, the P.V. Narasimha Rao government did not justify liberalization as the needed policy framework in the event of the failure of socialism; it was presented as a continuation of, rather than breach from, the Nehruvian ideology. In fact, Nehru was quoted favorably while doing away with his ideas.
The Modi government is little different from its predecessors. Despite the pretensions of being post- or even anti-Nehruvian (scrapping of the Planning Commission, the diminution of the first prime minister in textbooks, et al), the regime is still wedded to the ideas and ideals of statism.
The only good thing is that reforms do take place—occasionally, diffidently, more often incrementally. Invariably, the boldness is subprime, as in the recently announced new civil aviation policy. But reforms are happening—on various cues.
A large section of the mainstream media has claimed that this time the cue is Reserve Bank of India Governor Raghuram Rajan’s exit or Rexit. We have been hectored into believing that the government move is essentially a shock-absorber—to cushion the fall of the economy following the announcement Rajan’s going back to academics. His quitting, we were told, would be apocalyptic for our country. As I wrote in an article (http://www.thehinduchronicle.com/2016/06/rajan-indias-savior/), “If Rajan exits, monsoons will fail in India. Polar and Himalayan glaciers will melt. For he is the Indian Atlas, holding the entire economy on his shoulders. Imagine the catastrophe all of us would face if he, taking a cue from Ayn Rand, decides to shrug! Or, still worse, the Modi regime doesn’t give him another term at the central bank!”
Or so we were told.
Another theory would be that Modi wants to bolster his image in the West where his image as a reformer has taken a beating. At any rate, anything bad—reforms, FDI, etc., are bad according to the peddlers of such views—is attributable to the bad Westerners, who are led by the worse Americans.
Whatever may be the cue, the fact that reforms are taking place is good news. As the father of reforms in China, Deng Xiaoping, said, “It doesn’t matter if a cat is black or white, so long as it catches mice.”
If the FDI decision was prompted by Rexit, so be it. If he gets some credit for a major reform, Subramanian Swamy is unlikely to complain.