The need to differentiate cronyism from libertarianism

Recently, Algeria made airbags compulsory in all cars imported into the country.  Algeria is an attractive market for automobile OEMs, many of whom have manufacturing operations in India.  Predictably, the big daddies of auto inc have made visits to Algeria (and possibly the govt of India) to see if something can be done about a rule that would improve safety of passengers.  India is also expected to make airbags compulsory with the pending Motor Vehicles Act, presently stuck in Parliamentary logjam.  Wonder whether suits and boots have made advances to the opposition.

However, the point of bringing this up (the fact that Algeria has legislated more advanced road safety norms than India) is to contrast it with a popular example cited by libertarians.  The seat belt example is one of the absolute favourites of libertarians.  They ask what business does govt have to make it mandatory for cars to offer seat belts?  They opine that manufacturers should be allowed to offer cars without seat belts, thereby bringing down their cost, and let customers choose if they wish to pay more rather than ‘force’ features onto them which they don’t ‘need’.  By this standpoint, India must be some sort of a libertarian paradise because standards and norms are lax even in theory and very poorly enforced in practice, leading to a laissez faire system (again, in practice).

Except, India, most emphatically, is not a libertarian paradise.  Rather, its system is loaded in favour of cronies with deep pockets and against individual citizens of limited means.  So how does this work?  Basically, by means of stiff entry barriers combined with a lax operating environment that awaits the privileged ones who manage entry.  In a way, the state of things in higher education in engineering and medicine mirrors the Indian economy.  Very tough to get in without ensuring a commensurate standard of proficiency in the professionals it turns…or quality of produce in the case of the economy.

Through a combination of ambiguous laws with a frequently verbose, archaic turn of phrase and a corrupt bureaucracy, especially at lower levels of the chain, India makes it expensive to set up shop and obtain the requisite permissions.  Once you get in, though, it willingly turns a blind eye to your activities…that is, as long as you do what is necessary to remain in their good books.  An example of how this too is loaded in favour of the fat suits and boots is that a small time hawker running his operations without a licence can lose his equipment if he does not cough up the ‘rent’ in time but a certain well-decorated entrepreneur evades responsibility after failing to repay loans due to banks from some of his troubled enterprises. The latter can enlist the help of lawyers and accountants to arrange his affairs such that he can, in effect, legally get away with murder but the former pays a heavy price for a crime that ultimately causes little harm to anyone apart from worsening traffic congestion and overall hygiene in the city.

Thus, the seat belt example only resonates in an environment where optimal conditions for the starting and shutting of business activity as well as efficient and effective procedures and law enforcement already exist.  Like the United States or Singapore, perhaps.  And these economies see fit to enforce certain regulations to ensure a minimum quality of life for their citizens.  What, then, is a more practical test of market liberalisation in an economy (a pre-requisite for libertarian conditions) is, simply, the ease and efficiency of doing business in an economy.  Regulations that tell you what you can and cannot do do not by themselves make it tough to do business, contrary to the libertarian view, as long as said regulations are transparent and unambiguous.  What does make life tough for a businessman is having to contend with an army of hungry bureaucrats who can interpret the rulebook in a million ways to get you.  I remember a relative’s car attracting the attention of the traffic cop not because the driver had oversped or jumped signals, but because the quality of the number plate was allegedly suspect (emphasis on allegedly).  There you go.

Prime Minister Narendra Modi is spot on in saying that doing business should be made easier for aam aadmi (common man) too and not just Ambani.  That is indeed what market liberalisation is all about.  It remains to be seen whether that, though, is indeed what the BJP will actually execute over the next four years of their term in office. Whether they do so or not would depend on an appropriate understanding of liberalisation and, specifically, ease of doing business.  Hand in hand, libertarians ought to dream up better examples to communicate their ideology to those not already converted.

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Budget 2015: BJP embarks on the Westernisation of the Indian economy

The media has largely received the Central Government of India’s budget for Financial Year 2015-16 with tepid applause.  Solid and steady but no big bang announcements is the general refrain.  It is generally perceived as a mild disappointment.  But far from being disappointed with such a response, Finance Minister Arun Jaitley would only be too happy to have his budget perceived as a non event.  For it will give the ruling party BJP the political space they need to push through a paradigm shift in the way the Indian economy works.

One of the most significant announcements in the Budget is perhaps insignificant in terms of its bald monetary impact.  Wealth tax has been abolished and it is to be compensated by imposing an additional 2% surcharge on the income tax collected on crorepatis.  Jaitley argued this will give him Rs.9000 crore additional revenue in lieu of the Rs.1000 crore yielded by wealth tax.   Chump change, one may call it.  Not quite when you consider the difference in outlook such a move reflects.  Abolishing taxes is a rarity in a country where new ones are normally invented every budget.  The government has for the first time made a pragmatic assessment of the trade off between administration cost and revenue and decided that wealth tax has not accomplished its purpose.  By abolishing it, they have also struck off one compliance from the taxpayer’s list.  Meanwhile, they laugh all the way to the bank anyway vide the surcharge.  Simplification of India’s tax regime has begun in full earnest and yet the event went barely noticed thanks perhaps to a combination of astute messaging by the government as well as the media’s pre-conceived notions about big bang reforms.

That abolition of wealth tax is not a one off is appreciated when you consider it as part of a ‘package’ that also includes a move to a lower rate of corporate tax sans exemptions as well as the much touted Goods and Services Tax,  At least so far, the government appears to be moving fast on simplification.  It fits in as part of the larger jigsaw puzzle: that of project Westernisation.

The other elements that were announced either in the Budget speech or in the days preceding and succeeding it were, in no particular order, introduction of universal social security, greater devolution of taxes to the state govts, monetary policy framework jointly framed by the Govt and RBI and the crusade against black money.  I am still skeptical on the last mentioned element but the harshness of the penalties envisaged suggests a shift in the govt’s approach on this front too.  The other elements clearly signal a departure from ‘legacy’ approaches to govt policymaking.  By introducing social security, govt has strengthened the hands of Chief Ministers desiring to pursue labour reforms and blunted the Leftist rhetoric against the same.  The monetary policy framework signals a clear shift to inflation targeting as opposed to the multiple indicators approach of the past where the inflation-growth trade off was ambiguous and discretionary.

By packaging the budget in a form familiar to those who regularly peruse Indian budgets, govt has masked its clear cut preference for running a tight ship, for voluntarily reducing its fiscal space (and ceding the same to the states) so that it can get out of areas where it does not find it feasible to be involved and for a simpler tax regime as opposed to one that, on paper, upholds ‘social justice’.  Pragmatism has replaced an Indian notion of idealism that was usually restricted to govt white papers and seldom observed in actual practice.

It is ironic that the proudly nationalist BJP have embarked on a project that will alter the way the Indian economy operates and bring it closer to the Western model.  Simpler taxes, inflation targeting, federalism, social security, does that not sound familiar?  Or perhaps this model is also to be found somewhere deep inside an ancient Indian text that yours truly is blissfully unaware and for which India ostensibly allowed the West to claim credit!  However it may be, I am at least a bit excited and shall be watching further developments with keen interest.

Modi bhakts v/s Kejri fans: The battle of “I Told You So”

The nation is in thrall of not one but two charismatic political leaders – Narendra Modi and Arvind Kejriwal.  While Aam Aadmi Party did not do well at all in the Lok Sabha polls of last year, surveys suggested people had a more favourable opinion on Kejriwal’s candidature for the post of Prime Minister.

When AAP lost and BJP secured a majority all of its own, it was the former’s fans who were most vocal in telling people that BJP would be no different from Congress and that time would prove that the public made a huge mistake in giving BJP such an emphatic mandate.  The columnist G Sampath, whose articles I usually enjoy, wrote a ponderous piece claiming the voters had voted like consumers demanding growth rather than on the grounds of national concern and were too harsh in punishing Kejriwal for his inexperience.

As days turned into months, AAP fans had the opportunity to say “I Told You So” to Modi bhakts (as his acolytes, online or otherwise, are often referred to) in a tone of thinly veiled smugness.  Evidently, the prospect of a disappointing few years of misgovernance was of less concern as that of being proved right.  So much then for national interest.  Be that as it may, as the Hindu right wing organisations fuelled disruptions in Parliament and development remained in the embryonic phase, if that, said chorus only grew louder.  BJP was just another Congress in saffron clothing and the Modi bhakts had been too gullible in falling for his PR machinery, so the rant went.

In the meantime, Kejriwal cleaned up his act and apologised to the Delhi public for squandering the opportunity granted him in the 2013 assembly polls and pleaded with them to give him another chance.  The ostensible sincerity of purpose projected by him as well as BJP poll strategist Amit Shah’s blunder in backing Kiran Bedi as a Chief Ministerial candidate aided a landslide win for AAP in the re-elections this year.  Congress was completely wiped out and BJP had but a band of three musketeers to show for their efforts.  AAP had been given about as emphatic a mandate as they could have hoped for.

And what did they do within days of coming to power but to waive off the requirement of an NOC from the Pollution Control Board for Small Scale Industries!  Whether or not they would be willing to concede as much, this is a move that would have stunned even the most diehard Kejri fans.  They had even sought to strenuously defend his populist electricity and water subsidies, claiming (in full earnest, please note) that the results of the audit of distribution companies would indeed make this possible!  However, what exactly would justify aggravating air pollution in one of the most polluted cities in the world must surely  elude at least known dimensions of reason and logic.  It is now the turn of Modi bhakts to say “I told you so” and gloat over the prospect of what Delhi is going to have endure for the next few years.  Nevermind, again, that it is a seat of political power and an economic powerhouse.  That is, what ails Delhi would surely also infect India pretty soon.  Ah, but the need to watch smug Kejri fans eat humble pie once again precedes self same much abused national interest.

As all this ensued, Modi had a chai-pe-charcha with Kejriwal.  One can only hope that the two leaders would co-operate and act reasonably to negotiate the difficult passage up ahead….in the interest of the nation.