In its four years in power, the Modi government has laid the basis for a more robust Indian capitalism. Let us count the ways:

1) Through demonetisation and the introduction of the goods and services tax (GST), the government has attacked the informal sector, leading to an expansion of market share for the formal capitalist part of the economy. This is a huge step, as previous governments were wary of disrupting petty commodity production, which provides the bulk of employment in the country. The Modi government has bulldozed ahead, which is good news for the corporate sector.

2) The government has allowed contract labour in all industries. This will allow businesses to hire and fire, giving flexibility to companies.

3) It has narrowed the fiscal deficit and subsidies have been rolled back.

4) The government has increased the tax-to-GDP (gross domestic product) ratio, primarily through indirect taxes. On the other hand, the corporate tax rate has been lowered for smaller companies and promises have been made to extend the benefits to large companies.

5) It has done a lot to improve infrastructure, especially the roads sector and the private sector has been involved in a big way.

6) The bankruptcy law will change the face of Indian business, resulting in a swift reallocation of stranded assets to productive uses. It has signalled an end to the promoter raj and sent the message that only the efficient will survive. The measure will lead to consolidation and concentration of capital across Indian industry.

7) The Real Estate (Regulation & Development) Act, or RERA, has cleaned up the murky realty sector. This will weed out small operators, while supporting well-capitalized companies.

8) It has rolled out the red carpet for foreign investors. In these times of globalization, there is no alternative but to do one’s best to attract foreign capital.

9) The government has been able to keep down the increase in minimum support prices for crops. This has lowered inflation and also allowed the corporate sector to protect its margins. Growth in rural wages has been curtailed. This ensures that the reserve army of the underemployed continues to exert a downward pressure on wages.

10) Through demonetisation and GST, it has increased the capabilities of the Indian state and tried to shed the label of a “soft state".

11) The ruling party’s ideology of religious nationalism has the merit of distracting the attention of the masses waiting impatiently for the fruits of development to trickle down. The hard work put in by the ruling party’s grassroots organizations has done much to steer away the poorer castes and classes from militant demands that interfere with the process of capital accumulation. As the Roman satirist Juvenal said, it is necessary to provide both bread and circuses to the masses.

12) To be sure, India’s democracy sometimes makes it necessary to offer sops, for example, farm loan waivers. Thankfully, the Modi government has ensured private sector participation in many social programmes, such as the affordable housing programme or its proposed health insurance scheme.

13) The presence of a strong charismatic leader is a big help in developing an anti-liberal mass base and ensuring right-wing policies are implemented. The government has done its best to neutralize the left wing and has placed its nominees in crucial positions in important institutions. Recall that all the East Asian miracle economies had their growth spurts under autocratic governments.

Could the Modi government have done more? Yes, it could have pushed privatization, but then their model of capitalism is probably the East Asian one with a strong role for the state.

All the above measures are, of course, music to the ears of the markets and the corporate sector. But there are strong external headwinds, ranging from higher oil prices to rising protectionism to tighter liquidity.

Will the government’s strategy work? Or will those affected by the disruption caused by the Modi government’s policies strike back? That is the question the 2019 general elections will answer.

Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at manas.c@livemint.com

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