Former Reserve Bank governor Raghuram Rajan on Wednesday questioned the ‘minimum government and maximum governance’ promise of the Narendra Modi regime, saying the state has gained more power sans any checks and balances and has created too many inefficiencies in its wake.
This has led to a “dependent and pliant” private sector which has no choice but to applaud every decision of the government, the noted economist said.
“The question is, how far have we come on that (minimum government and maximum governance)? I think we continue to rely too much on the bureaucracy to do many things,” the academic said at the city launch of his new book ‘The Third Pillar’ here this evening.
“The scope of the government is something we will have to examine sooner, rather than later because today it does too much too inefficiently,” he said.
It can be noted that the minimum government and maximum governance promise was one of the central themes of Modi’s 2014 election campaign.
However, in the past five years of his rule, his bloated administration has been accused of being “statist” by critics for decisions like demonetization and the haphazard manner in which the uniform tax regime GST was rolled out.
Rajan, who went back to the University of Chicago as a professor after his stint at the Reserve Bank between September 2013 and September 2016, said “we must not go back on liberalisation moves”, criticising the recent moves like re-introduction of protective tariffs in a slew of sectors like steel and consumer durables like televisions and smartphones, which led some leading foreign companies to shutter their local manufacturing.
He was also critical of the policy changes on the e-commerce industry which have hurt entrenched players, saying there is an “angst” in the West because of the move, which came in soon after the largest ever FDI of USD 16 billion into the country was announced by Walmart to take over domestic e-tailing major Flipkart last August.
“There is a lot of angst in the West on how the rules in the e-commerce sector were changed. This is the kind of uncertainty that keeps away FDI from coming into the country,” Rajan said.
The country has to pitch itself as a haven for investments because of the anxieties surrounding China, he said, adding we need to “stick to the rules” and change them transparently.
“We need to convince people that we would respect their ability to do business here,” Rajan said.
Such posturing by the Modi government is leading to a situation where the state is gaining more and more powers without the necessary checks and balances, said Rajan, who earlier in the day said that he was open to coming back to serve the country if called out to do so.
“As the state expands its realm whether, through regulatory or discretionary powers, it essentially gains more powers without proper checks and balances,” he said, adding the uncertainties of shifting goalposts makes the private sector less potent.
“A dependent private sector makes for a pliant private sector and that doesn’t ever afford a sufficient check and balance for a government.”
He also cited the airlines and hospitality sectors as two areas where the government has no role to be in and should be best left to the private sector.
Rajan also questioned the data computation on growth, saying how can we continue to have low job creation and lower capacity utilisation if we are having an official growth number of 7 percent or more.
Rajan said there is a “disconnect” in the data and it is prompting some “soul-searching”. However, it has not yet come to a juncture where people are throwing out the data, he made it clear.
Stressing on the 7 percent growth as the “official” growth rate, Rajan said there is a need to grow beyond this new “Hindu rate of growth” as the nation was called during the under-4 percent growth years before the July 1991 liberalisation move.The former governor also said this requires fresh thinking on how to push growth up and those minor tweakings in the policies will not be of help.Rajan said sufficient growth and resources that accrue because of it are necessary for serving the poor, but seemed to be against taxes on the super-rich. Rather, what is required is better tax compliance, he underlined.