India seized upon the pandemic as an opportunity to initiate difficult economic and legal reforms while ensuring delivery of money and essentials to the poor. Is this a new beginning in governance?
PR Ramesh and Siddharth Singh | 15 May, 2020
Prime Minister Narendra Modi addresses the nation, May 12
WHEN PRIME MINISTER Narendra Modi addressed the nation on May 12th, the country had been in lockdown for 50 days. During this time, India’s economy had come to a grinding halt and there was growing unease at the absence of a revival package for it. The Prime Minister promised beyond expectations. In his speech, Modi outlined a Rs 20 lakh crore package adding up to 10 per cent of India’s Gross Domestic Product (GDP). This is an amount without precedent.
Modi correctly surmised the state of the world and what India needed at this moment of crisis. His call for “Atma Nirbhar Bharat Abhiyan” or a self-reliant India campaign neatly prefigures a world that has drastically changed from the days when the ‘Davos Man’ was master of everything that he surveyed. Modi’s campaign is to bring the ordinary person back in the frame of economic decision-making. This was a tricky balance to achieve: protecting and giving a boost to the weakest rungs of the economy without being overly protectionist. That balance was achieved with aplomb. Modi summed up what he meant in a Sanskrit saying translated as “The culture that considers the earth to be the mother.” He went on to say: “When the Bharat Bhumi becomes self-sufficient, it ensures the possibility of a prosperous world. India’s progress has always been integral to the progress of the world.”
The core of Modi’s idea is to further India’s strengths by undertaking reforms that amplify those strengths. The five pillars that he highlighted—economy, infrastructure, a technology-driven system, demographic advantage, boosting demand—rest on the big size of the Indian market and, most importantly, the people who populate that market. To operationalise these ideas, the Prime Minister said that a self-reliant India will be built on the foundations of land, labour, liquidity and laws. It is pertinent to note that efforts to carry out reforms in these crucial areas—which proved a bottleneck for economic growth—were attempted earlier as well, in the teeth of political opposition.
On March 13th, Finance Minister Nirmala Sitharaman made the first set of a slew of announcements expected over time to add content to the Prime Minister’s package. The key ingredient is a helping hand for micro, small and medium enterprises (MSMEs) that employ 110 million people and form the backbone of the Indian economy. A Rs 3 lakh crore package of collateral-free loans forms the core of support for the sector. The definition of MSMEs was tweaked to ensure perverse incentives to not grow were removed while preserving the support that continues to be available for companies. There was a host of other measures in the Finance Minister’s announcement—liquidity injection for power distribution companies, tax relief for companies, reduction in provident fund contribution to ensure more money in the hands of employees, etcetera.
What Sitharaman announced was part of a trend that emerged in the weeks after the coronavirus pandemic gathered speed. Indians saw images of the plight of migrant labourers trying to make their way home. The Government, meanwhile, was working on the matter. In close coordination with state governments, close to 800 million people—nearly two-thirds of India’s population—were in the process of being given their food entitlements for the three hottest months of the year. The cost, at Rs 46,000 crore, was borne by the Centre. As the first week of May came to a close, about 56 million women Jan Dhan account holders had been transferred Rs 2,785 crore, taking the figure to Rs 48,785 crore of welfare spending.
This volume of aid was made possible by a refurbished Indian state, one whose contours could not have been discerned even a decade earlier when the entrenched politics of identity-cum-social justice ensured that only a creaky redistributive machine was predominant. Since then, the state has been transformed rapidly into a citizen-centric and responsive engine run by an accountable leadership.
Dismantling the dirigiste machinery—characterised heavily by state control of economic and social policy rather than genuinely inclusive and equitable decision-making—took both time and effort and has been in the making for the last few years. That is a work-in-progress, albeit far more smoothly when compared to 2014 when Modi inherited the rickety apparatus from which the deadwood had to be axed. From seeding the accounts of citizens with Aadhaar—with the sole purpose of preventing leakage and theft of people’s resources—to the creation of the Aarogya Setu app to help Indians navigate the deadly landscape of the pandemic, modernisation efforts have proceeded as top priority. This, despite attempts at their being derailed by ideological attacks, ranging from claims of privacy threats to allegations of India becoming a surveillance society. None of these allegations has stuck. The crisis has been seized as an opportunity by the Indian state and a motivated new generation of citizens has, in a sign of cooperation, ceded space to a leader who seems to enjoy the trust of the people.
A few days ago, the Yogi Adityanath government in Uttar Pradesh (UP) issued an ordinance on labour law reform. With the exception of a handful of essential laws, the applicability of onerous legislation was put a full stop to for three years. The state cabinet noted: ‘The coronavirus pandemic has badly affected industrial and economic activities in Uttar Pradesh. These activities have slowed down markedly and have adversely affected the interests of labourers in the state. To bring industrial and economic activities back on track and encourage new industrial investment and also reopen industries that have been forced to shut down work, some relaxation in labour laws is essential.’
The pandemic has revealed a very different face of the police. Acts of kindness are changing perceptions of the police force and how the government functions
With the exception of The Workmen’s Compensation Act, The Bonded Labour System (Abolition) Act, 1976, Section 5 of The Payment of Wages Act, 1936 (dealing with timely payment of wages) and The Building and Other Construction Workers Act, 1996, all laws were suspended in UP. These changes were not the least of it. At the same meeting, the state cabinet also approved the Uttar Pradesh Agricultural Produce Marketing (Amendment) Ordinance, 2020 and exempted 46 fruits and vegetables from the purview of the agricultural produce marketing act. With this single ordinance implemented, farmers in the state can now sell valuable produce directly to buyers—including firms—at their doorstep in a farm-to-fork chain. The UP government has also stated that it is open to declaring warehouses and silos as markets for this purpose.
The steps undertaken in UP came just days after the Madhya Pradesh (MP) government announced a similar package. MP also rolled out an ordinance to amend the Madhya Pradesh Krishi Upaj Mandi Adhiniyam—its version of the Agricultural Produce Market Committee (APMC) Act. Like UP, MP too announced a slew of labour law reforms. The context was made clear by Chief Minister Shivraj Singh Chouhan. He said: “Corona is a challenge for us but it also presents an opportunity…we need long-term planning for that.” Chouhan went on to list two different sets of measures, one immediate and the other longer-term. In the former category, he emphasised increasing the work available under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to mitigate immediate distress faced by labourers and the rural areas of the state. The reforms were his government’s answer to long-term planning. While hiking the number of work hours for labour in factories, he asserted: “Industry was demanding reforms in labour laws…these laws were necessary to cut red tape and ameliorate problems borne by companies.”
The context of these reforms needs to be understood. Both chief ministers emphasised the need to generate employment opportunities for labourers and the youth. The Covid-19 crisis only added to what was a pressing necessity even earlier—India and especially the northern states were losing their demographic advantage at a rapid pace. But the leadership in these states, unlike their predecessors, took a politically bold step in the face of resistance from activists, academics and politically powerful labour unions.
The economic logic of the package is unquestionable. The entire package—agriculture and labour law reforms—must be viewed together. In the medium run, the dismantling of the APMC regime is expected to eliminate the possibility of price fluctuations and inflationary spikes in food items that are the most important part of labourers’ consumption basket. Once this is sorted out, the pressure to demand higher wages to counter inflation is likely to abate automatically. This, in turn, would bestow price competitiveness on manufactured goods; something India has not been able to do in the international markets against products from Bangladesh (textiles), Vietnam (manufactures) and China (industrial goods and fine chemicals). This is the strategy that almost all Asian economic powerhouses adopted but India could not, largely due to its domestic politics.
In the days to come, there is bound to be a reaction against these steps. There are those who question the need to dismantle the APMC framework when there has been a historic deflation in food prices. This is not only misguided but even mischievous—a one-off fall in prices cannot be construed as a permanent fall. History, experience and the structure of the Indian economy show that food price inflation has a tendency to rear its head quickly.
For a change, Indian states have begun showing remarkable acuity in taking the right steps, in national interest and without placing heavy-duty calculations on political consequences. That India was undergoing a mindset change was evident when Bihar Chief Minister Nitish Kumar, whose political reflex is to side with the so-called socialists, agreed to take a relook at labour laws during a conversation with Union Home Minister Amit Shah.
It is easy to dismiss major economic reforms—that have remained stuck in the quagmire of national politics so far—as elitist and made-to-order for corporate interests. But there is a parallel revolution brewing in rural India, one that defies labels.
National Panchayati Raj Day is an often forgotten date in India’s calendar. This year, it was doubly so as it came during the lockdown. But Modi did not forget. On April 24th, he used the occasion to hold a video conference with sarpanches across the country. The occasion was used to launch the e-Gram Swaraj app and the Swamitva scheme, two ambitious programmes that use drones to map properties in villages and in rural areas generally. Often, people residing in rural areas cannot access formal institutional credit as they do not have the papers to back their property, essential as collateral to access credit.
The reforms being launched in Uttar Pradesh and Madhya Pradesh are essential for energizing economic growth in India’s underdeveloped regions. The most difficult reforms have come at the initiative of states and have not been imposed from the top
The state of affairs has been shocking: 27 years after the 73rd Amendment to the Constitution was passed, a step that marked the beginning of devolution of power to the most basic unit of governance in India, real-time information about villages is not available. This makes planning, implementation and auditing of village-level work next to impossible. This is now set to change.
In his address to the village sarpanches, the Prime Minister equally underscored the importance of self-reliance and the use of technology: “The coronavirus has taught us one thing: that we have to be self-reliant. Villages, districts, states and the nation…we have to be self-reliant for our needs and we have to ensure that we don’t look outside for what we need.”
The message resonated well with the base. Priyanka Madankar, the chief of Medamkarwari, a village 30 kilometres from Pune, highlighted the combination of planning to check the spread of the coronavirus in her village. At dusk, streetlights were turned off to discourage people from venturing out of their homes. At the same time, the village was aware of its responsibilities towards the urban areas close by. “We have used volunteers to organise the distribution of vegetables to nearby houses in urban areas,” Madankar said. Her village is trying hard to use the eNAM—the National Agriculture Market portal—to find new markets for the village. Modi was effusive in his praise for the villagers.
The same story is repeated across villages—with different organisational capabilities—from Jammu and Kashmir to Punjab and from Karnataka to Assam. As was to be expected, everyone had their own stories about handling the pandemic.
In his speeches, Modi has gone out of his way to credit the country’s security forces—both military and police—for their work. This crisis has revealed a very different face of the police across India.
April 12th, was a routine Sunday in Patiala, Punjab. A posse of policemen in the city were enforcing a lockdown when a vehicle tried to mow them down. The fault of the policemen was their temerity to ask Nihangs, a Sikh sect, travelling in the vehicle, for a travel pass. If that were not enough, Harjeet Singh, an assistant sub-inspector in the police party, was attacked and his left hand was cut off with a sword. After a major surgical procedure, Singh’s hand was re-attached. The bigger miracle, however, took place later when the police officer returned home. A crowd of well-wishers, replete with drums and music, welcomed him back. In a state where the police are viewed with a great deal of suspicion, the public adulation was extraordinary.
THERE ARE dozens of such stories. In Delhi, an assistant sub-inspector sheltered a stranded girl from Kolkata in his home after she could not travel in the lockdown. When some students from Manipur ran out of money and
essential items in Delhi, police personnel from the Malviya Nagar area swung into action and provided them with the rations they needed. In Panchkula, Haryana, a retired colonel—living alone without any relative—broke down when the local police force arrived with a cake to celebrate his birthday. A video of the incident went viral.
It is not just these acts of kindness that are changing perceptions of the police force—and also of how government functions—but also the difficult work of managing India’s far-flung districts under lockdown when transportation of essential goods and services has been hard. In Tamil Nadu, a district collector went beyond the call of duty to feed migrants from Odisha, giving them the food they were accustomed to eating. He was under no obligation to do so. This is perhaps the first time that state governments have been forced to directly take care of large numbers of people from other states. All states, without exception, have done so to the best of their ability.
Much of the change has to do with Modi’s handling and reshaping of the civil services. This was one institution India inherited from the British that had the potential to serve the country well. After initial reorganisation of the colonial services by the first Home Minister, Sardar Vallabhbhai Patel, the successor services were groomed to handle the most diverse tasks in a big but underdeveloped country. But over the decades, political mishandling of the services led to a culture of apathy. In many cases, civil servants never returned to their parent cadres in the states and stayed on in New Delhi. By the time Modi came to power in 2014, top-level civil servants had lost touch with the realities of India. Worse, they did not even bother to acquire domain expertise nowadays essential to manning the top jobs in ministries. Since then, two parallel changes have begun. First, direct specialist appointments are now being made at the joint secretary level. Second, bureaucratic deadwood is being shed. From senior officers in the income tax department and the railways to the Indian Administrative Service and the Indian Police Service, dozens of officers have been given early retirement. These changes are essential for building the capabilities of the Indian state.
SINCE 2014, after Modi took office, capabilities, especially those needed for last-mile reach to citizens for the delivery of services, have been ramped up. Much of this was visible during the initial phases of the crisis when giving succour to migrant labourers trapped in different lockdown zones, or on the road, desperately trying to return home. Were it not for the Jan Dhan, Aadhaar-seeded accounts and mobile phones, it would have been impossible to reach much-needed aid to these workers. State governments, for their part, did what was necessary. However, the ability to directly provide relief to millions of such people—impossible only a decade ago—now exists.
The problem was that India had capabilities in delivering money and food to people who needed it most but not the capacity to deliver critical healthcare because of historical underinvestment in the sector. But India does have a leader in whom its people repose a high degree of trust. With Modi as Prime Minister, that attribute came in handy when fighting the pandemic.
The overseas rescue missions to bring back stranded Indians, using the Navy, Air Force and commercial airlines, were unthinkable even a decade ago. These also help India project power in its neighbourhood
Two examples highlight the manner in which Modi leveraged people’s trust in him to manage a crisis. In his two national addresses, announcing lockdowns in March and April, Modi took pains to emphasise the necessity of social distancing and remaining indoors. The idea was simple even as it was vital: if people restricted their movements to the minimum, it would limit person-to-person contact and also reduce the chances of infection spreading to unmanageable levels. This was essential to prevent the swamping of healthcare facilities.
India responded wholeheartedly to its leader. No coercive means were necessary to enforce the lockdown and people’s cooperation made it smooth.
In early April, the Government launched Aarogya Setu, literally ‘health bridge,’ a health app for smartphones that allows users to assess risks to them and their contacts and also warns in case there are Covid-19 cases nearby. Within days of its launch, the app was downloaded by 5 million people. A fortnight later, this number touched 50 million. Activists and opposition leaders have tried to sow doubts in people’s minds about breaches in privacy and misuse of data. But the large number of downloads (the app has since been made mandatory) told a different story—people trust the Government and Modi implicitly.
Till recently, such innovations were criticised as information-gathering and surveillance tools. The activists then changed tack and blamed the Union Government for charging money from migrant labour for rail travel back home—a charge proven false after the railways debunked the claim. These activists shy away from openly blaming Aadhaar now, since it is known that without that particular innovation and its implementation on a mass scale, the distress during the lockdown would have multiplied manifold.
It is a moot point what the Government would have done if India’s healthcare infrastructure were in better shape. After the outbreak, a crash manufacturing effort to make as much personal protective equipment (PPE) as possible for doctors and healthcare workers was undertaken. Along with this, the production of key medical equipment like ventilators was also sped up as was the availability of testing kits. What saved the day was the trust in Modi, who used it creatively to keep people out of harm’s way. In recent history, there are not many examples of this kind.
Successive governments at the Centre had presided over a system that was essentially a tight nexus between the ruling class, the business elite and an insensitive bureaucracy. Daron Acemoglu and James Robinson wrote in Why Nations Fail that once power was grabbed by the elite and wealth by a few, mainly the friends and relatives of the ruling clique, the vast majority of people lost both opportunity and prosperity, allowing political and public institutions to be manipulated to the advantage of the powerful few. This completely disenfranchised the masses, paving the road to the failure of a country.
While the ruling set and their friends fattened their own coffers, millions of poor remained mired in poverty for several decades after Independence despite the Indira Gandhi slogan of “Garibi Hatao (Get Rid of Poverty)”, often recalled by the masses sarcastically as “Garib Hatao (Get Rid of the Poor).” It was, to the popular mind, a mask behind which the public were routinely conned in order to protect the interests of crony capitalists in the licence permit raj. The poor remained poor or got poorer and the middle class was a small section sporting a select few makes of car and the ubiquitous scooter. For instance, all Delhi Development Authority (DDA) colonies in the capital sported a scooter shed (even the high-income group flats), long after the Ambassadors and Fiats had moved over and the Maruti 800 ‘revolution’ taken over.
Socialism was a political mask for Indira Gandhi. By 1972, she was the whole and soul of her party, having vanquished the opposition within and a grand alliance without. She won the elections in 1971 convincingly, after which she emerged as the sole authority in the Congress. In 1971, there was another significant development that consolidated her as India’s most powerful political leader. In East Pakistan, the Awami League led by Sheikh Mujibur Rahman won a clear majority, one that Zulfikar Ali Bhutto was unwilling to accept. A revolt by the Mukti Bahini ensued in East Pakistan against the Pakistan army. India entered the war, siding with East Pakistan, by December 3rd, and by December 16th, had trounced the Pakistan army which led to the creation of Bangladesh. This was a boost to Indira Gandhi’s already entrenched political supremacy. It led to her use of slogans, and smoke and mirrors, in a show of socialist welfare policies for the masses in lieu of genuine welfare measures.
Indira Gandhi now ruled India unopposed, poised to bring widespread poverty alleviation and to transform the image of the country in the eyes of the world as a modern, forward-looking nation pivoted on science and technology instead of elephants and rope tricks. After the Bangladesh war, Indira Gandhi was widely popular and that is when garibi hatao gained momentum as a slogan. It was believed that it would catapult the country from a 3.5 per cent GDP growth rate to a much higher level. Based on her limited perspective that smuggling and economic offences held back India’s growth, Indira Gandhi enacted the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA) and the Smugglers and Foreign Exchange Manipulators Act (SAFEMA). The Monopolistic and Restrictive Trade Practice (MRTP) Act, to deter monopolies, was made sterner. Urban land ceiling laws were also brought in. The state was the biggest land developer and urban land development stalled. The Contract Labour Abolition Act, the nationalisation of insurance and coal mines followed. The nationalisation of the wheat trade came thereafter to control food inflation but only spurred it on and had to be reversed as trade unions went up in arms across India, backed by social unrest. Following the US’ suspension of aid to India in favour of Pakistan, inflation skyrocketed to 20.2 per cent in 1974 and to 25.2 per cent the next year. Unemployment and prices shot up without respite. In the thick of all this, Indira Gandhi enacted the Foreign Exchange Regulation Act (FERA) when foreign exchange was a mere $1.3 billion.
Both YB Chavan, in the February 1974 Budget, and C Subramaniam, in the 1975-76 Budgets, admitted to acute inflationary pressures on the economy, leading to both a steep fall in agricultural output and near-stagnancy in industrial growth. This upset the demand-supply chain immensely.
The core of Modi’s idea is to further India’s strengths by undertaking reforms that amplify them. The five pillars he highlighted on May 12th rest on the size of the Indian market and the people who populate that market
By the early 1970s, it was already clear that the Government had no new vision or ideas for re-routing its economic policies and was losing popularity at an alarming rate. In the Supreme Court, the crucial Kesavananda Bharati case went against the Government, despite two senior judges being overlooked for the post of the Chief Justice of India and AN Ray being appointed. A senior minister, Mohan Kumaramangalam, even maintained that only judges who espoused the social justice philosophy of the Government should be preferred.
In the years that followed, the social justice philosophy was retooled by a new generation of politicians, such as Lalu Prasad in Bihar, who equated it with caste and identity politics and, equally, with misery-mongering. Many of those who followed in that path built vote banks by consolidating caste and community combinations, relegating the true tenets of social justice and equity for the sake of political convenience. This left the masses of a significant state like Bihar on the margins of development. Bihar, for example, was persistently scoffed as a BIMARU state, lacking basic infrastructure, jobs and prosperity while caste consciousness thrived.
Such political permissiveness, where money disappeared and social justice became an excuse for doing nothing to build government capabilities and respond to people’s real needs, had its price. By the turn of the new century, India lacked capabilities in almost every sector, from defence to delivery of basic services. Nowhere was the gap between promise and delivery so glaring as in healthcare and education. Some of the dismal statistics acquired an almost immutable hue. From 1960 to 2011, the decades when the Congress was in power for the most time, the number of beds for every thousand citizens was between 0.459 (1960) and 0.7 (2011). The figure has never touched the one bed per thousand mark. Similarly, the number of doctors per thousand of the population always remained below 1 during these decades. Data from the Organisation for Economic Co-operation and Development (OECD) shows that, in 2016, India spent just 3.6 per cent of its GDP on healthcare. Of this, the government share was just 0.9 per cent; the remaining 2.5 per cent came from individual spending.
Alarmed at this situation, Union Health Minister Harsh Vardhan told state governments last year that they should spend at least 9 per cent of their budgets on healthcare so that government spending on healthcare would touch 2.5 per cent of GDP by 2025. If 2025 seemed too distant, the Covid-19 crisis has rudely brought home these deficiencies.
The first signs that this was not an ordinary crisis emerged as early as the first week of February when India airlifted hundreds of citizens from Wuhan, China, the epicentre of the outbreak. A majority of these people had to be kept in a makeshift facility in an Indo-Tibetan Border Police (ITBP) camp on the outskirts of Delhi. In the days and weeks to come, the Government had to mobilise the armed forces’ facilities for evacuees from across the world. India’s healthcare system, public and private, was in no position to withstand the demands the pandemic was certain to impose on it. It was no accident that Modi ordered a lockdown later in March. That was the only way to contain the worst outcomes in case decisive measures were not undertaken and fast.
THE SORT OF reforms being launched in UP and MP are essential for energising economic growth in some of India’s underdeveloped regions. Without the resources that accrue from this process—incomes in private hands and taxes in government coffers—more
ambitious plans remain just what they are: plans on paper.
This is changing, slowly but surely. In the last four months, the kind of overseas rescue missions to bring back stranded Indians abroad, using the navy, air force and commercial airlines, were unthinkable even a decade earlier. These capabilities, in turn, help India project power in its neighbourhood, something noticed in important capitals abroad. But if this capability has to be deepened and sustained, India needs financial and economic muscle that can only come from robust economic growth.
The process of economic growth in the last decade was corrosive. The fruits of growth did not percolate below even as it led to rampant cronyism. The first challenge for Modi was to ensure that this did not lead to a backlash against the growth process itself. His massive rural outreach preceded his efforts at economic reform. Even then, the most difficult reforms have come at the initiative of the states and have not been imposed from the top. These were finally made possible by the current crisis but the enabling factor was the presence of strong leaders like Yogi Adityanath and Shivraj Singh Chouhan. This story has just begun.