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Why PM Modi's private sector defence is a watershed in India’s political economy

The government no longer thinks it’s necessary to camouflage reforms. That is a momentous change

February 11, 2021 / 12:20 PM IST
PM Narendra Modi (File image: PTI)

PM Narendra Modi (File image: PTI)

The prime minister’s speech in the Lok Sabha on Wednesday is remarkable both for its courage and its candour. Candour, because he uttered several home truths about the necessity for the new farm laws, about the need to shrink the state sector and the role of private enterprise and wealth creators in powering India’s development. Courage, because so far hypocrisy has been the rule, with reform and privatisation being done stealthily, furtively, lest the government be accused of being a ‘suit-boot-ki-sarkar’.

Of course, this government’s pro-business credentials are well known. It has carried out more reforms than any other Indian government. These include fundamental root-and-branch reform, such as the setting up of a Monetary Policy Committee, bringing in an inflation-targeting regime at the central bank, an expansion of market share for the formal economy through the introduction of the Goods & Services Tax, allowing contract labour in all industries, rolling back subsidies, enacting a bankruptcy law.

Other measures include rolling out the red carpet for foreign investors, initiating a clean-up of the real estate sector through RERA, improving the ease of doing business, involving the private sector in its road-building programme, lowering the corporate tax rate and pushing through and remaining firm on the new farm laws. It has made sure the private sector is a partner in its social programmes as well, such as affordable housing and its health insurance scheme. And in the recent Union Budget it minced no words in stating it will sell off government enterprises, airports, ports, pipelines, land, roads in a massive privatisation drive.

Clearly, the government no longer thinks it’s necessary to camouflage reforms. That is a momentous change, a watershed moment in India’s political economy.

So far, governments were careful to sing paeans to populism even when they were pushing through reforms. Even when they supported businesses, it was small business that received the encomiums, even though they knew very well it was big business that was the most productive, the most advanced, the most vibrant sector of the economy, contributing the most to capital accumulation and therefore to growth. Towards the informal sector, the dirty underbelly of the economy, governments adopted a Janus-faced attitude—either throwing sops at them or adopting a policy of malign neglect. The Modi government, by focusing on what matters--wealth creation--has changed all that.


How has the Modi government been able to retain its popularity, despite the reforms? Simply put, the myth that the masses oppose reform has been busted. Indeed, they were never really enamoured of socialism in the first place, simply because, in Mahbub-ul-Haq’s memorable phrase, what India had was ‘ten percent socialism’---socialism for the top ten percent of workers who received all the benefits of secure employment, provident fund, pensions, paid leave et al, while the other 90 per cent eked out a precarious existence in the informal sector. For the masses, it mattered little whether the ‘commanding heights of the economy’ was in private or public hands—it didn’t make one iota of difference to their lives. No, the anti-privatisation lobby was in support of those vested interests who benefited the most from the old regime.

The government has also adroitly steered the discourse away from subsidies towards public goods, such as providing roads, electricity and clean water to the villages. To be sure, certain subsidies are unavoidable in a democracy, especially a poverty-stricken one, but this government has been able to tap other sources of legitimacy. Its Hindutva ideology and its focus on nationalism, for instance, have paid hefty political dividends. They understand well what George Orwell pointed out long ago, “human beings don’t only want comfort, safety, short working-hours, hygiene, birth-control and, in general, common sense; they also, at least intermittently, want struggle and self-sacrifice, not to mention drums, flags and loyalty-parades." The Roman satirist Juvenal put it more succinctly when he talked of ‘bread and circuses’. This government has proved adept at managing the tensions between the demands of capitalist development and democracy.

To be sure, development is by no means a smooth process---it is very disruptive, uprooting old ways of living and working. It is no easy task transforming a nation of peasants and petty producers into a modern capitalist one. The reforms are at a substantial cost and the benefits often come with long lags. New winners are created, but there are also many losers. Many countries have tried to develop and only a few have succeeded. And the current conjuncture has more than the usual share of uncertainties, both local and global.

The good news is that we have in the present government and the prime minister an unabashed champion of Indian capitalism.
Manas Chakravarty
first published: Feb 11, 2021 12:20 pm

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