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Minimum government?

Prime Minister Narendra Modi came to power in 2014 with the lofty promise of “minimum government, maximum governance”. Mr. Modi had flayed the decade-long rule of the United Progressive Alliance (UPA) government for its mindless populism.

“The government has no business to be in business,” he said, well before kick starting his 2014 campaign. Not surprisingly, many expected tough economic reforms from him.

However, the policies adopted by Prime Minister Modi have been more populist than pro-market. In the latest Budget, the government provided the highest-ever allocation of ₹48,000 crore to the UPA’s flagship Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). In February, the PM promised farm loan waivers in Uttar Pradesh, and the State government soon delivered on it. States like Bihar and Andhra Pradesh have also been recipients of the Centre’s special welfare packages.

Apart from such populism on the fiscal side, Mr. Modi’s track record in pushing through crucial labour and land reforms has been no better. Industrial labour is still governed by outdated laws that prevent hiring, and landowners still cannot freely sell their land for industrial purposes (they can still be forced to sell to special interests though). A free agricultural market is still a distant dream as farmers cannot freely sell their produce, while powerful traders protected from competition can still dictate prices. Foreign investors continue to be terrorised by retroactive tax laws, while ‘Make in India’ continues to serve as an excuse for protectionism. The Goods and Services Tax (GST) that did away with tax competition between States is being celebrated, even as it has failed to lower tax rates.

The demonetisation of high-value currency notes last year showed that the government is free to play around with the rupee, while the unsavoury exit of former Reserve Bank of India (RBI) Governor Raghuram Rajan showed that India is far from having an independent central bank. Not surprisingly, India is ranked as a “mostly unfree” economy in the Heritage Foundation’s Index of Economic Freedom, which measures the economic freedom citizens enjoy from the clutches of government, and its ranking has dropped steadily since 2014, from 120th to 143rd.

The classical liberal idea of limited government was all about a government that limited its role to the protection of life and property of citizens. Such a government had no authority to impose taxes to fund massive welfare schemes, tinker with the currency, or enforce barriers against free commerce. Naturally, both populism and crony capitalism would die under such a “night-watchman” state, while free markets rapidly raised the living standards of the masses. The success of such a form of government is evident in places like Hong Kong and Singapore. Unfortunately, Mr. Modi’s policies are as far from limited government, as they are from his election promises.

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Printable version | Oct 19, 2021 5:42:25 AM |

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