Reforms India: Modi’s Start-Up India shakes the colonial state

By Atul Singh and Manu Sharma

Nearly seven decades after independence, the Indian state is dysfunctional and a clash of ideas is emerging about new ways of running or reforming the country.

Indian Prime Minister Narendra Modi is a hard-working fellow. He gets up at the crack of dawn, arrives at the office early and leaves late. Unlike Manmohan Singh, the effete effigy who presided over a corrupt cabal of ministers, Modi runs a relatively clean shop.

Ministers are not making money hand over fist. Bureaucrats are miraculously turning up to office on time and some big decisions have been made. Yet India is unhappy. Modi has lost some major regional elections. On January 16, he responded with an entrepreneurial zeal that characterizes his native state.

MODI’S NEW ECONOMIC POLICY

Modi’s new policy of “Start-Up India” is the most significant set of reforms unleashed in the country since 1991, when India first opened up its economy after the collapse of the Soviet Union. India has long had a repressive and overbearing state that suffocates entrepreneurs. Incorporating a company, navigating red tape and access to finance have long been nightmares for many an entrepreneur.

The new reforms rewrite the rules of engagement between entrepreneurs and the state. First, no young company will pay taxes in the first three years after its incorporation. Second, no new company will be subjected to any government inspection during this initial three-year period. Third, filing patents will become cheaper and faster. Fourth, the government has set aside nearly $1.5 billion to fund new ventures. Fifth, these ventures will be able to shut down shop in 90 days. Sixth, the government is launching a mobile app that will enable companies to incorporate in a single day. This is revolutionary for a country where incorporation took six months to a year in the not too distant past.

Finally, new companies will be able to bid for government contracts. So far, public procurement rules put a premium on turnover and time doing business. This has queered the pitch in favor of large companies that have been around for a while. Incumbents tend to become fat and lazy because barriers to entry protect them from fresh competition. This results in wastage of taxpayer money and increases inefficiency in the economy. Modi’s new measures challenge the status quo.

Modi’s new economic policy is a body blow to what is called the “inspector raj” that was unleashed by Jawaharlal Nehru, India’s first prime minister. Nehru was a Cambridge-educated socialist who was deeply inspired by Joseph Stalin’s Soviet Union. Whilst the United States and Europe suffered the Great Depression in the 1930s, the Soviet march to modernity seemed irresistible. Nehru was probably unaware of the horrors of Stalinism, which left over 15 million dead and millions more packed off to icy Siberian gulags.

Nehru adopted the Stalinist principle in the realm of economics. From now on, Indian businessmen and entrepreneurs faced inspections and controls from a colonial-era bureaucracy, which till 1947 was an instrument of theft and oppression for the British. Needless to say, red tape asphyxiated business. Entrepreneurship was actively discouraged and a career in the bureaucracy now acquired even more halo than during the time of the British Raj. India embarked on its Hindu rate of growth while many poorer countries zoomed ahead.

After his electoral setbacks, Modi is jettisoning part of the Nehruvian economic model. The new policy aims to speed up the economy by infusing India with Gujarat’s entrepreneurial spirit.

THE BUSINESS OF INDIA CANNOT JUST BE BUSINESS

While India does need to emerge from the shadows of Queen Victoria and Stalin, policymakers in New Delhi cannot ignore the fact that more than 50% of children under five in the country are stunted. The reason is simple: Children fail to get clean drinking water and adequate nutrition.

India’s teeming millions now want the basics that they have been promised for decades by politicians seeking their votes. With increasing literacy, information and connectivity, people want responsible and responsive forms of government. They want to have their say and more of their way at the most local levels.

The key demand that India’s masses are making of their rulers is a change in the last mile of governance. Where the rubber hits the road, the citizen still has to deal with a parasitic state. Whether it is getting a driving license or registering as a voter, citizens undergo nightmares on a daily basis. Signing forms in triplicate or dealing with the discretionary and arbitrary process where petty bureaucrats behave like local feudal barons demanding obeisance and tribute is not exactly enjoyable. In a democracy, people no longer want to put up with this.

But the rulers of India are caught in a bind. They have inherited a colonial state. They rely on bureaucrats to run it, and it is in the interests of bureaucrats to oppose or subvert any change. No elite has ever given over its power or privilege without a fight. Indian bureaucrats are no exception, and they delight in running rings around their political masters.

Yet the colonial structure of the state is crumbling. The notion that citizens can only do something that is explicitly permitted by the government is weakening. A young population is chafing against a culture that discourages innovation and risk taking. In the US, citizens can do whatever is not proscribed by the government. Many Indians want a change to this model.

To put things in perspective, 356 million Indians are between ages 10 to 24. They are growing up with increasing aspirations. They want to get rid of many of the old constraints. Despite Modi’s unleashing of entrepreneurship, the nature and structure of the state is not changing. He is trying to run the same colonial state more efficiently through the Prime Minister’s Office (PMO). Modi has put together a team of trusted efficient bureaucrats in the PMO who are supposed to crack the whip over their minions. Unfortunately, there are limits to what the PMO can achieve because cracking the whip does not make thoroughbreds out of donkeys, particularly those who like falling into the river to wash away their load of salt.

THE NEW GRASSROOTS DEMOCRATIC MOVEMENT

In the dying days of the previous government, an anti-corruption movement broke out across the country. Scams that ran into tens of millions of dollars evoked disgust, and people took to the streets to protest. Some latent ideas saw the light of the day after many decades in the closet. These were consciously or unconsciously inspired by a man long deified but largely ignored: Mahatma Gandhi.

Gandhi was a proponent of dismantling the colonial state and ushering in an era of grassroots democracy. India’s independence was accompanied by the partition of the country into India and Pakistan. It led to the biggest human migration in history and bloodshed of monumental proportions. In the aftermath of this bloody partition, India’s new leaders feared dismemberment. They placed their trust in the colonial-era bureaucracy to keep the country together.

As mentioned earlier, Nehru was inspired by Stalin’s Soviet Union. He brought in Soviet-style five-year plans that his anointed bureaucrats imposed on the country. Nehru built a socialist superstructure on the edifice of a colonial state. Gandhi’s bottom-up, decentralized, democratic decision-making in an incredibly diverse state was unceremoniously dumped. As the Indian state fails its citizens, the younger generation is unknowingly harking back to Gandhi’s vision, and Arvind Kejriwal, the chief minister of Delhi, is astutely trying to appropriate the Mahatma’s legacy.

Kejriwal has taken on Delhi police and the systemic corruption that touches the lives of common citizens. For instance, he has taken away powers of the police to harass auto rickshaw drivers. Kejriwal has empowered people to conduct stings on corrupt officials. This means officials are less likely to ask for bribes and exercise arbitrary discretion in Delhi.

Kejriwal has picked battles with India’s elite bureaucracy, the officials of the Indian Administrative Service (IAS) and the Indian Police Service (IPS). Both of them are relics of the British Raj. These battles have pitched Kejriwal as a man of the masses. Significantly, he has broken with the political tradition of collaborating cozily with the elite bureaucracy after getting elected. Kejriwal is trying to involve people in governance, a revolutionary thing in a country with a colonial top-down governance structure.

Kejriwal’s greatest achievement is coming up with a crude form of citizen governance. India’s Panchayati Raj, or local self-government, is a bit of a sham. Unlike the US, local bodies do not have powers of taxation. Their powers are subject to the concurrence of an executive officer who is invariably a bureaucrat of the IAS or its junior provincial counterpart. This means that local governments are in office but not in charge. De facto, they cannot even run their own primary schools.

India’s governance experience has not changed significantly under Modi because of India’s federal structure. The central government in India collects taxes and sets the rules of the game. State governments provide services at the district level. Modi is no longer running Gujarat and has no power to make district-level officers of the IAS or IPS show up in office on time or to do their jobs. State governments continue to use the same failing structure of the past.

Under Modi, the colonial structures and Victorian rules of the game have not changed. The Indian Penal Code that sets out crime and punishment for India’s citizens was drafted in 1860 by Lord Macaulay, barely two years after Queen Victoria took over from the British East India Company. The Indian Telegraph Act is of 1885 vintage. The British underpaid junior Indian employees and tacitly encouraged them to live off the land, fostering a culture of corruption. They did so to destroy self-belief among Indians and perpetuate the perception that they were incapable of governing themselves. When junior Indian employees were a touch too rapacious, Indians appealed to the white forerunners of the IAS and IPS for clemency. This colonial structure still persists unchanged.

TWO CONTENDING IDEAS

India faces a clash between two political models. Modi wants to make the current system efficient and unleash economic growth. Kejriwal wants to democratize and decentralize decision-making. Modi promises development and jobs. Kejriwal promises people the right to decide whether they want a park or a bus stop in their neighborhood.

The as of yet inchoate clash of ideas about the destiny of the nation has begun.

The article was originally published on the Fair Obsever.