There has been much ado about the so-called directional shift of the ruling BJP-led NDA regime with Prime Minister Narendra Modi batting strongly for the private sector. His headline-grabbing quote “government has no business to be in business” is not of recent provenance as it dates back to his days as chief minister of Gujarat. Nine years ago, this phrase found mention in his interview to the Economic Times. According to him, the government should instead play the role of a facilitator; that “no red tape, only red carpet” should be extended to investors. The big question is why this one-liner resurfaced in his second term as PM suggestive of a policy makeover?

To be sure, Modi has always been business-friendly and desirous of implementing reforms. However, his first term as prime minister was hobbled by criticism that he was leading a the "suited-booted" regime only for business cronies when he sought to amend restrictive provisions of the land acquisition legislation. This foundational reform was put on the backburner as the ruling party did not have adequate support in the upper house of Parliament. Now, the big difference is that he has been re-elected as PM and the NDA regime has the numbers both in the lower and upper houses to push through big-ticket reforms even without discussion and debate.

Clearly, this state of affairs has emboldened the pro-business PM to push the envelope on reforms. In September 2019, Finance Minister Nirmala Sitharaman announced steep cuts in corporate taxation to promote investments against the backdrop of a sharply slowing economy. Modi then enacted reform of agriculture – which has triggered the on-going protests by farmers on the borders of the nation’s capital -- and labour laws in the middle of the pandemic last year. Further, the Union Budget for 2021-22 on February 1 announced an extremely ambitious and sweeping agenda for privatisation of non-strategic public sector undertakings and asset monetization.

The P-word is back

The P-word thus has returned to the discourse on reform for the first time since the Atal Bihari Vajpayee-led NDA regime from 1998-2004. The difference between privatization and disinvestment is that the former entails a shift of management control of a PSU (public sector undertaking) to the acquiring private party whereas the latter only consists of incremental sales of listed
PSU scrips while the government still retains control. Think of the car giant Maruti passing into the hands of Suzuki Motor Corp or the flagship air carrier Air India which is now on the block. The UPA-led regime in its first term did contemplate privatization but it did not have support from allies like the Left.

Modi’s address on the floor of the lower house on February 10 went much further in stating that the days are long gone when only the government was responsible for national development. The nation needed wealth creators. How else do we generate wealth to distribute for the needs of the poor? Is it that bureaucrats will do everything in this country? Later in a webinar on February 25, he returned to his catchy phrase of “government has no business of being in business”. The focus of the government should henceforth remain on welfare and development projects of the people. When the government starts doing business, it causes severe losses, he stated.

While the P-word thus bids fair to be kick-started, the NDA government, however, must go about the process in a transparent manner. Privatisation the world over is often the stuff of scandal as crony capitalists corner the sale of such assets at bargain-basement prices -- the Russian example comes readily to mind. The question naturally is whether the current NDA regime can succeed in its objectives any more than the earlier Vajpayee-led NDA did? Although the latter successfully privatized Maruti, the telecom player VSNL among others, this drive attracted political lightning like no other reform did and was stalled effectively since 2002-03.

The bureaucratic challenge

Privatisation thus is a fraught exercise as there are too many vested interests opposed to it, including from affiliates of the ruling party like the Swadeshi Jagran Manch. For starters, the nation’s trade unions will be opposed to it. As is it is they are smarting over labour laws rushed through Parliament. A fire-sale of PSUs is all they need to hit the agitation trail like the farmers. A potential source of opposition to the P-word that is not often recognized is from bureaucrats who head most of the PSUs at the state-level. 

They too are far from amused at Modi’s remarks as to what kind of power have we created in allowing bureaucrats to run businesses. In this milieu, what is doable is monetizing the government’s surplus land. This may not represent a policy shift of government getting out of business but it will certainly contribute to the exchequer devastated by COVID-19.

(The writer is an economics and business commentator based in New Delhi. His views are personal. He can be contacted on nchandramohan@rediffmail.com)