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Is Narendra Modi abandoning his promise of good governance?

LiveMint logoLiveMint 13-04-2017 Rupa Subramanya

In May 2014, the Bharatiya Janata Party (BJP) led by Narendra Modi swept to power on the promise of improved governance. Modi had campaigned on the pledge “maximum governance, minimum government”, which promised to upend decades of inefficient and distorting command and control economic policies, most commonly associated with Nehruvian socialism.

We can debate to what extent the Modi government has fulfilled this promise in the last three years. But one thing is increasingly clear: the BJP government at the Centre and in some of the states it rules is starting to slip back into the old command and control mode and away from the promise of good governance. The recently amended maternity bill, raising paid leave to rich country levels, which will likely hurt rather than help women in the workforce, is one such case.

The most egregious recent example comes from Ram Vilas Paswan, Union minister of consumer affairs, food and public distribution. Paswan pitched for restaurants to stipulate the size of portions they serve their customers with the alleged goal of preventing wastage of food. In remarks intended to clarify his original statement after a bout of social media outrage, Paswan only dug himself a deeper hole by mooting the possibility of a law in the event of a lack of voluntary compliance. In the face of such a bizarre attempt to intrude on the voluntary choices of restauranteurs and their customers, Paswan’s self-appointed defenders from both Left and Right went through contortions to argue unconvincingly that all he was trying to do was to get restaurants to declare the size of portions rather than “fix” them. This splitting of hairs ignores the reality that every illiberal and market distorting regulation, not just in India but anywhere in the world, typically begins with an innocuous enquiry and then quickly escalates to government regulation and interference in the private economy.

Apologists also made the false comparison of mandatory labelling on packaged foods, conveniently ignoring the important distinction between labelling requirements to inform consumers of a product as against intervening in the provision of a service, which is what a restaurant meal is. It’s exactly the same distinction as a hair product disclosing its chemical ingredients versus the government compelling your hairdresser to declare the amount of shampoo they’re putting in your hair and what it contains.

My question to Prime Minister Modi and his government is: how exactly is intervening in food portion sizes,a matter which in any sensible country would be left to the market system to decide, an example of good governance?

As a first principle of good governance, the government must recognize the limitations of state capacity and prioritize in areas in which it wishes to intervene in the market economy, based on a cost benefit analysis and grounded in a market failure it’s trying to correct. There’s no such rationale in Paswan’s suggestion, no obvious benefits and only increased compliance costs for restaurants already beleaguered with a host of burdensome regulations.

What’s more, it’s ludicrous that the minister of consumer affairs should be lavishing attention on whether customers should be served two or four idlis, one of his examples, rather than tackling festering and long-running problems in the Food Corporation of India, and India’s corruption ridden and creaky public distribution system (PDS), all of which fall under his remit. It would be a bit like an airline obsessing over which brand of soft drink to serve customers on board, while the airplane’s engines and parts are rusting out!

Unfortunately, Paswan’s intervention is only one of several worrying examples of regulatory overreach by BJP governments in states such as Madhya Pradesh and Chhattisgarh, both of whose chief ministers have announced plans to move towards total prohibition of alcohol. This, on top of the recent Supreme Court judgment, building on the government’s own reasoning, banning the sale of liquor within 500 metres of any highway.

In these cases too, the alleged rationale for these draconian interventions doesn’t add up. If the concern is with drunk drivers, the solution is not to ban liquor sales, but to step up roadside checks, the approach taken in many countries. Likewise, if the rationale for prohibition is that it allegedly prevents the poor from spending their hard earned money on alcohol, surely the right policy response is to improve governance and enable job creation, thereby pulling people out of poverty, rather than keeping them poor and telling them they shouldn’t drink.

Not only is such regulatory overreach fundamentally illiberal and, therefore, should only be justified if it passes a very rigorous cost benefit analysis, experience both within India and around the world tell us government regulation which uses command and control techniques but doesn’t change the underlying incentive structures is doomed to failure. All that prohibition does in the states that have it is to drive it underground, and enrich bootleggers and crooked cops. What’s more, because it’s underground, it’s much more likely that the poor will turn to illicit home brew and end up far worse off than before. Is this what good governance means?

Modi campaigned on good governance. It’s time for him to start delivering on that promise.

Rupa Subramanya is an economist and researcher. She’s co-author of Indianomix:Making Sense of Modern India.--

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