Atmanirbhar Bharat + TRUST = Super-Economy In Samvat 2100

Prime Minister Narendra Modi has an extraordinary penchant for creating acronyms and buzzwords that go viral, not least because he’s such an energetic and unrelenting evangelist. Currently, it’s Atmanirbhar Bharat, variously interpreted as protectionism (anti) or self-reliance (pro):

• ‘Cynical’ critics throw back to the economic nightmare of the 1950s through 1970s when India had walled off its inefficient economy behind high tariffs to remain an indigent, under-confident country.
• Cheerleaders debunk the cynicism, saying it’s Modi’s clarion call for a “New India”, a nationalist prescription to finally challenge China and make us the economic superpower we were always destined to be.

So, what is the truth? Are we regressing to the failed 1950s, or boldly marching to capture the 2050s?

The answer, my friend, is blowing in middling winds. There’s no doubt that as far as economic philosophy goes, Atmanirbhar Bharat has a chilling resonance of Nehruvian economics:

While the Nehru-Mahalanobis duo pushed in favour of ‘infant industries’ in the 1950s, the Modi-Sitharaman thrust is to create ‘champion sectors’ in the 2020s. If you abstract from the semantics, the argument is similar, i.e. there are some industries that would get dwarfed by global competition before attaining full potential, so we must ‘protect’ them via a combination of tariffs, quotas, import bans/licenses, and subsidies.

The instruments too are eerily similar – if our TV and mobile phone manufacturers are getting slaughtered by Korean and Chinese imports, slap higher tariffs to give our local guys an artificial or fiat-ed cost advantage. Or mandate an import license, so the foreign whiz kids are restricted to manageable quantities. This was the Nehru-Indira template, now being re-adopted by Modi-Sitharaman.

And oh, if you are finding it difficult to raise capital because of a bloated cost structure, we have this wonderful thing called ‘directed lending’. So preferential capital allocation via lower interest rates for ‘priority sectors’, statutory guarantees, exemptions from ‘bad loan thresholds’ – you name it, we’ve got it.

Finally, if you still need some hand -holding, what’s better than direct cash? Modi and Sitharaman call it production-linked incentives, and Nehru-Indira had a cornucopia of schemes from duty drawbacks, the export promotion capital goods scheme, excise refunds, concessional credit, etc., all designed to give cash subsidies to exporters. Now just wait until the Modi-Sitharaman regime declares the minutiae of PLI – I can bet that a similar alphabet soup of schemes with catchy acronyms shall be born.

But, but, but... I am being quite unfair here. While the underlying economic philosophy of protectionism animates both models, the Nehru-Indira argument was defensive, while the Modi-Sitharaman quest is offensive, simply because we were a tiny, hungry, weak country in the 1950s, but are a potentially strong economy today. So, the end-result of protectionism could be very different now, since steroids may fail to revive a dying patient (aka our economy in the 1950s) but can propel a tough wrestler (aka a $2.5 trillion GDP with $0.5 trillion in forex reserves) to Olympian heights.

T: Trusting Market Forces

India’s bureaucracy has always been deeply suspicious of well-regulated markets. Which is why they love to micro-manage outcomes; sample these beauties:

There is a monstrosity called the Anti-Profiteering Authority. Its mandate is to ensure that ‘super profits’ created by the new GST regime are ‘disgorged’ from corporations. Can you believe that? Can government inspectors really calculate the super profits made by companies operating in free markets? So, the consequences are predictable: strange penalties, exorbitant legal fees, extortion, and corruption. On the other hand, if you create truly competitive markets, super profits will vanish on their own; when will our policymakers understand that?

Now see the mess they’ve created in our e-commerce policy. It’s grandly called the “marketplace model”. Under that, foreign players like Amazon and Walmart can’t sell directly to consumers, but only provide a trading platform for “third parties” in which they are allowed a maximum equity stake of 26%. This is being done to curb the foreigners’ ‘evil’ intentions. Yet these giants offer massive freebies and discounts, in front of our credulous eyes.

Also, we love to zig-zag between banning, re-banning, and re-re-banning. In the 1990s, unlisted Indian companies could not float overseas; in the early 2000s, they were allowed; then in the mid-2000s, they were banned again; now I understand they are going to be allowed again! Likewise with put/call options for overseas investors. And with dividend distribution taxes. And with long-term capital gains taxes on listed equity shares.

A million more examples could prove how consistently confused—even ludicrous—our policymakers are.

R: Recapitalising, Not Destroying, Assets

We have allowed one systemically important asset after another to go bankrupt when we should have rescued each one of them. It began with IL&FS, but then spiraled into DHFL, other real estate companies, Jet Airways, PMC Bank, and what not. I’ve been writing and shouting until I’ve gone blue in the face. Reclaim the asset, clobber the wrong-doer.

U: Un-Criminalising Business

The criminalisation of business has now become quite outrageous, with people being charged and incarcerated for minor infringements. This must stop. Period.

S: Sovereign, Not Supreme Court, Making Economic Policy

Take the Supreme Court’s order on the adjusted gross revenue penalties. First, the government frames an inherently ambiguous rule, which could include such non-operating income like rent and foreign exchange gains, in calculating the shareable operating revenue of a telco. When the Supreme Court upholds it, inflicting a Rs 1.50 lakh crore levy and threatening the viability of critical telcos, the government, instead of exercising its sovereign duty to clean up policy mistakes, goes quiet.

Or take the spectacle over ‘illegitimising’ compound interest on loans that were under a Covid-instigated moratorium.

There are numerous examples of similar abdication by the sovereign before devastating court orders which have delivered a huge blow to India’s economy. The Modi government now needs to buckle up and take ownership of its policy mistakes and correct them.

Finally... T: Tax Terrorism

This has been copiously documented – did I hear somebody say Vodafone and Cairn? Honestly, I need not give any evidence in support of this state atrocity.

To conclude then, the Modi-Sitharaman regime must cement Atmanirbhar Bharat with TRUST if India is to become an economic superpower. Else, it’s all maya, i.e., a mirage.

Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.