Is The CM Mode Back On?

Many here would remember the period between 2009 and 2012. The then major Opposition party, BJP, had witnessed a poor performance in the 2009 elections — and the Congress managed to improve its seat tally.

There was enthusiasm as we had managed to successfully avert the adverse effects of the Global Financial Crisis (at least that’s what the data at that point and the consensus opinion suggested).

Of course, things went downhill from there and what we saw was our macro-fundamentals deteriorating, growth slowing and inflationary impulse strengthening. Add to that the charges of corruption and policy paralysis.

In 2012, things changed with the Gujarat elections — as the then Chief Minister managed to win the state yet again. With that victory, the Gujarat model gained a lot of attention — and my first encounter with the model also coincides with 2012 (although it was before the Assembly elections).

The then CM had managed to look at faster economic growth as a key solution to some of the social challenges that the state faced. Where economic growth was not sufficient, direct state action was proposed through various different policy programmes.

Thus, this was a model that reimagined the nature of the Indian state in the Indian context — a role where the state was strong but limited to only intervening where necessary.

The view, perhaps, was that attracting investments and creating economic growth required a greater role for the private sector which should be a partner of the government rather than being kept out and viewed with suspicion.

The underlying tendency to attract greater investment became strong — and the private sector played a major role in shaping up the industrial base of the state.

Public investments in infrastructure came and the government swiftly accelerated its outreach efforts to attract investments. There was a time when the country witnessed slowing economic growth but the state managed to grow significantly.

All these developments are important as they put the foundation of Cooperative Competitive Capitalism — or 3Cs — which appears to be the economic model that is being adopted by the Indian government.

That is, it is cooperative as it envisages setting up cooperatives — or promote dispersed shareholding of private corporations to ensure broader prosperity. That is, if you own a share of a company that does well — you profit as do the promoters.

Our equity markets are witnessing record high levels of retail participation – and some further tax changes can give a major boost to the cooperative aspect of the approach.

The competitive aspect comes in the form of promoting greater competition by allowing for a greater role of private sector, removing capital limits and allowing for greater foreign capital.

This is important because competition pushes efficiency and this benefits consumers.

Besides, competition is critical to prevent exploitation and thus, the idea to open sectors such a space, push for greater access to capital and easing of norms for raising equity are all measures that would expand competition across sectors.

The third aspect of capitalism is where there is a major thrust, as the government has decided to allow for private capital and markets to help assist in resource allocation.

The attempt to disinvest, privatise and an attempt to move government out of businesses is a move in that direction. As is the push for improving ease of doing business and the recent changes to improve enforcement of contracts along with the process of disputes resolution.

There is, however, an important distinction. The first term of PM Modi saw the government push for reforms that were critical and virtually impossible — however, they were critical towards ensuring long-term sustainability of our growth.

The most important amongst these reforms was a concentrated push towards rationalisation of subsidies and improving the distribution of them. While in retrospect, Give It Up may seem like a small intervention, but it was critical as it started the process of establishing a well-targeted social security net based on the JAM-DBT framework which has prevented substantial leakages over the last few years alone.

By preventing these leakages, the government was able to push up its investments in infrastructure development and provide for various interventions such as the Ayushman Bharat Yojana.

Thus, the first term focussed on intervening where markets may not intervene — be it health, debt resolution through IBC or a GST regime that could simplify the taxation structure.

While GST is still a work in progress, nobody can deny that GST is substantially better than the erstwhile VAT regime.

After ensuring and establishing the credibility of the government in terms of doing what it is supposed to do, now the government is moving ahead towards the next stage — that is, pushing for 3Cs.

The view is right, that India needs a vibrant private sector for it to be able to achieve faster growth and create wealth. The shift in understanding is significant as the government is moving from simply redistribution to pushing for growth followed by redistribution later.

Many view the first term of PM Modi as an exception as it did not contain the same push for privatisation, regard for private sector and advocacy for businesses which were the corner stones of his policies as the CM of the state of Gujarat.

However, such a view is inconsistent as the first term focussed on creating a set of foundations — a solid foundation to build upon a new policy framework.

The new policy framework seems to contain 3Cs and perhaps who knows, this approach of 3Cs could be the best possible model for faster economic growth and development which is then emulated by other developing countries.