On economic reforms, India seizes the baton
Modi’s India continues to create opportunities for its people, as Xi’s China deviates from Deng’s vision and destroys private sector wealth
As the long-pending privatisation of Air India concludes, with Tata Group winning the bid for the airline on Friday, India is on the cusp of an inflection point with huge global ramifications. This is not just because Indian policymaking has lately been exhibiting unprecedented resolve and zest, but also because of what is happening around the world. Of particular note is Chinese President Xi Jinping’s apparent determination to make the most drastic economic policy reversals in decades.
The world’s two largest countries dominated the global imagination, and the economy, for millennia before colonisation and the industrial revolution. After World War II, and as giant independent nation-States, both China and India maintained a rough parity in per capita terms for close to four decades.
But then China pulled dramatically ahead, with Deng Xiaoping’s renunciation of Communism in all but name, and market-friendly policies that spurred stunning double-digit growth for most of the next three decades. Rising rapidly to become the world’s second largest economy, China has acquired significant economic and military heft. It has also acquired the hubris that Deng had warned against and keeps picking quarrels with countries, large and small, in its neighbourhood and around the world.
India also began shedding its self-imposed economic constraints of the Nehruvian and Indira Gandhi decades, but being a democracy, the process has taken longer. Our growth rate has risen since the liberalisation of the 1990s initiated by PV Narasimha Rao, further boosted by Atal Bihari Vajpayee, and in the past five years, India has been the world’s fastest-growing large economy.
The Narendra Modi era has seen a flurry of big ticket economic reforms that had been held up for decades, including the Goods and Services Tax (GST); the Insolvency and Bankruptcy Code (IBC); the Direct Benefit Transfer (DBT); agriculture reforms; BHIM UPI and many more. The pace of reforms has picked up dramatically since the Covid-19 pandemic, with the prime minister demonstrably putting into action his oft-stated mantra to seek out opportunities in the midst of adversity.
Despite these deep-rooted reforms, a significant one proved more challenging and took longer. As many, including this writer, have argued repeatedly, the privatisation of Air India is an inflection point, a bell weather of New India’s new trajectory. That is not so much about its size, though shutting the tap on a billion dollars of taxpayer-funded subsidies going down the drain every couple of years is no small matter. It is primarily about the symbolism of pulling the plug on shameless, hypocritical vested interests.
The oft-repeated faux nationalist argument for sustaining the Indian skies’ “flag carrier,” was a hoary old pitch well past its sell-by date. Yes, Air India has often done yeoman service in airlift operations for Indians stranded abroad, but India now has the ability to do that anyway, through the Air Force, as well as by requisitioning and outsourcing from the private sector.
Having similarly poured billions down the drain on some of their airlines, nation after nation has ultimately concluded that they have no more business running airlines than fleets of buses or taxis. Modern civil aviation is a cutthroat business where rare is the airline that has had a multi-decadal survival rate. Yet, there continues to be solid investment in the sector, without the need for government subsidies. But, it requires specialised domain knowledge and efficiencies that only the private sector can manage.
The real reasons behind the irrationality of subsidising tens of thousands of crores of rupees for the survival of just one entity are two-fold. First, the huge rent-seeking opportunities, from free upgrades, to large contracts for various services. And second, with one of the highest number of employees per seat in the industry, the clout of the unions representing its unsustainably high workforce.
It has been three decades since the biggest experiment in State-run economies collapsed, with the eclipse of the former Soviet Union. Every other such example of Leftist economics has also failed, in the Americas, Africa and elsewhere. Nevertheless, there remains a sustained effort by the Left’s ideologues to keep their faith alive.
In this, they have often successfully co-opted what used to be Centre-left Liberals as cheerleaders for their madcap, failed-every-time, far-Left economics.
Meanwhile, back in China, Xi has been veering away from the Deng formula on several key fronts. Besides the so-called “wolf warrior” aggression in foreign policy, he seems set to break established norms and continue as president, some say for life.
Equally importantly, his economic policies are now sharply deviating from those which generated such breathtaking growth and prosperity.
Xi’s stated aim of taming capitalist forces for socialist objectives reeks of deja vu, attempted earlier by countless authoritarian ideologues, and failed every time. Deng had wisely turned his nation away from that path, focusing instead on harnessing the animal spirits of entrepreneurs to grow China’s affluence and clout. That had also created the resources to achieve many social goals.
By one estimate, Xi’s crackdown on the private sector has led to the destruction of an astounding $2 trillion of wealth. Meanwhile, Modi’s India continues to reform, attract ever more investment and create opportunities for its people. All we need to do is stay the course.
Baijayant “Jay” Panda is national vice-president, BJP
The views expressed are personal