CIRCUIT BREAKER. Can the Modi Sarkar go pro-consumer?

The public adulation that the Modi Sarkar enjoyed in the immediate aftermath of the elections seems to be wearing thin. In the run-up to the elections, corporate chieftains, columnists and the aam aadmi were all clamouring for UPA’s policy paralysis to end and for bold reforms to put the economy on a new trajectory.

Yet, in recent months, as the NDA government has moved swiftly to push through one bold reform after another, it seems to be attracting more brickbats than plaudits.

Just consider these instances. Keen to deliver financial inclusion, the Centre oversaw the opening of 12.5 crore new bank accounts under the Pradhan Mantri Jan Dhan Yojana in short order. But the move has attracted criticism for imposing a burden on the banking system.

Eager to quell runaway inflation, the Centre moderated big increases in the Minimum Support Prices of key crops, released excess food-grain stocks and curbed wasteful procurement. But while this has had a salutary impact on inflation, it has earned the ire of the farm lobby, which is up in arms against the government’s ‘anti-farmer’ policies.

Likewise, the move to help stalled projects take off, by diluting the more onerous consent provisions in the Land Acquisition Act, has met with stiff opposition too. While city dwellers and firms continue to complain about the woeful state of infrastructure, land owners and farmers are furious at being forcibly deprived of their land holdings for big projects. The UPA has predictably extracted maximum political mileage out of all this.

But the problem with the Modi government really is that, unlike the UPA, it is yet to settle upon the one economic group that it can target through all its policy moves. As any seasoned marketer will tell you, a business cannot succeed by being everything to everyone. It needs to identify a target market, study it closely and then tailor its product, pricing and distribution strategies to woo that target audience.

The UPA recognised this truth quite early on and identified one economic group to shower its attention on — farmers. UPA’s policies were unabashedly pro-farmer. For one, during a period of already rising global commodity prices, it effected sharp hikes in the MSPs of key crops, so that the terms of trade shifted decisively in favour of farmers. Even as this boosted agricultural incomes, the government gave a further leg-up to rural prosperity by initiating the MGNREGA, which put a floor on minimum wages.

Two, even as corporate capex stalled and infrastructure building ran into a dead end, it made sizeable budget allocations to rural infrastructure and spending programmes. The resulting rural consumption boom thus helped support economic growth, even as corporate capex faltered.

Three, in times of rural distress, the UPA was also quick to step in with largesse in the form of interest subvention on farm loans and high agricultural credit targets, all funded by public sector banks.

Yes, if this package of measures helped farmers and the rural economy, it was also patently anti-consumer. For urban consumers, the combination of high food prices and rural wages kept inflation stubbornly high. This resulted in lower savings, cutbacks in spending and a rush to park money in non-financial assets.

The resulting slowdown in urban consumption and investments, taken with the sheer difficulty of doing business, led to the economic cycle slowing down. And as global economic conditions also turned adverse, it triggered a severe downturn in the business cycle.

This sequence of events suggests that, if the NDA is to deliver results, while also keeping at least some of its constituents happy, it needs to figure out its cause pretty quickly.

It would be best if the Centre targeted its reforms at uplifting the prospects for one chosen economic group. Championing Indian consumers could be a good cause.

For years, ordinary consumers, despite being the main engines of the Indian growth model, have been at the receiving end, and not just of pro-inflationary policies.

Many years after liberalisation, most Indian industries remain dominated by just one or two strong players who enjoy considerable pricing power and indulge in unfair trade practices to boot.

While regulations have been expanding by leaps and bounds in most other areas, the country’s consumer and investor protection laws remain quite weak, as a result of benign neglect by policymakers and regulators.

Focussing on pro-consumer reforms now can, apart from earning the government political brownie points, also lift consumer confidence and expedite the ongoing economic recovery. Pushing through just four specific reforms can help establish the Modi Sarkar’s pro-consumer credentials beyond doubt.

Agri-market reforms: Despite recent criticism about being anti-farmer, the government should persist with its recent anti-inflationary measures — more rational MSP increases, proactive use of foodgrain stocks and direct benefit transfers to curb subsidy leakage and wastages. The Centre-appointed Shanta Kumar committee has come up with a comprehensive set of recommendations on reforming India’s food subsidies and public distribution system.

These should be implemented without further ado. The problem of falling farm incomes, at the same time, can be addressed by expediting a unified national market for agri-commodities which allows farmers to benefit from transparent market price discovery, without relying on middlemen.

Financial inclusion: The idea of providing credit and savings access to consumers who are excluded from the financial system, through the Jan Dhan Yojana is a good one. With the initiative already covering the bulk of the population, the next steps would be the validation of already opened accounts and direct benefit transfers into these accounts to ensure activity.

Over time, this may even enable the Centre to dilute priority-sector lending norms for banks and interest subvention schemes which aim to deliver credit to the disadvantaged. Both are fiscally expensive.

Regulating real estate: Falling inflation and high interest rates are already doing their bit to salvage financial savings which should bode well for the investment cycle in future. But along with encouraging financial savings, the Centre can also do its bit to plug the regulatory arbitrage between financial investments and real estate, by more stringently regulating the inflows and end-use of funds in the latter.

Thousands of Indian savers bet a significant portion of their pay cheque on home loan EMIs, yet this is one sector where the dice is loaded against consumer interests. Ensuring that real estate developers are subjected to basic rules on disclosures, pricing and penalties for delays, as envisaged in the Real Estate Regulatory Bill can make a huge difference to Indian savers.

Tax reforms: Finally, if the government can simplify and rationalise income taxes, while pushing through comprehensive reforms of the tax department, so that taxpayers are treated as valued customers rather than potential evaders, that would be a big reform that consumers wouldn’t easily forget.