Political Economy

What's So Neoliberal About Narendra Modi's India Anyway?

The prime minister, notwithstanding his election rhetoric, is no champion of the free-markets.

The Feminist Review, a leading journal on feminist issues, recently published a special issue on ‘gender, violence and neoliberal India’.

Broadly, the contributors aim at developing a gendered understanding of a neoliberal state. The editors, in their inaugural essay, use the word ‘neoliberal’ around 25 times, linking it to patriarchy and Hindutva, but without offering a working definition of the term.

They seemingly assume that we are living in a neoliberal India, a fact they think has become even starker after the victory of the Bharatiya Janata Party (BJP) in the 2014 general elections. They argue that the BJP has been “anointed as the pre-eminent party of neoliberalism and the preferred candidate of corporate capital”.

This thought process has often been used to describe Modi’s politics and economics: In 2017, novelist Pankaj Mishra described Modi’s ascent as a process of combining Savarkar and neoliberalism.

It appears that “neoliberalism” is the word to describe everything that’s undesirable in India – morally, ethically, socially and politically.

In the run-up to the 2019 general elections, it is important to examine what exactly neoliberalism means in the Indian context, and crucially, to see whether the Modi government is indeed as neoliberal as its critics claim.

In the run-up to the 2019 general elections, it is important to examine what exactly neoliberalism means in the Indian context, and crucially, to see whether the Modi government is indeed as neoliberal as its critics claim. Credit: YouTube screengrab

Revival of classical and economic liberalism

The intellectual origins of neoliberalism can be traced back to the work of Friedrich August von Hayek. Hayek, in his book, The Road to Serfdom, published during World War II, tried to revive classical or laissez faire liberalism of the 19th century that believed the state should have a minimal role in a society mainly to uphold public order. This went against the dominant narrative of the post-World War II years of modern liberalism, shaped by the work of scholars like John Maynard Keynes. Modern liberalism challenged the belief of classical liberals that market mechanisms had the ability to autocorrect its failures, thus advocating a greater role for the state in the economy. From 1945 to 1970, the world witnessed what is commonly known as Keynesian-ism or the ‘golden age of controlled capitalism’. It represented ‘embedded liberalism’, as John Ruggie has described – a compromise between free-market and welfare obligations of countries.

The tide started to turn in the 1970s when Hayek’s neoliberal ideas started gaining traction. The neoliberal principles of free markets and less state interference informed the work of Milton Friedman, an American economist, who developed his theory of monetarism. Friedman’s work on monetarism prioritised monetary policies over the policies of taxation, redistribution followed by a big Keynesian-style government based on welfare-ism. These neoliberal ideas received political endorsement with the rise of Margaret Thatcher in the UK and Ronald Reagan in the US in the late 1970s and early 1980s.

The “Washington consensus”, a term coined in 1980s by the free-market English economist John Williamson, is often viewed as being synonymous with neoliberalism. “Washington consensus” refers to the policy advice rendered by Washington based international institutions like the IMF and the World Bank. The central tenets of “Washington consensus” are reduction of public expenditure, competitive exchange rate to assist export led growth, trade liberalisation, promotion of foreign direct investment, privatisation of public sector undertakings, deregulation of the economy and protection of property rights.

On the other hand, Marxist scholars like David Harvey argue that the turn towards neoliberalism is not a rejuvenation of liberalism per se. Harvey argues neoliberalism is a theory of political economic practices according to which “human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterised by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices” by guaranteeing, “for example, the quality and integrity of money”.

Whether neoliberalism is an attempt to revive classical liberalism or a distinctive economic theory, there is not much dispute on the central tenets of neoliberalism – support and non-interference in free-markets, privatisation and deregulation of the economy and a massive reduction in the size of the state.

Modi and neoliberalism

When Prime Minister Narendra Modi won a massive mandate in the 2014 general elections, some middle-of-the-road liberal Indians like Gurcharan Das, who didn’t subscribe to Hindutva politics, declared his victory as India’s Thatcher moment.

Economist Surjit Bhalla also compared Modi to Thatcher, arguing that just like Thatcher changed the mindset of a socialistic England, Modi’s election represented a demand for a similar modern mindset in India. Indeed, during the 2014 general elections, Modi made the Thatcherite rhetoric of ‘minimum government, maximum governance’ one of the central planks of his election campaign.

However, more than four years later, the facts show that Prime Minister Narendra Modi, notwithstanding the rhetoric, is no champion of the free markets. In last four years, the Modi government has done precious little to downsize the intrusive and big Indian state controlling many aspects of a citizen’s life. A large number of ministries such as the Ministry of Information and Broadcasting that have long outlived their utility continue to exist.

When it comes to giving up ownership in public sector entities, the government uses a politically neutral term, ‘disinvestment’, not ‘privatisation’. Very little genuine privatisation, of the kind seen during the Vajpayee government, has happened in last four years. The Indian state continues to run five-star hotels; provide telephone, internet, tourism and even helicopter services; manufacture steel, aluminium, scooters, pumps and compressors, photo films and even condoms. Recently, the government made a half-hearted attempt to give up its stake in Air India, which flopped.

Even where the government has disinvested its stake in public sector units, it has often been the case of making other public sector units buy government’s shares. For instance, earlier this year, ONGC (a public sector company) bought 51% shares owned by the government in HPCL (another public sector company). The most recent example is that of the government forcing the public sector insurer, LIC, to buy government’s shares in the IDBI Bank, a loss-making public sector bank. In all these cases, the ownership has moved from one government owned company to another government owned company. None of this is even remotely closer to the concept of privatisation as understood in neoliberalism. Moreover, unlike a neoliberal Thatcher, Modi believes in reviving loss-making public sector units rather than selling or privatising them.

An exterior view of Life Insurance Corporation of India’s (LIC) headquarters is seen in Mumbai September 18, 2014. Credit: Reuters/Danish Siddiqui

The current government’s track record when it comes to intervening in the functioning of the markets is as objectionable as all previous governments. There are several examples – government interfering in the working of foreign companies like Monsanto under the pressure of right wing Hindu groups; relentlessly pursuing tax claims based on unfair retrospective amendment to tax laws against foreign companies like Vodafone and Cairn despite complaining against the Congress government’s tax terrorism; trying to fix the prices of air tickets; artificially capping the prices of health equipment like cardiac stents; waiving loans of farmers; announcing an increase in minimum support prices for farmers and other such populist measures; heightened cow vigilantism that has adversely impacted India’s dairy sector and leather exports. All this is a far cry from what a genuinely neoliberal government would do.

The biggest assault on the functioning of markets, businesses, on private property and on the integrity of money (all central tenets of neoliberalism) was made by the current government when it decided to pull out 86% of currency in circulation overnight. As T.N. Ninan, India’s leading economic journalist wrote, demonetisation was the most radically socialist step taken by any Indian government aimed at a wholesale transfer of wealth from the well-off to the pocket of the government. Demonetisation would have made Joseph Stalin proud!

On international trade and foreign investment front, the government’s track record has largely been protectionist. While the government has liberalised FDI norms in certain sectors, the unilateral termination of 58 bilateral investment treaties (BITs) is an assault on a liberal foreign investment regime premised on protecting the property rights of foreign investors. The disrespect towards protecting property rights of foreign investors has been showcased in the new Indian Model BIT adopted in 2016.

As regards international trade, while Modi made a case for free trade in Davos in January this year, the actions on ground do not quite match the rhetoric. Earlier this year, in a bid to protect the domestic industry, the government hiked import duties on a number of products to its highest in last three decades. Likewise, the government continues to defend India’s food security law at the WTO to shield massive public procurement of food. Sadly, the government does not deem it fit to explore other non-trade distorting means to achieve the goal of food security. India has also blocked other proposals in the WTO such as an investment facilitation agreement perhaps because the Swadeshi Jagaran Manch (SJM), which belongs to the RSS and champions economic nationalism, opposes any such agreement.

Despite the BJP having a full majority in the Lok Sabha, the government has not been able to muster the courage to amend India’s archaic labour laws. These laws protect the deeply entrenched interests of the small minority of organised labour and at the cost of the interests of majority of people outside the work force. While the government tried to change the land acquisition law in the first year of its office, one jibe of “suit-boot ki sarkar” (pro-rich government) from Congress President Rahul Gandhi, was enough to give up the effort.

Unlike a genuine neoliberal, Prime Minister Narendra Modi seemingly has no faith in competitive exchange rates because he believes India should have a ‘strong’ currency reflecting India’s national pride. Even the revival of India’s GDP growth rate to more than 7% after the rude shock of demonetisation has happened largely because of government’s heavy lifting through increased public spending.

This has put pressure on the fiscal deficit especially as the oil bonanza has ended. In a genuinely neoliberal system, the drivers of economic growth should be the markets (private investment and exports).

Stigmatised capitalism

Following pro-business policies aimed at favouring select corporates does not make the State ‘neoliberal’. Crony capitalism, or stigmatised capitalism as Arvind Subramanian describes, should not be confused with neoliberalism. Conceptually, the two are different. This article is not a defence of neoliberalism. Nor is the argument that neoliberalism should not be critiqued. However, critiques based on partial understanding turn out to be rhetorical.

Today’s India is hardly neoliberal. Instead, what we have is the continuation of the old Congress-style left-wing populism combined with right-wing populism based on divisive ethnic nationalism. As Yascha Mounk has convincingly argued, we are truly living in a populist era where liberal democracy (protecting individual rights and respecting popular will) is under threat.

Prabhash Ranjan is an Assistant Professor of Law at South Asian University. Views are personal.