The Narendra Modi government completed its first year in office on May 26, 2015. The media went berserk around that time and kept asking over and over again whether the promised acche din were here? Some commentators said that the Modi government had delivered on its promises. Some others said it was nowhere near delivering on the things it had promised. The truth, as always, is somewhere in between.
The trouble with any government is that the problems it hopes to solve through the promises it has made are likely to be solved only in the long term. Nevertheless, the government needs to keep winning elections in the short term.
As Steve Levitt and Stephen Dubner write in their new book When to Rob a Bank... And 131 More Warped Suggestions and Well-Intended Rants: "Voters want politicians to help solve hard problems that have long-term time frames: transportation, health care, education, economic development, geopolitical affairs and so on. The politicians, meanwhile, have strong incentives to act in their own interests (getting elected, raising money, consolidating power, etc.), most of which have short-term payouts." And somewhere down the line this creates a major disconnect. "So as much as we may dislike how many politicians act, they're simply responding to the incentives the system puts before them," write Levitt and Dubner. How does this apply in the context of the Modi government? One of the promises made by Narendra Modi during the campaign that accompanied the 2014 Lok Sabha elections was to create more jobs. And one of the things that Modi needs to do in order to ensure that more jobs are created is encourage entrepreneurship. In order to encourage entrepreneurship, Modi needs to simplify the 150-200 labour laws that govern the country. This will help Indian firms to grow bigger, recruit more employees and in the process create more jobs. A news report in The Indian Express suggests that the government is planning to: "codify the Central labour law architecture wherein the labour ministry plans to merge all 44 Central legislations into four codes on labour laws - one each on wages, industrial relations, social security and safety & welfare. Apart from industrial relations and wages, other codes are likely to be released during the course of the year." This attempt to simplify labour laws will create more jobs in the long term. But in the short term it will create a major headache, given that it will be strongly opposed by labour unions. The organised labour tends to punch above its weight primarily because labour laws are rigged in its favour. It is also unionised and unions ensure that any prospect of labour reform which is beneficial to the overall labour force and not to organised labour is vociferously opposed. In fact, the Modi government's plan to simplify labour laws is already being opposed. K C Mishra, the organising secretary of the labour union Bhartiya Mazdoor Sangh (BMS) recently told The Indian Express: "The PM has been saying everywhere that he has abolished several laws. I request him that he should abolish only useless laws, but he must not touch the labour laws that are the result of a huge struggle." Mishra is the senior most of the 22 pracharaks of the Rashtriya Swayam-sevak Sangh (₹S) to have been deputed to the BMS. Modi's Bhartiya Janata Party (BJP) is also an affiliate of the ₹S. The point is that any attempt to simplify labour laws will be opposed by labour unions. And this will prove to be a major headache for the Modi government in the short term, though it will lead to major benefits in the long term as more jobs will be created. The current labour laws inhibit the growth of Indian firms and in the process inhibit the creation of jobs as well. Also, any opposition by labour unions will be played up in the media, creating further problems for the government, which has been trying hard to not get labelled as anti-poor. And this will hurt the government in the state elections that are schedule to happen over the next few years. These elections are important simply because only once the BJP does well in the states, will it be able to improve its numbers in the Rajya Sabha, where its currently in a minority. The party needs to improve its numbers in the Rajya Sabha if it hopes to push through key legislations in the days to come. Modi has also said that he is looking to govern for a period of ten years. And given that, he also has the 2019 Lok Sabha elections to take into account while making decisions, which are likely to be painful in the short-term. Hence, the need to win elections in the short term will go against the process of trying to create jobs in the long term. And this will not be an easy problem to solve.
Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected].
This column appeared in the July 2015 Issue of Wealth Insight.
This article was originally published on July 31, 2015.
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