‘We are pro-business’: Finance Minister Arun Jaitley makes first move to articulate a right-wing economic philosophy

20 July-2014, R Jagannathan/Firstbiz: In Arun Jaitley’s response to the debate on the Union Budget  on 18 July we got the Modi government’s first real articulation of a small, rightward shift, in stance. So far we have been hearing all about how the government wants to spend on sanitation, housing for the poor, etc – which is fine and necessary, but actually amounts to nothing more than plans to spend taxpayer money.

‘We are pro-business’: Finance Minister Arun Jaitley makes first move to articulate a right-wing economic philosophy

‘We are pro-business’: Finance Minister Arun Jaitley makes first move to articulate a right-wing economic philosophy

But spending is something any government – right, left or centre – can do. The articulation of a rightward shift needs the enunciation of a philosophy and approach. This was what Jaitley offered in the debate, which saw the first stage of the budget process being completed.

There are some, like Surjit Bhalla, who believe that the government has been more left-wing in its rhetoric than in its actions. This is why Jaitley’s budget was criticised for allegedly failing to deliver on its right-wing expectations. Writing in The Indian Express, Bhalla asserts to the contrary. He says the BJP has acted “on not one but several economic reforms” and predicts that “2014 (will be) remembered as the year India comprehensively changed course for the future, and for the better.”

But if a government is not to be hypocritical, its actions and articulations must coalesce at some point. This is what Jaitley seemed to be bridging in his speech yesterday. The most important directional statement made by Jaitley was the assertion that being pro-business did not mean being anti-poor. Referring to suggestions that the Modi government is pro-government, Jaitley gave a forthright reply: “Yes, we are (pro-business). More activities in private sector will create more employment and generate more revenue. This can be used in poverty eradication.”

In The Economic Times’ rendering of the same statement, he is reported to have said it slightly differently, but with the same import. “Someone said we are pro-business. We are pro-business. There is no contradiction in being pro-business and being pro-poor. In fact, if you stop business activity, then you would not have enough resources to service the poor as far as this country is concerned.”

This much is commonsense. Only business can create jobs, not government. Governments can own businesses, but it is business that creates jobs and employment and growth. In India’s daft political climate, we have reduced this to government business good, private business bad.

This is the first clear political articulation of a pro-business philosophy by the new government, and while this is not new (all governments have done so since 1991) it needed to be emphasised. But the process or articulation will not be complete till this argument is made part of public discussion and folklore. We have to convince our people that being pro-business is no crime. This is the message Modi needs to start articulating at some point even during election campaigns.

Many intellectuals, even business journalists, have tried to make pro-business sound like crony capitalism. They would prefer the term “pro-market” rather than pro-business. However, this is a false dichotomy. Governments have to be both pro-business and pro-market. Being pro-business means making it easier to do business and simplifying things, while being pro-market means allowing the market to decide winners and losers and providing easy exits to businesses that fail.

What governments should not do is discriminate in favour of (or against) some businessman or businesses. That would be crony capitalism. Being pro-business and pro-market are two sides of the same coin – one facilitates the creation of business opportunity and eases the road to entrepreneurship, the other lets the market decided who should succeed and who should fail. Being pro-business also means creating a simple and easy exit to business failure, without treating failure as a criminal act.

Pro-business, pro-market ultimately means the state creates policy, and all players – whether in the public sector or private – being treated on a par by the state and its arms.

The second major articulation by Arun Jaitley was about the government’s attitude to taxation. The government, the finance minister said, was in favour of lower taxes. The Financial Express quotes him as saying that “if you put higher taxes on products, people will buy products from outside. Lower taxes will increase economic activities.”

Once again, what he has said is not new, but for a new government which has so far been shy of talking about its economic philosophy for fear of being dubbed anti-poor, it needed to be said. In the budget speech itself Jaitley said he would have liked to offer more relief to taxpayers, but the fiscal situation did not allow him to do so.

Third, he talked of people owning their own homes. Encouragement of home ownership is always a critical part of right-wing policy for it progressively converts citizens into a propertied class. BusinessLine quotes Jaitley thus: “We want to incentivise people to buy their own houses. During Vajpayeeji’s government, a situation had come where paying rent was costlier than EMI. Interest rates have gone up since. Hopefully, if inflation moderates, they may come down. And we want to go back to that situation where buying a house was cheaper than taking one on rent. That adds to national growth because it adds to real estate sector.”

This was not the cleanest of statements, and “incentivising” people to buy homes ought to mean more than just cheaper loans and tax-breaks. Also, paying EMIs is unlikely to get cheaper than paying rents in the foreseeable future, unless rents explode and interest rates fall to low single-digits – an unlikely prospect in a high-inflation economy.

The real hurdle to “incentivising” home ownership is not the cost of money, but unreformed real estate laws and deliberate political efforts to bottle up supplies of land in urban areas so that the corrupt can make even more money for themselves and their cronies. If there is one sector where there is nothing but cronyism at work, it is real estate.

If Jaitley truly believes in encouraging home ownership, this is where he needs to act – and this area is largely in the realm of state policies. This is the area where government needs to be all three: pro-business, pro-market, and pro-people.

The UPA, with its flawed Land Acquisition Act, made land an even costlier asset by legislating what price someone should pay for land acquired for large projects from farmers or the rural people. The idea is to protect them from getting an unfair price, but the legislation has led to overkill, and will end up disincentivising home buying by raising home prices even more. For mass housing and the related infrastructure, large tracts of land are needed.

There is actually no general shortage of land near urban areas. What is missing is infrastructure – the fast transport needed for transporting suburban homeowners to offices – and the related social and physical infrastructure needed for residential colonies.

Hopefully, the NDA will get there. But Jaitley has made a beginning with his articulation. It now needs political amplification without caveats.