Policy Flip-Flops: A Spooky Affair

Netflix recently premiered The Irishman on its platform. The brilliant as usual Robert de Niro, playing the titular character, recalls how a close associate of his, a famous, powerful truckers’ union leader in the United States backs a presidential candidate, and is hounded post-election when the opponent assumes office. The man suffers for years, goes to prison, loses control of his union and eventually his life. Sad, isn’t it?

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“I believe justice loses its character of justice if it becomes a revenge.”

- CJI SA Bobde

Though this statement was made in context of a recent, much discussed and politicized police encounter in Hyderabad, it might as well hold true for a lot of situations in Indian politics. While some say justice which is justice only for the aggrieved and does not take into account the collateral damage is almost of no use, and mostly peddled by people with myopic thought processes, others might disagree and want to set examples and exceptions. Both are not entirely wrong, but are not entirely correct either.

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While on a preliminary reading, these two incidents seem pretty incoherent, being so far apart both in time and geography, a closer look at them however reveals a certain trend consistent with change in power. Regime changes particularly are most wanted by two categories of people – the opposition and the public. However, the reasons for their want are usually mostly different.

Whenever a government changes, it tries to change the status quo under its jurisdiction. The earlier red and now blue-white painted city of Kolkata is a classic example of how desperate the new powers are to announce their authority and make their presence felt wherever possible. While the erstwhile social and political order was established over a long period of over three decades, things at grassroots essentials haven’t changed much even almost a decade after the change in regime.

Things today however are not as slow as they used to be, with information flowing and opinions swaying at the touch of a finger, with millions of pocket and table devices acting as ticking time-bombs ready to explode and disseminate god-knows-what information, true or fake, that might just prove to be the last nail in the coffins that the current, coalition-led and usually unstable governments operate out of.

A party might or might not have enjoyed a very long stay in power, but their oppositions sometimes feel the relatively slow passing of time with the pain of each day spent out of power. Since they spend most of their time opposing the policies of the government, the first step they usually take is to show some big bang policy reversal, which gives rise to the underlying, waiting-to-be-unearthed potential catch 22 situation.

As always, businesses want predictability. A confused investor is never a good sign.

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The newly formed Maharashtra government has been on a cancellation spree. The first actions of the government have been to cancel and go back on multiple projects of the previous BJP government. It all started with the cancellation of loan guarantees granted to seven sugar mills in the state, while a possibly valid reason given was that most sugar mills had BJP leaders involved. Then, citing major financial woes, the government has moved to cancel the very ambitious Mumbai-Ahmedabad bullet train project, in which the Maharashtra government had a very small share to pay, given the huge interest free loan from Japan and a part payment by the central government.

Apart from that, he has also gone back on the Jaitapur nuclear power project, taking back cases against all the protestors. Not only this, the Uddhav Thackeray-led government has also moved to cancel the Mumbai-Pune hyperloop project, calling it “an expensive experiment at best”. Not only these very big-ticket projects that have been grabbing national headlines faced the axe, the government has also apparently stalled numerous BMC projects saying they must be audited once more.

The government here has been selling the story of financial irregularities and questionable viability, but what makes this appear very strange is that the largest party in the current coalition government was also the alliance partner in the previous government which took all these decisions in the first place and was still a pre-poll alliance partner with the incumbents just months ago.

Even if the public is made to gulp this down, what explains the cancellation of the Aarey Metro project on account of loss of environment (5000 trees to be cut down and green cover to be compensated elsewhere in the city) but announcing a Bal Thackeray memorial the very next week (that would require cutting down 1000 trees)?

This article does not attempt to verify the facts or bring out a political statement, but what we try to assert is that such a political environment full of so many policy flip flops is not healthy for the business environment.

The experiences of the three bigwig partners here, the Japanese government, Elon Musk led Hyperloop project (a partnership between Tesla and SpaceX), and several business leaders (even if they include BJP leaders) will definitely prompt other potential partners to think more than twice and eventually jeopardize the much-required private investment.

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This is not just the story of regime change in one state. The trend has been going on since the formation of the new government in Andhra Pradesh, the Jagan Mohan Reddy led government that went back on several contracts inked by the previous Chandrababu Naidu government with the private sector. The government that came to power in June started with putting the Power Purchase Agreements with clean energy projects for renegotiation citing irregularities in the process of the agreements. This put those projects at risk of losing financial viability, putting half the sector at risk of default on its debt payments. The project went to court and has also threatened to take power discoms to NCLT if need be. Not only this, but the decision also has the potential to set India back from her target of achieving 227 GW of renewable energy capacity by 2022.

The government has also gone back on the Amaravati Capital City Startup Area project, which has already seen billions of dollars flow in from a Singapore-based consortium with investment from Ascendas-Singbridge and Sembcorp.

What is the big picture here?

Is this shift in policy to be seen as a breather from corruption, or a step towards more transparent awarding of contracts and projects, or just plain and simple political vendetta?

There is no certain answer to that. But what's certain is, the investors are spooked. With such big public projects involving very heavy upfront investment and seeing much delayed returns on investment, often times over more than a couple of decades, a political environment which indicates a lack of stability and commitment would definitely drive investors away.

At a time when the GDP growth is down in the dumps and the governments, both state and central, are looking towards the private sector to invest, create jobs, and spur demand to put India Inc.’s consumption story back at the top of the charts, creating such dilly-dallying environments is not good for health.

Even if there are financial irregularities involved, the governments must find a way to place checks and balances to place projects and contracts under the scanner without driving investments away.

If this is the case, this lays a greater question on bureaucrats and the babu culture prevalent in the governmental systems in India. When there is a change in political leadership in the government, it is the bureaucrats on whom falls the responsibility of policy-making and advising the politicians on matters of public concern. It is their job to ensure financial viability and environmental sustainability in each and every undertaking of the government, and ensure that politicians in power do not take big gambles that the next regime might not have the political standing or will to back those.

In case this can not be done, the new government and the bureaucracy must ensure that steps be taken to safeguard public interest without spooking investor confidence.

This is a tough line for them to tread, but who ever said that the job was easy?