In the last week, two extraordinary outpourings of anti-government angst took place. One, of course, was in the US, against Donald Trump’s decision to impose tariffs against the whole world. On the other side of the world, was the response to the Union commerce minister Piyush Goyal’s comment at Startup Mahakumbh, where Indian entrepreneurs were asked why they were focusing on consumer platforms instead of deep tech manufacturing. Across social media, entrepreneurs, business owners and commentators, many of whom are otherwise supporters of the government, came out in force to protest. When government clearances, bureaucratic obstructionism and corruption are all holding back Indian startups, especially in manufacturing, why is the minister pointing fingers at Indian entrepreneurs?
On the face of it, these two strands of commentary may not seem to have much in common, but they hold deep significance. They are rare public expressions of support for a philosophy that has delivered prosperity and well-being to billions of people across the world and in India. The philosophy goes something like this: Those with political power must focus that power on laying the foundations of peace, law and order, and property rights. After that, if they get out of the way, voluntary transactions between consenting adults can over time build a skyscraper of prosperity for everyone on that foundation. If those with political power try to do too much more, you get neither foundation nor skyscraper.
The world abounds with strong evidence for this view. Magna Carta’s restraints on the powers of kings paved the way for the industrial revolution. The US Constitution’s limits on the power of government made it the wealthiest and most powerful nation in history (and Donald Trump overstepping those limits may yet unmake it). China’s retreat from Communism’s overarching political controls and its embrace of private enterprise took a billion people to middle-class lives. And then of course, our own liberalisation from licence-permit raj in 1991 took nearly another billion of our citizens out of abject, grinding poverty. This is a scale of positive outcomes that few do-gooders can imagine, let alone achieve. However, for obvious reasons, the philosophy of “do less” is one that rarely finds much political purchase, which is what makes this moment of public outcry particularly significant. What is its practical implication?
For one, it makes the American government more likely to cut a deal to drop tariffs. Our government has already been smart about handling this. We have refrained from publicly criticising Trump while negotiating a trade agreement with the US. We must redouble our efforts, taking advantage of the popular backlash against tariffs. If we can end up in an advantageous position compared to China and the Asean economies, all the better. We should try our best, but ultimately these are external factors beyond our control.
What is under our control, and simultaneously a crying need, is for us to radically improve our internal business environment. Luckily, the government was already cognisant of this need, and announced a deregulation commission a few months ago. We must, as a country, rally behind this effort and support it in achieving its objectives. However, political risks and bureaucratic inertia will inevitably make implementing anything at the national or even state scale difficult. Even worse, often, it is not clear what reforms will hit the mark or backfire. So, what should we do?
We need to create a framework that enables the general government to launch many different, smaller reform arrows. Let us enable each state to designate two city-size regions within the boundaries of which they have radically more freedom to make reforms on all Concurrent list items like environment and labour. Let us deregulate Union list items like tax and tariffs to be dramatically simpler in these regions as well. States anyway have full control over state list items like building and fire rules. They can also try partnering with large private master developers to reduce the demands on bureaucratic capacity.
By letting our governments try reforms in ways that are less politically risky and less bureaucratically demanding, these city-size regions can shed light on a path forward that the country desperately needs but currently has difficulty finding. If some get it right, city-sized areas can be very meaningful in economic terms — just Shenzhen alone exports almost as much as all of India. If some get it wrong, political and economic damage will still be limited. Such attempts have been made before — the SEZ Act, GIFT City, to name just a couple. The SEZ Act had several compromises that prevented it from succeeding, one of which was lack of precedent for differentially governed areas in India. However, GIFT City comes close to what I am recommending. So now we have precedent, we just need to extend it.
The world has become a vastly more difficult and uncertain place to grow and create jobs for our people. If we continue to handicap our businesses at every step, they will not succeed. Unlike Donald Trump, Piyush Goyal may not have sinned as much as been sinned against — by our legacy institutional environment that is almost actively hostile to business. However, by touching this raw nerve of the Indian public, he would still have done us all a service if we can take the opportunity that their outcry presents. Kudos to the government for starting the process of de-regulation. Let us all build momentum for the success of that initiative, but also use this moment in time to put in place a framework for a few city-sized regions of de-centralised power that will forever help us feel our way across the challenging times that lay ahead.
Rahul Ahluwalia is director, Foundation for Economic Development. The views expressed are personal
