The connect and conflict of reforms

It is high time that some hard questions are asked and answers are sought.
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First Published: Wed, Nov 21 2012. 07 41 PM IST
Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
The no confidence motion that Mamata Banerjee-led Trinamool Congress promised against the government on various issues is itself losing confidence very fast. Even if it is brought up in the Lok Sabha after Parliament convenes for its winter session on 22 November, it is unlikely to affect the stability of the United Progressive Alliance (UPA) government. But what looks almost certain is that the government will once again face a tough time in Parliament over a whole lot of issues, especially opening up of multi-brand retail for foreign direct investment (FDI).
What is motivating in this entire political build-up and posturing around this issue is that it has once again brought the debate on reforms back to the centrestage. And it is no coincidence that perhaps for the first time in so many years, the ruling Congress party came out openly in the support of the government on reforms, which so far has done precious little on this front. As the debate on reforms revives after years, hopefully also in Parliament, it is important to gauge what we have achieved and where we intend to go from here.
At the very outset, Montek S. Ahluwalia, in a 1993 paper, India’s Economic Reforms, agreeably captured the idea of reforms in India. Though the paper talked about various aspects, such as taxes, fiscal stabilization, trade and exchange rate, among others, it defined the idea of reform as: “reducing the extent of government controls over various aspects of the domestic economy, increasing the role of the private sector, redirecting scarce public sector resources to areas where the private sector is unlikely to enter, and opening up the economy to trade and foreign investment.” Successive governments, however reluctant, though, carried forward the idea. Consequently, the rate of growth increased and, more importantly, India had stability on the external front, unlike the pre-reform era when there was always a threat of a balance of payment crisis.
However, despite the visibility of positive outcomes, the country at large and political parties in particular seem to have not developed adequate appetite for economic reforms, which to a large extent, explains the present state of economic affairs in the country. The government decided to stay away from taking “hard” decisions for far too long. The “gradual” approach to reforms became a casual approach. As a result, the potential of the Indian economy has suffered a serious setback. Even at 5.5% growth, the country is grappling with high inflation and witnessing uncomfortable levels of trade deficit, clearly suggesting that the supply lines are choked and the economy possibly needs to slow down further.
The government, finally on its part, under the threat of a ratings downgrade, decided to do some damage control, and now the Opposition wants its head. But the question is why after a reasonably good beginning have we reached a state where forget reforms, any attempt to restrict fiscal deficit has become politically unacceptable.
One explanation could be the genesis of this kind of economic outcome was laid in high growth years itself where the government began to lose track. Populism became a more popular political idea. Then some administrative mishaps, charges and support of allies, who cannot see beyond their states, made the government completely risk-averse, which avoided all hard questions until it was too late.
You don’t expect the Opposition to endorse a diesel price hike, but it’s hard to imagine how all of them want to protect the middlemen on the cost of producers and consumers by blocking FDI in multi-brand retail. You don’t need to be an economist to figure out that a country is better off by producing more goods and services and not by selling the same stuff to each other infinite times. Opposition for the sake of opposition seems to be the name of the game.
It is high time that some hard questions are asked and answers are sought. And what could be a better time than this session which is expected to be dominated by economic issues. What is the kind of economy we want? Can the dependence on agriculture for living be reduced, as under 15% of the country’s output cannot promise a better future to over 65% of its population? Is it a good idea to protect labour in the organized sector on the cost of entire unorganized sector and keep compromising on growth, forever? Do we want to burn cheaper diesel on borrowed money or we want to have more schools? Should the government be mindlessly buying foodgrain from the market and allow it to rot on the one hand and force the country to live with high inflation on the other? Do we want disinvestment to be part of a web of valuations and meeting deficit target, or do we want it to serve a larger purpose of making space for markets? The list can go on.
Political parties need to take a call if they want to create and capitalize on the fear of perceived short-term loss, if any, or want to focus and explain long-term gains of reforms to the masses. The political leadership needs to decide if it wants to connect to the ideas of a better future, or always want to be part of one political conflict or the other. The clock is ticking.
End note: To all members of Parliament: enough damage has already been done to the investment climate in the country, affecting growth and job creation. If adequate steps are not taken even now, the opportunity cost to the citizens will only escalate. Indians along with the entire world do not want the Indian economy to fail. So can we expect some positive surprises this session?
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First Published: Wed, Nov 21 2012. 07 41 PM IST
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