At a time when the Indian economy seems headed towards stagflation, and there is not enough in the treasury to support lavish fuel subsidies, Thursday’s Bharat bandh in protest against the petrol price hike last week reeks of political opportunism. But political parties belonging to both the Left and the Right, who backed the bandh, are canny enough to realize that our chattering classes would not mind this protest.
Even before the bandh call, India’s so-called middle class --- that actually represents only the top quartile of the country’s population --- was furiously typing away about its disgust over the 10% hike in petrol prices. Social networking sites have been flooded with posts that reflect deep outrage over this ‘unjust act’ in particular, and over ‘Manmohanomics’ in general.
Two decades after their first brush with liberalization, Indian elites still seem reluctant to accept market-determined prices. In a 26 May opinion piece, Indian Express editor-in-chief Shekhar Gupta faulted the manner in which the UPA raised prices at one stroke, and contrasted their strategy with that of the NDA, which raised prices 33 times in six years in small steps, without anyone noticing.
BJP leaders during the Bharat Bandh against steep hike in petrol prices. Photo: PTI
Gupta’s argument has merit. It also underscores the fact that even basic reforms such as fuel price deregulation can succeed only when they escape attention, a practice which economists term as ‘reforms by stealth’. India’s need for economic reforms is as high as ever, and it is worthwhile to ask: why have we failed to develop a constituency for reforms? Why does no mainstream political party champion economic reforms?
Some commentators have suggested that the growing number of scams have undermined the legitimacy of big business. In a recent Mint opinion piece, Chicago University economist Raghuram Rajan pointed out that this has led to a distrust of even the legitimate role of the private sector.
Rajan argues that the original reformers left their task incomplete as they left room for discretion in the hands of public officials. But that may only be one mistake.
The unpopularity of reforms stems from another crucial flaw in the design of the reforms package. While the reforms brought down the role of the state in several areas where the state was not needed, it did very little to ensure that the state did well in providing public goods such as health, education, or roads. Consequently, people failed to relate to the reforms process.
By focusing exclusively on macro-economic adjustments and ignoring governance reforms, our reformers made a political mistake of making 1991 appear irrelevant to a substantial section of the society. Also, the cuts in state expenses that had swollen to unmanageable levels prior to the 1991 crisis were often crude and impacted the legitimate activities of the state. Public investments in health, education and agriculture suffered.
Even as the quantum of public spending has gone up in these sectors over the past decade (especially in education), there has been little focus on quality. As several surveys by non-governmental organizations such as Pratham show, even after enacting the Right to Education Act, the state’s capacity to educate children has not gone up. Across sectors, public investments have a muted impact because of historical weaknesses in execution.
Maybe Indian elites resent the price hike because they fear the savings in fuel subsidy might not be spent well. An improvement in state services makes it easier to sell reforms that involve pain, as people see corresponding gains. The state’s reform agenda is undermined not by the attacks from Team Anna but by its own unwillingness to reform its style of functioning.
Economists and policy makers, with a few notable exceptions, have ignored the role governance reforms can play in legitimizing other crucial reforms. India’s prime minister, Manmohan Singh is among those notable exceptions who realize the importance of delivery reforms. One of his very early promises was administrative reforms.
Like many of his other promises, this too remains broken.