On Monday, Union finance minister Pranab Mukherjee met a group of leading industrialists in New Delhi. Ideas on what requires attention to revive sagging industrial output were exchanged and a “wish list”, so to speak, handed to the minister. Reports suggest that he promised action and his listeners were enthused.
In the weeks preceding the Monday meeting, the government appointed a new head for the goods and services tax (GST) panel, a committee of secretaries has cleared the path for foreign direct investment (FDI) in the retail sector and a draft of a new land acquisition Bill has just been unveiled by the rural development ministry. It also appeared proactive on granting clearances to infrastructure projects. The finance minister also had words of support for D. Subbarao, the governor of the Reserve Bank of India (RBI), after the latter announced an unexpected 50 basis points increase in the policy rates last week. This was in marked contrast to the public expression of concern on high inflation and private doubts about the course adopted by RBI.
These baby steps—and there is no other expression for them —have been interpreted as the beginning of the next wave of reforms. They are not.
Each of the steps listed above is ambiguous. The GST panel is what it is, a mere panel. The launch of GST has been delayed due to the lack of political consensus. There is no sign of that consensus. Clearance to retain FDI comes with serious riders and early reactions by foreign firms have been lukewarm. The draft land acquisition Bill is crafted in such a manner that it is likely to disappoint than enthuse.
Even if one were to concede that these steps do constitute “reforms”, their timing is quite unusual. India goes to polls in 2014, too early for the ruling dispensation to gain anything from these so-called reforms. It will take anywhere from 24-28 months after roll-out, at the minimum, for their economic impact to be felt and translate itself into votes. Good economics needs time to turn itself into good politics. And that time is at the start of a government’s term and not somewhere in the middle of it.
Circumstantial evidence— seen clearly for two years now —points to India being in the grip of a political economy of populism. For that to reverse itself in a spate of weeks is akin to the government undergoing a religious transformation. It requires a lot of faith to believe.
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