Manmohan Singh and the reforms logjam
A large part of the blame for lack of reforms lies with the Prime Minister
There is something deeply ironical about a political leader blaming politics for the lack of policy momentum. Prime Minister Manmohan Singhsaid in a speech last week that economic reforms do not take place because of the professional advice offered by economists but because the political leadership of the day decides to move ahead.
Singh should know. He has been on both sides of the fence, first during his glittering career as a government economist and then as a politician since 1991. His political instincts are often underestimated. One example: He mentioned all his predecessors since 1985 while speaking of the reforms continuum, but did not mention the sterling contribution of Atal Bihari
Vajpayee. A mere oversight?
As an economist trained in Cambridge, Singh in his formative years would have been undoubtedly influenced by the rather breezy confidence of John Maynard Keynes that ideas eventually trump interests in policy. At the heart of this confidence was the implicit belief that the government was a neutral agency that promotes social welfare, above the rough and tumble of daily politics. However, it is now nearly five decades since public choice theorists such as James Buchanan, Gordon Tullock and Mancur Olson have redefined government as a crucible of interest groups, rather than a black box of noble intentions, and public policy as an equilibrium that reflects the underlying conflicts between various groups.
In that sense, what Singh has said is quite correct. India is a heterogeneous country hampered by a fractured political system.
The grand nationwide coalition that emerged from the freedom movement shattered long ago. Political bargaining is thus far more difficult today than it was in the Nehruvian era, or even in the years when Rajiv Gandhi was at the helm. The conflicting demands from powerful groups such as big businesses, large farmers, the urban middle class and organized labour have not only blocked reforms but also made heavy demands on fiscal policy, as the persistent deficits indicate. Such a gridlock was examined by Pranab Bardhan more than 30 years ago.
Yet, the fact that India has seen radical changes in its economic policies during this period shows there are ways of breaking the gridlock. A lot depends on the quality of political leadership, especially its readiness to take risks. Singh himself mentioned the role of political leadership in his speech as one of the requirements for policy reforms. “There has to be a willingness to take political risks in launching new initiatives," he said.
Modern political economists have often written about how political entrepreneurs help break political gridlocks. India has seen too little of such risk-taking in the past decade. In fact, it is the nature of the United Progressive Alliance that has been at the heart of the policy inertia that has now taken India closer to an economic crisis than during any other point of time since 1991. It is just not true that the policy logjam we have seen in recent years is entirely because a messy coalition is at the helm in New Delhi. Vajpayee also had to handle whimsical partners. It is a testimony to his political abilities that he managed to push economic reforms despite some recalcitrant allies and with the Rashtriya Swayamsevak Sangh breathing down his neck.
Singh has been unable to take such risks. He has obviously been constrained by the unique power-sharing arrangement between Sonia Gandhiand him, with the former managing the politics and the latter running the government. Her Jurassic ideas cast a shadow over national policy. The elusive political consensus on reforms breaks down within the Congress party itself; getting allies and opposition parties on board is a much later step.
The lack of political legitimacy has undoubtedly hampered Singh and his tiny band of reformers. But that does not absolve the Prime Minister of responsibility. He knows that the Congress supremo needs him as much as he needs her. That is why he got the job in the first place. His principled stand on the path-breaking nuclear deal with the US showed us a glimpse of what could have been possible if he had put his foot down. Singh could surely have used his (admittedly scarce) political capital to push a few crucial economic reforms, or at the very least block malign decisions such as retrospective taxation.
He shares a large dollop of personal responsibility for the current economic mess.
Who is responsible for the blocking of economic reforms in India? Tell us at views@livemint.com
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