Reforms: the road ahead

Reforms: the road ahead
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First Published: Tue, May 19 2009. 12 28 AM IST

Stockxpert
Stockxpert
Updated: Tue, May 19 2009. 12 28 AM IST
India has emerged the clear winner in this election. This extraordinary verdict needs a policy response that will reinforce this victory. India will then emerge as an even stronger example of a vibrant inclusive democracy being able to meet the aspirations of its people. Nobody had expected the result to be so unambiguously and clearly in support of rapid, sustained and inclusive economic growth. More than anything else, the Indian people want to improve their standard of living and that of their children. They’re clearly fed up with the hackneyed mantras of caste, religion, identity politics and defunct left-wing ideologies. They have used their constitutional right to declare with stunning clarity and unexpected unanimity that they appreciate governments that pursue developmental goals.
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So now is the big opportunity for the country to make the decisive shift from competitive populism to competitive good governance. This will yield the democratic dividend for which we Indians have paid such huge costs over the last 60 years to nurture the democracy.
This is, then, also the time for us to articulate and achieve the necessary consensus on rapid economic growth being the necessary condition for addressing poverty and raising living standards at a pace that meets the aspirations of this young population.
But rapid growth often exacerbates existing inequities, both across income classes and across regions. This is not acceptable in a democracy. The market cannot be relied upon to yield better equity levels. Therefore, we should now focus sharply on improving the efficiency and effectiveness of the relevant government agencies and departments that are charged with the delivery of public goods and services. We must give up the notion that “the government does not matter and that India can grow despite the government”. This somewhat misguided notion has never had any buyers in Asia, where the role of the state has been crucial in achieving rapid and inclusive growth. Therefore, it is time that our policymakers focused far more attention on improving governance, which the United Progressive Alliance government had declared to be one of its priorities even in 2004. It is time to reiterate that resolve and deliver on it.
The media can play a crucial role in both helping to build this consensus on rapid growth and effectively monitoring the government’s performance in the delivery of public services. I hope the media will cherish this important mandate.
Ensuring equality of access to quality education for all population segments is a critical component of achieving better equity levels. First and foremost, this requires the rehabilitation and rejuvenation of the public education system at all levels. At the same time, all existing entry barriers in the form of licensing requirements, clearances and government procedures that impede private investment in education must be dismantled. This will attract genuine and serious providers from both within and outside the country. Restrictions on the entry of foreign education providers, whose list includes some of the best-known foreign universities and colleges, should be removed. Let us hope that we have a young dynamic minister in charge of human resource development who can connect with, and respond to, the aspirations of the young. Inadequate attention to education has the danger of missing out on the much-hyped demographic dividend, with serious negative consequences.
Investment activity continues to be an obstacle race for small and medium investors. Consequently, we hardly attract any investment for small and medium enterprises (SMEs) from abroad; a large part of domestic SME activity remains confined to the informal sector, below the radar of rent-seeking petty officialdom. This has to change if private investment has to play its due role in generating employment and dispersing industrial activity. A time-bound action plan for eliminating or streamlining the existing plethora of petty procedures and licensing requirements is needed. Simultaneously, the huge edifice of government agencies that has sprung up over time, purportedly in support of SMEs, should be dismantled. These agencies do not and cannot support SMEs and largely serve only those who are employed there.
Our exports are plummeting at a shocking rate. This decline has to be arrested quickly. India’s share in global markets for merchandise goods has increased from 0.6% in 1994 to a mere 1% in 2006; in the services sector, it is higher but still only 2.7%. So there is huge scope for increasing our exports. If we can achieve this at a time when global demand is stagnant or declining, we would have achieved the competitiveness that will see these exports spurt when global markets look up again. It is time our export targets are expressed in terms of increasing their share in global markets. This will help us to focus our policy support on sectors that have already emerged as winners or have the potential to do so. And as in the case of our SME supporting agencies, the export promotion mechanism, which has actually become dysfunctional over time, also needs a thorough revamp.
And finally, a few quick and easy-to-do measures. First, the administered price mechanism for petroleum products should be removed. Given global conditions, this is a very opportune time for doing this. Second, the agreement made in the early 1990s by state chief ministers to charge a minimum tariff for rural electricity needs to be revived and implemented. Third, modernization of the retail sector by allowing free entry of large domestic and foreign corporate players will have a significant productivity raising impact on various sectors of the economy. This should now be announced. Finally, the road map for banking sector reforms announced in February 2006 needs to be revived. It is self-defeating to argue that the global financial crisis has effectively done away with the urgent need to implement the reforms necessary to make our banking sector more dynamic and responsive to people’s needs.
Rajiv Kumar is director of the Indian Council for Research on International Economic Relations, or Icrier. Views are personal. Comments are welcome at theirview@livemint.com
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First Published: Tue, May 19 2009. 12 28 AM IST