The financial markets, both in India and abroad, have just survived a roller-coaster ride of a week: hot on the heels of plummeting stock prices and a plunging rupee, “Black Monday"—triggered off by concerns of a meltdown in Chinese equities—saw heavy losses on Dalal Street and relentless pressure on the Indian currency. While these losses were tempered by a partial recovery in the latter part of the week, the Sensex is poised for its worst month on record since May 2012; what is more, as reported in Mint, foreign investors have headed for the exits, withdrawing $2.52 billion from Indian equity markets in the month of August, adding up to the largest outflows in a given month since October 2008.

The rally in the markets in recent days appears to have effaced, to some effect, the pervasive sense of gloom that prevailed earlier in the week. Readers will recall that, following the market rout on Black Monday, 24 August, finance minister Arun Jaitley attempted to reassure investors, domestic and foreign, and implied the government would take the stern rebuke from the markets. This even though the proximate cause may have emanated from China, and markets receded worldwide as a reminder that much of the business of economic reforms remains unfinished. In a much-quoted line, he told a press conference that the crisis in global markets ought to be seen as an “opportunity" for India.

Optimistic commentators have seen Jaitley’s remark as affirming a renewed commitment to the stagnant reforms agenda. Yet, it would be salutary to recall that, in the same press conference, the finance minister is reported to have said that “not a single domestic factor" contributed to the crisis, which he attributed entirely to “external factors". He averred that the current volatility was “transient and temporary", and that “markets will settle down". These hardly seem the words of choice for someone who wishes to use the current global crisis as a goad to push the reforms cart, currently stuck in the mud, forward. They seem, rather, words of complacency, which appear to favour a continuation of the status quo of the reforms iceberg advancing glacially at the margins.

Other signs emanating from the government this past week give one even fewer reasons to be sanguine. The current government’s mixed inheritance from its predecessor includes a range of elements that are in dire need of a rethink—such as the now-shelved plans to reform the land acquisition law—but also helpful, pro-reform elements that ought to have been wholeheartedly embraced. One such element was a plan mooted by the previous government to privatize four major airports (Chennai, Kolkata, Jaipur and Ahmedabad), as well as to corporatize the shambolic Airports Authority of India, and to pare off Air Navigation Services, responsible for air traffic control, into a separate entity. The economic logic behind this proposal was impeccable, it would have been eagerly embraced by the airline industry as well as by beleaguered passengers, and the government could have seized a low-hanging reforms fruit that was left ripe for plucking by its predecessor.

Instead, bowing cravenly to pressure from insider labour unions that could easily have been resisted and countered for the fear-mongering that it was, the government has, inexplicably, killed a non-controversial reform that it had been handed on a silver platter with watercress round it. If the government does not have the stomach for airport privatization and airline regulator rationalization—a no brainer, with no downside risk, if ever there was one—it is hard to see how they will muster the political will to push forward even more vital elements of the unfinished reforms agenda, such as labour law reforms, and the now (apparently moribund) land law reform.

If that were not dispiriting enough, the government is thus far woefully behind in the current fiscal year in its disinvestment target of nearly 70,000 crore— thus far having raised only a little more than 12,000 crore. And, in a case of incredibly bad timing, much of these disinvestment receipts—more than 9,000 crore—came on Black Monday itself, when the government put 10% of Indian Oil Corp. Ltd (IOC) on the block. Given that markets were already spooked, retail investors expectedly stayed away from the offer. The government was only able to make a success of the sale through a sort of accounting legerdemain: as reported in Business Standard, 90% of IOC shares on offer were purchased, conveniently, by another state-owned titan, Life Insurance Corp. of India (LIC). This amounts to one part of the government writing a cheque to another part, and does not represent disinvestment in any economically meaningful sense.

Taking all of these recent developments together, it is difficult to escape the conclusion that, at least for now, the government is paying but lip service to the need to press ahead with the unfinished economic reforms agenda— even in areas that should be technical and non-controversial and do not involve tricky issues of political economy. Perhaps it has calculated that economic reforms are not necessary to win elections. That, if true, would be unfortunate.

Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.

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