Rethinking economic reforms

Rethinking economic reforms

As the Union government gets ready to disinvest partially from several public sector units, there is some pessimism on its ability to deliver on more meaningful economic reforms. Most reforms of the big push kind are politically difficult, but there is still ample scope for smaller but useful steps.

The consensus now is that perhaps the would-be reformers were too ambitious and did not contend with political realities. A 2005 World Bank report, Economic Growth in the 1990s: Learning from a Decade of Reform, said that clearly. The other view is that it is futile to even contemplate far-reaching changes in labour laws and financial sector reforms among a host of other problematic areas. In this view, exemplified by the Harvard economist Dani Rodrik, reforms only occur in the wake of crises, wars or upheavals on a similar scale.

If the path to such reforms is blocked, other things can be done. This would be mostly at the level of individual firms. There are many simple things pertaining to management practices, technology and credit availability that can make a difference. The focus ought to be on companies employing fewer than 25 workers. Given their huge numbers but technological and relative managerial backwardness, helping them can have a sizeable economic impact. Steps such as managing shop floors, inventory control and equipment maintenance, among other issues, can make a big difference. The problem is that even such simple advice and consultancy is often beyond the means of small firms.

Credit availability is another issue. This is an area where there are few, if any, political problems. Instead of extending money for priority sector lending, if a part of this credit flow could be directed to this end, the returns would be much higher. A simplified legal framework for bankruptcy and liquidation proceedings managed by fast-track courts could change things. It would immediately improve credit flow as banks would not have to fear loans turning into non-performing assets.

These arguments may appear to be a climbdown from the big-ticket reforms that could propel India into a double-digit growth pattern. They are. But what else can be done to keep our still enviable growth record? It is time to look for things that can be done and forget what ought to be done.

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