Saturday, April 21, 2012

Congress, not allies,opposed to reforms

By Swapan Dasgupta

Speaking to a TV channel from Washington DC last Friday, the Government’s Chief Economic Adviser Kaushik Basu expressed his bewilderment that his “mandane” comments on the Indian economy to a Carnegie Endowment-organised meeting had triggered a huge controversy. He wondered if he had unwittingly stumbled into a dull news day and helped keep the ticker rolling.

A part of Basu’s consternation is understandable. He will not be the first public figure to be concerned about what one senior politician once described to me in private as the “media illiteracy” on economic subjects. His erudite proffering on the likelihood of a European banking crisis in 2014, quite understandably, attracted little attention. However, since the talk was on “India’s Economy and the Looming Crisis Global Economic Crisis of 2014” and he occupies the post of Chief Economic Adviser, it is hardly surprising that the media reportage was focussed on what he had to say about India.

If Basu had decided to don the mantle of the Deputy Chairman of the Planning and act as the permanent defence counsel for the Government he is serving, he could have escaped unscathed. He could well have set intellectual honesty to one side and argued that India remains reform obsessed and that it all depends on what we mean by reforms. He could conceivably have taken a cue from Minister of State Jyotiraditya Scindia who haughtily told a TV channel that it was India which was complaining and that Bharat was delighting in the entitlement-based policies of the UPA.

Fortunately Basu has not been too long in sarkari service to completely disregard his formidable reputation as an economist and a man of letters. If media reports are correct, he told the gathering in Washington three things. First, that decision-making in a coalition had taken the steam out of reforms. Secondly, that it was unlikely that there would be any big-ticket reforms before 2014, the Goods and Services Tax being the only possible exception. And finally, he expressed the hope that a return of one-party government could be the biggest fillip to reform.

It is not necessary to be either a UPA-hater or a Congress lover to admit that what Basu said is conventional wisdom. Yet, what he said was only half the story. For reasons of tact, Basu left many things unsaid.

A closer scrutiny of what is meant by coalitional constraints is revealing. The fact that Mamata Banerjee has proved a very difficult coalition partner, preventing much-needed fare hikes in the Railways and helping to derail the opening up of the retail sector as a whole to foreign direct investment, is well known. It is also a subject that Congress loyalists aren’t wary of addressing in private and even in public. What the Government is, however, less enthusiastic about admitting is the fact that the opposition to reforms doesn’t come from obstreperous coalition partners and a cussed opposition alone. The Congress is split down the middle over the priority to be accorded to reforms.

It is worthwhile recalling that what clinched the roll-back of the retail sector reforms earlier this year was not merely the opposition of the Trinamool Congress and DMK, but the quiet but determined opposition from the Congress’ own backbenches. The average Congress MP, brought up on a diet of Nehruvian socialism where the state sector propels change, was suspicious of the very idea that large corporations (with foreign capital) can usher efficiency in agricultural change. To them, that initiative rests with bodies such as the Food Corporation of India and NAFED. The Congress is inherently statist in its orientation and will be unenthusiastic about reforms that involve opening up sectors to all-round, including global, competition. This explains its foot-dragging in reforms connected to pensions, insurance and banking. It even explains why a stupendous amount of public money is being expended on keeping a vanity public sector airline afloat.

Manmohan Singh succeeded in pushing through a large measure of deregulation between 1992 and 1995 for two reasons. First, because in 1991 India was confronted with an economic crisis that forced a change of direction. Secondly, he had the full backing of Prime Minister P.V. Narasimha Rao who extended full political support to him.

Today, the feeling in the Government is that the GDP growth is healthy enough to not be coerced into doing things that go against the instincts of the party. Secondly, it would not be an exaggeration to say that neither Sonia Gandhi nor her successor see reforms as the priority. Their stress is creating a welfare state based on entitlements and they are least concerned with issues of affordability. The most discredited facets of the post-War European experience are being sought to be imported into India.

In 1992, India charted a new course with an entrepreneur-driven trajectory of growth. In the past seven years, an attempt has been made to turn the clock back and revert to state-driven stagnation.

The Government of Manmohan Singh is confronted with political schizophrenia. A minusculity wants to keep the faith of 1992 but the political forces that drive the regime would rather go back to the regime of high taxes, high interest rates, deficit financing and high government spending—bound together by the repudiation of the federal ethos. It is not the Manmohan spirit that is prevailing but the Sonia consensus.

Why are men of integrity like Kaushik Basu wasting their time on such a self-destructive venture?

Sunday Pioneer, April 22, 2012

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