Wednesday, 9 July 2008

Reforms RIP

So the Left has finally withdrawn support. In any other circumstance, that would have been reason to celebrate. But if its place is going to be taken by the Samajwadi Party batting for one industrial house (see my previous posts below) then there's not much cause to cheer. One blackmailer has been replaced by another. The latest is that Mulayam Singh wants his nominee for the post of CBI Director. The more things change, as they say....

What's amusing is the unanimous reaction that this will help revive the stalled economic reforms process. True, the Left has been the most strident of the opponents of economic reform, but it would be wrong to say that the Communists the only opponents of liberalization. There are many others who will not allow crucial reforms to be effected. These sections are not just ideologically driven political parties but a slew of vested interests - politicians (cutting across the political spectrum), bureaucrats, middlemen (who operate through politicians). The Left has been stupid in revelling in the label of anti-liberalisers. It has generated all the sound and the fury, but its opposition has been less effective than that of these groups, who have operated quietly in the background and let the Comrades take all the blame. To that extent, the Left has allowed its principled opposition to be used by manipulators.

The Left was hardly in the picture during the six years of the BJP-led NDA rule. But still a lot of reforms were stalled (though that government did manage to get far, far more done than the UPA has). Some of the stalling was done by parties that are part of the UPA now.

Remember also, that there is a sizeable section within the Congress that is opposed to any liberalisation. The socialist lobby within that party - Arjun Singh, Mani Shankar Aiyar, are its more well known members - can hardly be discounted.

The process of economic liberalisation reduces government meddling in the economy. In doing that, it also removes the power of patronage from politicians and bureaucrats and reduces the scope of corruption. It also reduces the role of middlemen. So all these groups are hurt by economic reforms, far more than the poor are (actually reforms are the only way to help the poor, but how and the costs will have to be the subject of another post). But it is in the name of the poor that the reforms are stalled. Then, of course, there is industry. Every established player in a business wants to restrict competition - the essence of market-driven economic policies - so that it enjoys a monopoly.

Let's look at a few pending economic reforms.

Agriculture. The economy's largest private sector is also the most regulated one. Sure the sector needs a heavy dose of public investment, but it also needs an equally strong dose of market-oriented economic reforms. The current policy regime, the large farmers benefit more than the small and marginal ones, who are in a pitiable state. One of the key reforms is the relaxation of the state-level Agricultural Produce and Marketing Committee Acts to allow competitive markets to come up. But that will significantly reduce the clout of the arthias and get farmers a fair return for their produce. So movement on this is slow. The arthias and the large farmers are the ones with money and clout in the rural areas. They are the ones who can bankroll politicians; not the small farmers in whose name the politicians act.

Privatisation. Why the government needs to be running a whole lot of businesses - airlines, hotels, to name the more ridiculous ones - is beyond understanding. The opposition to privatisation comes from powerful employees' unions (many of them affiliated to communist parties, yes) as well as politicians and bureaucrats. It is no secret that politicians and bureaucrats milk PSUs. The existence of PSUs also gives them power and patronage. All these will disappear once they are privatised. Recall that the so-called liberaliser Chandrababu Naidu had no compunction in opposing the privatisation of Rashtriya Ispat during the NDA regime because the PSU is located in Vishakhapatnam in Andhra Pradesh and he didn't want to face the political backlash of people being rendered unemployed (never mind that a handsome VRS package was built into all privatisation deals).

Retail. Don't for a moment think that only the Left is opposed to the entry of foreign retailers. Large domestic retailers are working behind the scenes to ensure that Walmart and Carrefour and Tesco don't come in. There is also the small retailers lobby which is now opposing all organised retail. Small retailers form a large chunk of the BJP's support base, so opposition will come from there too.

Freeing up petroleum pricing. The NDA initiated the dismantling of the administered pricing mechanism in line with the Kelkar committee report. But it was NDA petroleum minister Ram Naik who started meddling in pricing again. Of course, Mani Shankar Aiyar carried it further. Petroleum products pricing is a highly emotive issue and few politicians are willing to see reason on this. Opposition to this will come regardless of who is in power and whether or not the Left is supporting the government.

Aviation. Foreign airlines cannot invest in Indian airlines (though foreign funds can) or operate in the local market. Yes, the Left is behind this. So are powerful Indian airlines owners.

Foreign investment in media (my industry). Again something the Left is vocal about. But powerful media groups will not allow this.

But above all, remember, this is an election year. Despite clear evidence that sensible economic policies reap political dividends, no party is prepared to take hard decisions in the run up to elections. In the mid-1990s, Narasimha Rao and Manmohan Singh stopped the reforms process they initiated in 1991, because the Congress lost several state assembly elections and this was blamed on reforms. The NDA in its last year in government removed a sensible finance minister like Yashwant Sinha and stalled reforms. This government will do the same.

So it hardly matters if the Left supports the government or not. Reforms will go into a limbo till the next general elections.

1 comment:

Samhita said...

commendable analysis!

Economic liberalisation obviuously yields gluttonous privateplayers Vs smallplayer&poor

that's a complex vector to be resolved.