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D Tripati Rao
One wonders how initial debate over the veracity of an economic reform package has become so dissipated over the decade that there is now muted acceptance of its 'irreversibility' in India. The question of 'whether or not' economic reforms should be implemented has been remarkably metamorphosed into 'what more is to come' with the so-called second and third generation reforms. This is quite unusual for a pluralistic democracy having a past history of political and social resistance. On the other hand, the reformists have been punished in the reform-oriented states. Failing to address distributional considerations through effective governance for a better provisioning of public utility services - power, roads and health - these electorates appear to be dislodging reform-friendly incumbents. There is a loud message coming through that just 'promising' reforms is no longer sustainable when the 'visibility' of actual reforms implemented is missing. After all, what do we mean by economic reforms? Is it the free flow of capital, the hiring and firing by firms in keeping with market trends, price hikes in public utility services, or improved efficiencies? Alternatively, does it mean increasing competition thereby creating more employment; improved public provisioning of utility services; and, a lessening of corruptive bureaucratic controls?
In India, under the guise of reform, only piecemeal 'elitist' reforms - to trade and industrial policy areas that are politically less sensitive, supported by the dominant new industrialist class and suited to international donors -have been carried forward whereas mass-based, politically sensitive reforms such as agricultural, disinvestment and labour market reforms have been tardy. A fragmented, mostly populist politics, which appeases a narrow voting constituency, has led to deteriorating political institutions resulting in governance failure. Experience at the state level has revealed the tensions within political democracy vis-à-vis market-oriented reforms. The emergence of segmented pluralism amongst the political parties in the 1990s - ideological depolarization, regionalisation (with the emergence of coalition politics) and fragmentation (serving a specific caste or group) -explains the growth of the seemingly contradictory processes of globalization, the rise of regional identities and the emphasis on economic reforms linked to populist politics based on caste and religious identity politics. Being unable to come up with an explicit, constructive, alternative agenda, the political parties have indulged in regional, caste and identity politics with a view to contesting frequently held elections. Myopic leaders focused on micro politico-economic issues and competitive politics have unequivocally accepted market-driven capitalism.
The development and growth-focused economic reforms run counter to the states' long serving welfare agenda - the egalitarian distribution of prosperity. The thumping win in the April-May 2004 elections by the Congress Party, which had shown resistance to proposed reforms and was returned to power with its promise of restoring some of the erstwhile populist polices, suggest that there is a chasm between the elites/intelligentsia and the larger poor who constitute a sizeable electoral mass. Moreover, these reform elements are only to grease the production wheel and to facilitate capital rather than to address distributional concerns. The latter were supposed to be addressed in the so-called 'second' generation reforms, but may yet find a place in the sequel 'third' generation reforms. In a nutshell, there has been little effort expended in 'getting the institutions right'. Ultimately the fine balance between development, growth-focused and welfare reforms will depend squarely on the 'delivery' of reform measures and the polity's capacity to meet the interests of, and pressures from, diverse interest groups, including the larger poor. For that to happen, politics-based or relations-based policy-making must be changed completely to rule-based policy making.
By following political soft-options and choosing piecemeal reform measures which neither establish a competitive environment nor answer distributional concerns, one is likely to stall mid-stream, make U-turns or hit a dead-end with potentially disastrous political, economic and social fallout. This can be seen in many Sub-Saharan African, Southern-Cone and now many Eastern European economies, which are in a muddled state. Some have even turned back and caved-in to more stringent conservative regulation. Seen in this perspective, Indian economic reforms are yet to take their long march forward!
There are many reasons for the growing incidence of poverty and distress in the lower segment of the population and the increasing incidence of suicide amongst farmers in the dry-land regions of Telengana and Vidharbha. These include: low and volatile growth in agriculture, the squeeze in credit delivery to farmers of small and medium-sized farms, failure in creating non-farm rural employment, the slow shift of the labour force from agriculture to other sectors, the questionable 'quality' of alternative employment opportunities and the substantial investment in creating rural infrastructure. The United Progressive Alliance (UPA) government led by Congress under the charter of the Common Minimum Programme promised to bring a human face to economic reform, but so far it has failed to attain precisely this objective!
WATCHPOINT: It needs to be seen how the government will steer its macroeconomic policies so as to sustain growth as well as to generate employment in diverse activities - rather than indulging in populist policies under the guise of policies with a human face.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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