Reforms - the ostrich mindset

By S. Swaminathan

The grim reality of an industrial slowdown aggravated by the NDA Government's tepid response to it in policy terms has practically blunted the reforms agenda. The budget presented to Parliament, by Mr. Yashwant Sinha, on February 28 this year, has, in this sense, already become defunct. The ``second generation reforms'' encapsulated in the budget have certainly not taken off.

Nor is the ambitious agenda for far-reaching economic legislation set out in the budget politically viable given the minority status of the NDA in the Rajya Sabha. Is it a mere pause in the reform process or a much more serious continuing malaise of lack of political will on the part of the Vajpayee Government compounded by a mounting outcry against liberalisation and the market ideology dominating it?

A cacophony of dissent

Disenchantment with the way in which liberalisation of the economy has proceeded is now common among large sections of Indian industry. Although the ``Level Playing'' school was scoffed at during the earlier phase of reforms, it is now becoming increasingly clear that the infusion of competition in the economy through foreign investment (in greenfield ventures or through joint ventures with Indian firms) has exposed the vulnerabilities of Indian industry composed of unequal macro- economic fundamentals as between India and the developed countries as well as the managerial inadequacies of domestic corporates.

A parallel movement towards macro-economic facilitation by the Government involving upgradation of infrastructure, public investments in the key areas of infrastructure and the social sectors and debureaucratisation, and towards improved corporate governance by industry - in the private and public sectors - would be essential if reforms are not to result in the persecution of Indian industry.

Equally crucial for the credibility of the reforms would be the synchronised rationalisation of fiscal and monetary policies to deal with the inherited problems of high transaction costs and the paradox of a liquidity overhang in the financial system and the scramble for funds among medium and small enterprises (MSEs).

Much more than Indian industry, especially the technologically challenged sections in the SSI sector, it is the political class which is stridently becoming critical of the logic of economic reforms. The former Prime Minister, Mr.Chandra Shekhar, has set out on a national yatra to spread agony among the already distressed sections of agriculturists, small industry, the artisan community and so on, over the adverse consequences of economic liberalisation.

He raises a fundamental question about the death of political ideology in the country. How come successive governments at the Centre since 1991 - led by the Congress, the United Democratic Front (With two Prime Ministers - Mr. Deve Gowda and Mr. I. K. Gujral) and then on, by the NDA, have all been functioning as the unabashed votaries of the paradigm of economic liberalisation propagated by the IMF-World Bank duo? For Mr. Chandra Shekhar, it is all a western conspiracy, this business of opening up the Indian economy!

Demolish the main planks?

There are many inter-related strands in the critique of liberalisation presented by Mr. Chandra Shekhar. The point about average GDP growth rates during the Nineties being only marginally higher than in the Eighties mostly relates to some statistical jugglery, with a deliberate overlooking of the repression of demand in 1991-92. However the comparison of levels of subsidies as between India and the OECD countries, suggesting that the focus on subsidy reduction laid by Indian policymakers is entirely misguided, is a queer exercise in disinformation because the term ``subsidies'' in the OECD terminology covers a vast range of social security benefits funded by public resources.

Mr. Chandra Shekhar also believes that the reduction of tax rates, as an integral part of economic reforms, has resulted in a decline of tax revenue as a percentage of the GDP. Here again, comparative statistics on the ratio of tax revenue to the GDP in Western countries, far from suggesting that savage rates of taxation produce wholesome benefits for the economy, could only be pointing to the wide divergence in the skewness of distribution of income as between India and these other countries. In any case, it seems difficult to believe that Mr. Chandra Shekhar is advocating a return to high rates of taxation as a palliative for many of the disorders including stagnation in employment, flowing from the liberalisation. Is he challenging the thesis that economic reforms which have been put through during the last decade are irreversible even if they have been lopsided?

The many voices of despair and dissonance on liberalisation (linking it to the WTO dispensation as well) belong both to Indian industry and to the political elite. Industry is harried by the all too painful dictates of adaptation to global competition without adequate policy support not meaning ``protectionism'' in its derisive connotation. The political class is perhaps more misinformed than sensitive to the outcries against reforms. In retrospect, it is evident that no government, since the very beginning of reforms in 1991, has cared to communicate the compulsions and priorities underlying reforms to the people at large. The result is that the two major constituencies of public opinion which appear to be reasonably comfortable with economic reforms are the ``upper'' sections of domestic industry, more particularly in the New Economy, and among consumers with hefty wallets patronising the FMCG segments of industry and the opulent offerings of the automobile industry.

It is scarcely a panic-stricken reaction to the current logjam in the reform process that it cannot be revived without a concerted educational effort needed not merely to allay misapprehensions about the intended impact of reforms on Indian society as a whole. But an educational exercise, by itself, will prove futile unless the process of governance is actively directed to ensure that the benefits of reform reach out to the poorer sections of Indian society.

To the extent that a congeries of legitimate anxieties and vague apprehensions about the process of liberalisation are crystallising in the form of hostility to reforms, an ``operation'' in the nature of a national dialogue on reforms would seem an urgent necessity. A reasoned pause in reforms may not prove as calamitous as a helpless do-nothing posture on the part of the NDA Government, gripped by internal discord on economic policy as well as by aggressive criticism from the likes of Mr. Chandra Shekhar.

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