Opinion - News Analysis

Why economic reforms are unpopular

V. Jayanth

It may be time to evolve a national consensus on the contours of a reform agenda with a human face, involving a clear targeting of subsidies and concessions.

DESPITE THE visible gains of the liberalisation and fiscal reforms process initiated by successive Central Governments and by some States quite successfully, the concept of reforms and their marketability remains a major problem for political parties. When an election approaches — which is quite often — political parties and alliances at the Centre or in the States find reforms very inconvenient. They tend to roll them back, or open up the Government's coffers ahead of the elections in a "please-all" mode to win more votes. When the rest of the world expects India and its States to open up the economy, the pressures within seem to nudge the Governments to halt the reforms and instead focus on their "human face." The challenge before the Government, it appears, is to evolve a system in which liberalisation can proceed on one track, and the poor can be protected from the ill-effects of it, on the other.

If the Prime Ministers of the Netherlands, Ireland, the Czech Republic, and the former Prime Minister of Singapore were all in India this week, and East as well as South East Asian countries are taking India seriously today, the reason is not far to seek — a country with a billion-plus population is growing at over 7 per cent of GDP a year and can certainly reach a rate of 8 per cent if it has the political will. An economy growing at that rate, as China has demonstrated through the 1990s and continues to do so now, provides enormous opportunities and space for foreign goods and investment. This is what the foreign Governments and their private sectors are eyeing. Though the size of the Indian middle class has remained a mystery, its numbers are growing every year, and the purchasing power of this category of professionals and salaried classes has scaled new heights.

The Prime Minister, the Ministers for Finance, Commerce, Petroleum, Industry, Telecom, and Information Technology among others, have been rather busy recently receiving Heads of State and Government, trade and industry delegations. They have also visited many countries to look for investments and enhance trade levels. In the process they also make a few commitments that need to be honoured. This is, of course, in addition to the commitments made by the Government itself to certain global treaties, agreements, and above all to the World Trade Organisation. If India has to maintain its growth momentum and its trade, it becomes imperative to implement them in letter and in spirit. If Commerce Minister Kamal Nath was able to virtually lead an alliance of developing countries at the WTO Ministerial in Hong Kong to salvage a bad draft, it is because of the Indian economy and the promise it holds. If India is an invitee to the annual G-8 summit and invited to join the recently floated East Asian Summit, it is also because of the economic and trade opportunities it presents to countries in the East.

Need to build on strengths

To retain that clout and carve its own niche, India needs to build on its economic strengths and maintain the current trend of growth. When the Centre, and in particular Prime Minister Manmohan Singh, who is seen around the world as the architect and anchor of the country's liberalisation programme launched in 1991, are trying to breach the 8 per cent growth barrier, they seem to be facing hurdles from all sides of the political spectrum and even from within the Congress. Why are reforms so unpopular?

At the Centre, there can be innumerable examples of serious problems with reforms. The recent instance of the food subsidy burden is a case in point. After a decision by the Cabinet Committee on Economic Affairs to target and contain the food subsidy burden, Food and Agriculture Minister Sharad Pawar had to put it on hold. Aside from the Left parties who opposed it soon after the announcement, the allies of the Congress from Tamil Nadu also raised objections as their archrival, Chief Minister Jayalalithaa, went hammer and tongs at the Centre for withdrawing the goodies to the poor. She vowed to continue with her subsidy. It became such a political issue that Mr. Pawar's swift response has at least put it on the back burner for now. And yet, the rationale was simple. The Centre, two years ago, confronted with a huge buffer stock of food grains, decided to step up the allocation of rice under the Public Distribution System (PDS) for all categories. Instead of 20 kg of rice a month, card-holders were offered 35 kg and so on. The States welcomed the move and stepped up their off-take from the Central pool. Then, after the buffer stocks were brought down to a manageable level, and the food subsidy burden began rising, the Centre wanted to prune the subsidy and restore the off-take to the old levels. But that was not to be. If the Finance Ministry wants to lower the interest rate under the Employees Provident Fund scheme, it has to be gradual and through a consensus. Similarly, petroleum prices have become a very sensitive issue and increasing the prices of LPG or kerosene may be well neigh impossible. And this is more so when a coalition government is in power.

Among the States, the southern group was in the forefront of reforms. And Tamil Nadu, on the brink of fiscal collapse in 2001, achieved a creditable turnaround in two years thanks to some very difficult decisions and fiscal corrections. But since 2004, when the ruling All-India Anna Dravida Munnetra Kazhagam was trounced in the elections to Parliament, there has been a steady rollback of reforms. With elections due in three months, more follows — Dearness Allowance increase and merger with salary for Government employees, free sarees and dhothis, lifting of the ban on recruitment to government service, no increase in any prices and a ballooning of the subsidy bill are but examples of this "give away season."

The message is clear — reforms, when they are imperative. But if they mean defeat at the hustings or bad politics, where is the need? It may be time to evolve a national political consensus on the contours of a reform agenda with a human face, involving a clear targeting of subsidies and concessions.

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