Myopic on economic reforms

Economic reforms will certainly rank as among the most widely used - often misused and abused - expression in India today.

Ever since Manmohan Singh ushered in his new economic policy in 1991 as finance minister in the Narasimha Rao government, most substantive economic debates in this country have centred round this expression. And yet, reforms continue to mean different things to different people in different times. Politicians have freely used this word to suit their requirements, depending on the circumstances they have faced from time to time.

The purpose of this piece, however, is not to define or redefine reforms. Let that task be reserved for economists. The short point here is that even 15 years after the introduction of Manmohan Singh's new economic policy in 1991, the country's general approach to reforms is highly politicised and blatantly opportunistic.

Take politicians as an example. P V Narasimha Rao, who, as Prime Minister in 1991, while lending his full support to Manmohan Singh for the new economic policy, came out with a highly nuanced comment on the disintegration of the Soviet Union, which almost coincided with the launch of India's economic reforms.

Mr Rao advised everyone in the country caution on pursuing policies of opening up and urged policymakers that they should draw the right lessons from what happened in the Soviet Union, in particular to Mikhail Gorbachev.

Now, what did Mr Rao actually mean by that statement? Given the fact that he was one of the most astute practitioners of politics, Mr Rao's comment could have meant different things to different people.

For conservatives with the Congress, opposed as they were to what Manmohan Singh was planning to do, his statement was seen as a recommendation for extreme circumspection and slowing down of the reforms pace. But for those who had faith in the logic of reforms, Mr Rao's statement was interpreted as an advice to pursue the new economic policy with greater care.

In 1993, after the Congress debacle at the assembly elections in some states, reforms became the obvious target of attack. Manmohan Singh's policies, which had meant lower subsidies and higher prices, were held responsible for the Congress loss. Nobody was in a mood to verify the logic of such arguments. Reforms were a soft target and an easy scapegoat on which the blame for all failures could be heaped.

The Congress under Narasimha Rao became so defensive and even apologetic that it made a public pronouncement that as far as economic policies were concerned, it was keen on pursuing the "middle path".

What that meant was not clear to most people. But politicians realised that reforms as a concept had become a political liability. Even though the Indian economy had bounced back to a relatively high growth phase, the Congress did not muster enough courage to make reforms and the resultant growth a campaign issue at the 1996 general polls.

The Congress lost the 1996 elections. Once again reforms were blamed to a large extent for the Congress defeat. The National Democratic Alliance government of Atal Bihari Vajpayee was less defensive about reforms. It went ahead with privatisation and the raising of foreign investment ceilings in many areas.

Ambivalence towards reforms remained, but the NDA regime saw a growing economy as a political opportunity to launch the now-infamous "India shining" campaign in a bid to retain power at the Centre. It failed and reforms once again got a bad name.

But when this year the Left Front won the assembly elections in West Bengal for the seventh consecutive time, reforms became a convenient ally. The former chief minister of West Bengal, Jyoti Basu, took ownership of reforms and claimed that they were started with land reforms in the late 1970s and got deepened with the new state industrial policy introduced in 1994.

What is more, the present chief minister of the state is now aggressively promoting industrialisation with the help of domestic and foreign capital. But no one yet will guarantee continuation of such reforms. For, reforms could go off the agenda if it became politically inconvenient.

Why only blame the politicians? Even the media reportage of reforms has become a little distorted in view of the prevailing mindset. If the United Progressive Alliance government shows signs of initiating moves on the sale of government shares in public sector units, this is hailed as a boost to reforms.

Little thought is given to the fact that divestment, after all, reflects a distorted and half-hearted approach towards privatisation. Proceeds from divestment are used mostly to reduce the government's fiscal deficit with no concrete concomitant steps to impart operational autonomy to the PSUs.

Divestment is no substitute for privatisation. Yet, news of divestment brings cheer to the markets as an indication of the government's reforms-friendly approach.

There is a basic problem with such an approach. Reforms can yield fruit in terms of more competition and efficiency only if these are embraced in their entirety. A half-hearted approach does not result in the expected benefits. And then politicians use that to debunk or extol the reforms process, depending on the political situation.

Myopic leaders cutting across the entire political spectrum exploit this. One had expected a more prudent response from the Manmohan Singh government. That such a mature response is missing continues to be a major disappointment.