Dying reform, waning vision

Whatever happened to economic reform? While traversing the road between spectacular economic hemorrhage to becoming an economic honcho, I...

Whatever happened to economic reform? While traversing the road between spectacular economic hemorrhage to becoming an economic honcho, India appears to have lost both, the road and the road-map. In the post-Independence era, perhaps for the first time ever, India had embarked upon a real and ambitious economic liberalisation programme in 1991, thanks to a huge external sector crisis. Seven years later, there appears to be a general farewell to reform, everywhere.

The overwhelming belief is that reeling under a huge budget deficit as a percentage of GDP, a large fiscal deficit that soaks up a large proportion of loanable funds, the poor fiscal adjustment of most states and their attendant subsidy regimes, coupled with poor socio-physical infrastructure are stifling growth.

The only notable reform in recent times has been the alignment of Indian and world oil prices because of which the government saved about 0.9 percent of GDP. This shall go a long way in reducing the oil pool deficit and shall ingeneral contribute to greater efficiency and equity.

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Despite almost seven continuous waves of reform our tariff structure would put the Great Wall of China to shame. Despite the recent accord with Canada, EU, Australia and Japan for a complete phase-out of quantitative restrictions (QRs) by March 2003, yet our non-tariff barriers (NTB) continue to remain high and one speedier solution would be to move products onto the Special Import License (SIL) route much earlier. The recent across-the-board protection given to industry in the name of fair trade (whatever that means) is nothing but a big step back towards a regressive regime.

India’s infrastructure, particularly rural infrastructure, is in a severe disarray. To buttress economic reforms, the state needs to quickly put in place a sound and credible legal framework, which shall guarantee economic rights and shall deliver justice whenever required. In this area, Project LARGE (Legal Adjus-tments and Reforms for a Globalising Economy), a joint endeavour ofthe UNDP, and Union Ministry of Finance, has done outstanding work, some of which can be easily implemented without too many hindrances.

Everyone knows what is to be done now. Everyone knows how to do it. But no one is actually doing it. Why? One answer could be that all easy stages of economic liberalisation are over and what is actually left to be done is the hard part — disinvesting and/or shutting down huge parastatals, reworking laws and procedures, restructuring the banking system which includes redesignating bank staff out of the definition of government servants in order to enforce greater accountability and reduce costs of unprofitable branches, power and telecom sector reforms – all of which require a huge political consensus which a coalition government cannot afford right now.

At least the government can focus attention and resources on a few areas which hold splendid potential, like food processing, small scale industries etc. A recent McKinsey & Company study of India’s food processingsector argues that India processes a minuscule 1 percent of the food it grows while about a third is actually allowed to rot and waste. India requires huge foreign investment to spur growth in this sector. If government cannot pump in the funds, it should at least remove the shackles which are preventing foreign funds from coming into this enormously lucrative sector.

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Similarly, as the recent Abid Hussain Committee on Small Enterprises revealed, the case for reservations is fundamentally flawed and self-contradictory and it has actually crippled the growth of several sectors and stymied exports.

It is a well-known fact that only about 4-5 percent of the items reserved account for around 72 percent of the total output of the sector. Thus, dereservation of at least the remaining 95 percent would only do more good than harm to the total output from the small scale sector. Comprehen-sive dereservation of this sort would require political vision and courage which shall be difficult for any coalitiongovernment to attempt. One can only hope that the farewell to reforms does not become an elegy.

The writer is in the Indian Administrative Service. These are his personal views