Opinion Reform’s reverse gears

In just about a year,the government has managed to reverse gear on several policies,actions that sound suspiciously like undoing some reforms. It is difficult to say which was the first one,but the standard tale of India standing strong on its reform credentials is turning out to be a weak one.

The culpability lies mainly at the Centre. The states have digested the connection between reforms and votes and are generally standing fast. But we ended 2010 with the absurd spectacle of the aviation minister practically setting daily price charts for airline tickets,just as the RBI sets the exchange rates for currencies in the forex market. We were instead supposed to have created a space where policy-setting was a ministry’s domain,and the regulator that of administering the policy — including prices in this case.

The list where “standing firmly behind reforms” has become a bad joke is expanding. Seven years after we wrote an electricity act that promised open access to consumers,regulators have almost conceded monopoly control on city grids to single-source distribution companies. Open access was supposed to be the biggest benefit flowing from reform of the power sector — but it has been consigned to the pages of a glorious report.

Companies have interpreted this to mean they should only focus on building generation companies,leaving the hugely indebted state-run electricity boards to figure out distribution in our rapidly expanding urban areas. In Delhi,for instance,why should single companies hold a monopoly on distribution rights for a particular region for so many years? If that makes sense,then there is nothing wrong with an airport operator exercising monopoly operation over a city,either.

In the interval the government has accepted a Supreme Court judgment that says the pricing and distribution rights for all natural resources is the states’ prerogative. This has made the ninth round of the bids for the New Exploration Licensing Policy a virtual non-starter. We are back to the drawing board,figuring out the pricing of mineral resources,even as China expands its gas pipeline to Myanmar.

The other shooting-our-foot example is the rumpus about the Mines and Minerals Development and Regulation Bill. The clause that tries to get local inhabitants share the benefits of the area’s development is proving intractable. The reason is obvious: there are no get-rich-quick fixes in any provisions of company law,in India or abroad. But the government is keen to show results in double-quick time,and to hell with procedures. It has therefore run into a brick wall in trying to implement the 26 per cent profit-sharing clause. It appears it can only be implemented by invoking the gods — read the mine’s local district magistrate.

The other areas where reforms are turning back is the management of highway construction. The government produced a model concession agreement — a standard contract for road projects — then dumped it; and is now working out another one,of the same sort,to replace it. That the pace of construction has fallen off is not surprising. The reforms were supposed to have put in place the models for the award of contracts and freed the bureaucracy to police contract execution.

Similarly,old devils are emerging from the Bhavans to meddle in the market in price controls for food. Controls are being re-imposed: more vegetables are joining the list on the Essential Commodities Act. The Act makes the government look good when prices flare,but does nothing to correct the demand and supply mismatch.

All this even though we know it’s a mistake. Writing about the problem,Kaushik Basu,the chief economic advisor to the government,says in the current Economic Survey that “asking the government to produce all the essential goods,create all the necessary jobs and keep a curb on the prices of all goods is to,at best,court failure,and,in greater likelihood,lead to a large cumbersome bureaucracy and widespread corruption.”

It cannot be the case that no reforms could be changed over time. That would merely create another set of orthodoxies. As an economy of the size of India develops,new learning opportunities will emerge — but not if,for instance,the way the Jalan committee ruckus has played out becomes standard. The NSE was created to short-circuit the cabal of brokers next door at the BSE and give Indians access to stock markets at uniform,cheap and transparent costs. This was in 1994. Sixteen years later the committee has proposed converting the NSE into a monopoly. What a turnaround!

Some time ago,Montek Singh Ahluwalia had said that Indian reforms take time to play out,but do not back-track. But the reversing of gears across too many sectors gives the impression of a government more comfortable playing around with economic actors than one that flourishes in a rule-based environment.

There are two elements to a Budget speech in India. One is the list of expenditure and taxes the finance minister rolls out every year. The other is the policy changes he announces. As the virtual one-man agenda-setter for this government,it may be that Pranab Mukherjee could use the occasion to lay down some clear rules of the game for the Cabinet to follow up on.

The writer is Executive Editor (News),‘The Financial Express’ subhomoy.bhattacharjee@expressindia.com