Fight elections on real issues

Economists are trained in a real dismal world where there are no free lunches. Their mindset is dissonant with short run electoral politics....

Economists are trained in a real dismal world where there are no free lunches. Their mindset is dissonant with short run electoral politics. But during the last two decades, India has done well and it is quite logical to cover the last mile. This is a different economy from the one 8220;influential policy makers8221; of my generation grew up with and debates must internalise that. It is not a country in which you live hand to mouth, or ship to mouth, you did not have the exchange to buy fertilizer, factories, farms and offices didn8217;t have electricity and a drought meant a GDP growth of minus four to minus eight per cent. Since the year I joined the Planning Commission in 1974 we have had only three years in which growth was less than three per cent.

I am happy to have showed in the early nineties that growth is higher and more stable. There are some good 8220;feel good8221; factors. But there are some bad ones too and some factors which make some people angry. My panwallah in Ahmedabad is looking forward to buying euro denominated units from the 25,000 dollars 8212; or roughly ten lakh rupees 8212; now allowed. Having insisted in the Eighth Plan that full convertibility will be our goal, one not only knew that it was coming but wanted it earlier. Many like me were plugging away that the central bank should be less macho and interest rates made more competitive. But economics teachers like me earn their keep by showing the flip side. If in states as prosperous as Gujarat panwallahs and others stash away savings in euros 8212; and there must at least be a million of them 8212; two and a half billion dollars may move out of Indian banks or units. The policy makers will need to comfort us on the options they will take if this happens to the asset structure of public sector banks. As Tarporewala and the central bank have been telling us a lot can be done, but it may also involve NPAs and they are tough nuts to crack. Policy making in India has scrupulously stayed away from giving a road map for public sector reform apart from setting targets for selling the President8217;s silver. But maybe after the elections we will see action.

It warms the cockles of my heart to find that beautiful schemes like funds for irrigation, rural infrastructure and small industry are there in a big way. These are all do-ables, will leverage our basic strengths in the global bazaar and anyway what are the exchange reserves for if we cannot take some real risks. The real problem in each case in accessing funds lies in the last mile of reform and that needs immediate attention for there is no escaping from the problems the governor of the Reserve Bank wanted the financial system to solve in the last monetary policy announcements. But I, for one, am happy that the commitments have been made. In no way will we be worse off in stating the right things.

The basic feel good factor comes from the fast growth export-led service and industrial growth sector growth that has taken place. More than a quarter of our GDP growth from 1997 has come from software growth and that is a real leading sector emerging from strengths nurtured for decades. There are others helped by sensible policies. But India8217;s industrial economy is going through a real churning and it will be naive to ignore the fact that those who lose their jobs feel good about it. Employment restructuring is a real issue. Also there is not a village I have gone to where there is, for example, no anger on electricity not available at a higher price. The Madhya Pradesh and Rajasthan elections showed this.

It was great joy for me on August 14, 1997, to be given, 8220;leave to introduce a Bill to provide for the establishment of a Central Electricity Regulatory Commission and State Electricity Regulatory Commissions, rationalisation of electricity tariff and matters connected therewith8221;, since my predecessor was not given this permission. It was a mistake to give up on the objective of a cross-subsidised minimum rate for rural power. The general objectives of the Electricity Bill are always accepted. Political negotiations should be around specific numbers. If the Transmission Bill could be passed why not get rural pricing numbers accepted?

There is, however, a more general systemic question. Economic policy analysis teaches us that policy announcements have announcement effects. People anticipate events and make their own judgments. In 1998, the Indian government made the horrible mistake of going beyond the Pay Commission8217;s recommendations without due diligence. They lost the elections and this measure, as the Tenth Plan brings out, put public finance in a terminal crisis. Is it possible that not only is our economy maturing but our polity as well? That would be great, because it would then underline the futility of the short term fix.

I may be a follower of the dismal science, but remain at heart an optimist. Elections have to be fought on real issues and these are important today and tomorrow.