Poor Reforms, Poor Competitiveness

The impact of these reversals has been to lower India8217;s rankings in the index of global competitiveness as reckoned the IMD at Lausanne. According to the IMD index, India8217;s global competitiveness rose in the years following reforms, and has been falling for the last two years, while that of China has been rising.

The decline and fall of the British Empire is living memory for most of us, and China8217;s confident and smooth repossession of Hong Kong perhaps marks the start of the Chinese century. The dramatic post war rise of Japan seems to be waning, while the US continues to power ahead in accomplishmentsbe it the breathtaking ease with which it is conducting the exploration of Mars or its unquestionable leadership in the IT industry. North Korea faces starvation, as do Cuba and Myanmar, while South Korea and Hong Kong rank among the world8217;s most competitive nations. Without a single exception amongst all the successful countries, a common characteristic has been the courage of the leadership to compete in the global market letting global products and services in, and not protecting the inefficient.

On the bright side, the domestic economy has been growing an example is the production statistics of Tisco, which with its uninterrupted dividend record of the past fifty years, is a barometer of the Indian Industry. Starting in 1915, it took the company 45 years till 1960 to reach a production of saleable steel of 1 million tonnes. It then took the company 30 years to add the second million tonnes. It has added the third million tonnes in the past seven years. What has happened at Tisco is representative of what has happened to the economy at large, and I would submit that in the last seven years since reforms started, our economy has progressed by about the same level as it did in the three decades preceding. This can be credited to the liberalisation initiatives taken in 1989-95, and it is true that these are largely irreversible.

The Tata -SIA proposal, DTH ban and Insurance bill re-working are all due to a mindset of 8220;Swadeshi8221; and had it not been for the foreign element, the opposition may not have been so great. The problem with this sort of thinking is that it is impractical in today8217;s world, and is based on emotion, not economic logic. As negotiations on QRs at the WTO illustrate, we are linked inextricably with the global economy and if we want free access to world markets, we have to learn to open our economy up. We cannot have LIC operating in other countries, and expect this to be acceptable when we ban foreign insurance companies here. Aside from this practical aspect, insulating our economy from high quality and technological development will retard our progress. This way of thinking is unfortunately open to a lot of exploitation as well, because local industrialists and public monopolies who have made large profits from lack of competition use it to provoke politicians to retain the status quo.

We saw recently representatives of the rubber industry wrapping themselves in sheets of rubber and rolling towards Parliament to protest against imports of cheaper polyurethane basically they want is that millions of consumers pay higher prices. No one speaks for the common man, and this is something Parliamentarians must keep in mind. Studies show that the investment in infrastructure in the four areas of power, telcom, roads and ports needs to be around Rs 4,50,000 crores by 2002 of which at least 15 per cent will have to come from external sources.

Several policy initiatives to promote private investments in infrastructure were pushed through in the last five years, but here again psychological setbacks, like the needless renegotiation of the Enron deal or the delay over agreeing terms on the Bangalore International airport project, show that the old mindset comes back to haunt us at crucial moments. This is one sector in which India contiunes to lag, and one which will limit the impact of reforms in all other areas.

The IMD medthodology uses six factors to rank the competitiveness of a nation8217;s people. Population characteristics, level of education, quality of labour force, attitudes and values, employment conditions and quality of life. This is one area which perhaps has the greatest long term impact on a nation8217;s competitiveness. While higher education is remarkably meritorious and cheap in India, it is in primary education however, in villages and small towns, that the greatest investment is needed, and it is hard not to sympathise with the government on the size of the task. The only way to raise resources however, is with higher levels of economic activity, and freeing markets to enable this is perhaps the best thing the government can do.

It has become a cliche while assuring foreign investors to say that 8220;India8217;s reform process is irreversible, and it has a momentum of its own8221;. While this may still be true as far as the domestic economy is concerned, recent events raise doubts about the progress of reforms in other crucial areas, including the internationalisation of our economy, continued protection to state monopolies and investment in infrastructure.

All this will have the effect of reducing our international competitiveness, and limit our ability to command a greater share of global resources, which will, in turn, limit our relative progress in the global economy. Politicians should rely on pragmatism, not populist criteria before rejecting reform-oriented legislation.

When told how may people will suffer if a particular proposal is passed, they should pay equal attention to the number that will suffer if the proposal is not passed or the step not taken. Every reform has a price, and the question is not whether we can afford to pay that price, but whether we can afford not to pay it and stay the way we are.The author heads Reebok8217;s operations in India