In a strange way, you know Special Economic Zones will be part of our lives for some time to come when the issue gets to be as heatedly debated as the composition of the Indian cricket team. To that extent it has probably taken its place with some of the most famous economic debates India has dealt with after reforms were initiated in 1991. Politicians claim that such arguments are essential to build a consensus for reforms in the economy. But as the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia remarked, “The process can be aptly described as creating a strong consensus for weak reforms.” That has actually been the case with a few celebrated episodes, post-1991. After the NDA government at the Centre decided to nudge states towards value added tax (VAT) to replace sales tax and other levies, Congress-ruled states decided to give the inaugural date of April 1, 2004 a miss. The deadline had to be relaxed, the fifth time in ten years. Disappointed, West Bengal Finance Minister Asim Dasgupta, chairman of the empowered committee of chief ministers, also commented on it. The streets of Delhi and other north Indian cities saw bandhs and protest marches; and for some time many were convinced that the step was just a ruse to wipe out retail traders. So the next year, when the current UPA government decided to back the VAT model, the BJP-ruled states paid back the compliment. There wasn’t any dispute over the necessity of moving to the new taxation system, though the entire debate was clothed in economic terms. But off camera, state ministers candidly acknowledged that it was a political issue.And yes, the weak reform sub-text continues. In the current year, the revenue of 30 VAT implementing states and Union territories has registered a growth rate of over 26 per cent till the end of December, over the corresponding period of the previous year. Despite this, the states still cannot agree on phasing out the central sales tax, the next step forward. The same round of posturing held up the introduction of FDI in insurance. Even now LIC continues to gain an increasing percentage of market share. In new premium, LIC’s market share is about 80 per cent this year, with the 15 private players, most of whom are joint ventures with multinationals, sharing the remaining 20 per cent. Insurance is now spreading out to rural India as companies access fresh segments. Yet when successive governments, including one with the current finance minister, P. Chidambaram, in 1997, tried to pass the FDI hike through Parliament, those arguing to save the domestic insurance sector were far less sanguine about LIC’s ability to hold up against foreign competition. And yes, despite the point having been proved, the weak reform plot continues till today, with the familiar opposition rearing up against pushing the FDI cap up to a more liberalised 49 per cent.Also take the debate to permit telecom firms to switch to a revenue share model instead of licence fees. The switch happened in 1999 and anybody who goes through the figures on mobile telephone coverage would not hesitate to acknowledge the scale of changes that swept through the telecom landscape from that year. The ubiquitous mobile has changed the income potential of a large army of self-employed people. It is no more a rich man’s toy. The ‘no-changers’, of course, said that the move was a clear plot to cheat the government of revenue and make life difficult for MTNL. Yet BSNL came up in October 2000 and the rest is history. Sounds specious? Refer to developments on the SEZ tangle. But a more innocuous issue that threatened to become a rallying cause was the privatisation of airports. Corporate interests, political jingoism and a reluctance to see the writing on the wall combined to stall the policy for over two years. Every party in the fray claimed it recognised the need to improve the condition of the airports, but it is interesting that nothing moved for over a decade, before the privatisation model was mooted. In the meanwhile, the ever-growing air traffic through Mumbai and Delhi airports created snarls on the runways, with ground facilities too stretched. The Airports Authority of India has for some time held reserves which could be invested, but it was only after the clock started ticking for the Commonwealth Games that alternatives to the current privatisation plans started being bandied about. At the same time plans for Bangalore airport went every possible way, from being almost scuppered to being days away from the contract being awarded, but very few lost sleep over it. However, the award for the longest playing drama is the one on electricity privatisation. But there is still no real consensus on how to progress with power sector reforms. The crux of the debate is the levy of user charges. The central government has, for instance, experimented with setting up the Power Trading Corporation (PTC) to act as a buffer between generation and distribution companies. It has issued special bonds to public sector power companies against the dues of the state electricity boards, and privatised distribution. All these have helped but no political formation has been able to prove a simple economics principle wrong — there is no free lunch. The government has acknowledged that power sector reforms are the foundation to keep the growth ticket valid. But that urgency has to defeat the self-protection instinct that grows in every political party, come election time. The constituency that is supposed to benefit the small farmers goes on to use diesel (another bad economics story) to run their pump sets or are encouraged to steal electricity. What these episodes show is the public interest is rather different from what it is purported to be when the battlelines are drawn to block reform. As the SEZ debate unfolds, keeping focus on the public interest will be the real challenge. The writer is editor, economic affairs, ‘The Financial Express’
