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Features • We lost a generation in economic growth to ‘‘socialism’’ and its instrument — the license-quota raj...


We lost a generation in economic growth to ‘‘socialism’’ and its instrument — the license-quota raj.

The process of liberating the country from that shackle — a process that we can subsume under the generic ‘‘Reforms’’ — has been going on since 1991.

The broad thrust of this process is to transfer power from state to society — and to thereby unleash the country’s productive potential.

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Today we have the fifth Prime Minister — and the sixth Government — since the process began. But the direction of Reforms has continued unchanged. Those who have denounced the Reforms when they were out of office have, when they assumed office, continued them in the same direction.

Today we have a score of political parties in office in different parts of the country — indeed, many more than a score: the Government at the Centre itself has 24 or so parties in it. Where they are not in office, the parties denounce the very Reforms which they are advancing where they are in office.

All this shows the robustness of the Reforms. It shows that the Reforms are not the whim or fancy of some individuals. They are dictated by the compulsions that our polity and economy face on the one side, and are propelled by the opportunities that have opened up on the other.


The Reforms have covered a very wide front indeed. Not all of them were, indeed they could not be, envisaged at any single point of time. Some of them started in one form, and then evolved into something quite different: the transformation of disinvestment from the disposal of minority shares — most often merely to financial institutions which themselves were in thrall of Government — to the transfer of management control and ownership to strategic partners is a typical case. In a word, Reforms have, ‘‘like straw sandals’’ — to pluck Mao’s metaphor for Revolutions — taken shape in the making.

Several of the Reforms have gone very far indeed — the abolition of import-export as well as industrial licensing, for instance. And they have proceeded with a degree of ease that conventional wisdom had warned would just not be the case. Apart from one lunch-time demonstration in the lawns adjacent to Udyog Bhavan, there was no effective opposition to the scrapping of import-export licensing, and the hacking off of entire limbs — the Controller of Imports and Exports, the Directorate General of Technical Development.

These institutions had been citadels of immense power. Commentators had long warned that civil servants and politicians would never give up that power, and that, therefore, reforming these structures would be next to impossible. That indeed was the case as long as the effort was to ‘‘reform’’ the structures. Many would recall the numerous efforts that were made, the numberless committees that were set up to shorten the time that issuing these licenses used to take. Every proposal was in a sense ‘‘implemented’’. But within months the system used to revert to the status quo ante, much like a stretched spring does the moment we let go of it.


But when ‘‘Reform’’ was given up, and the functions were just hacked off, there was no resistance. The observers had under-estimated the power of illegitimacy: the entire arrangement had become so illegitimate that every effort to save it was seen as a surreptitious effort to shield privileges and the power to dispense patronage.

But it is equally true that several other Reforms have remained stuck — labour laws, the Government’s announcements regarding reducing its equity in nationalised banks to 33 per cent or less, the condition of cooperative banks, that of public expenditure.

In some other areas progress has been a stop-go affair: privatisation is an obvious example.

But even in regard to these areas we should remember one feature about Reforms in India: when a Reform is first proposed, there is a lot of shouting and wailing; three years later when that Reform is implemented, even the critics do not notice!

Recall the shouting just three years ago about the amendments to the Patents Act — it seemed for a moment that the Government would be brought down by the critics; how many of those very critics today even know whether, and if so how many, Exclusive Marketing Rights have been given to foreign companies?


Remember the shouting and denouncing at the time foreign insurance companies were being allowed to enter the Indian market? How many of those critics can today tell us how many foreign companies have begun insurance operations in India? How many can tell us what share of the insurance market those companies have captured? How many have bothered to ascertain whether the dire consequences they had forecast have come to prevail?

Disinvestment is in the same league. On the one hand, there is a lot of shouting against it when we attempt to execute it in Delhi; on the other, state government after state government is quietly disinvesting its enterprises — ever so often after asking us, after office-hours, so to say, to help them settle the procedures they are to follow!


Each Reform paves the way for the other one. Whoever carries a Reform through at one place — say, in a state — enables someone else to carry it through elsewhere. Indeed, one Reform creates pressures that other Reforms be put through. Import-Export licensing is abolished. Trade increases. Traders and manufacturers demand that the ports be improved so that turn-around times may come down to Singapore levels, that the DGFT accepts electronic filing of forms…

Moreover, the effects of Reforms are not additive. Even ‘‘multiplicative’’ does not describe the effects adequately. They are more akin to a chemical reaction. An altogether new situation results as Reforms react on each other — as they facilitate each other, as they overturn attitudes, as they redistribute power and legitimacy.

Most important, the Reforms have been vindicated by results:


— A great deal of power has been transferred from the state apparatus — the less robust part of our country — to society.

— Thereby the productive potential inherent in our country has been unleashed: one new area of activity after another has erupted — Information Technology to automobile components. We cannot even contemplate the situation today in which every firm launching any step in regard to any aspect of any of these activities — the initiation of any aspect, the expansion of any unit engaged in any activity, the alteration in the focus of any unit in any activity — would have had to wait upon some government department to grant permissions that the laws and rules required. And yet that is how things were just 12 years ago.

— By throwing our firms into the waters of competition the Reforms have achieved what committees and theses could never have accomplished: they have got our industry and our services to become competitive, to become world-class.

As is evident from these features, there is a consensus in practice about Reforms. Yet, their course has been bedevilled by obstacles, their progress has meandered, some have even had to be reversed. What are the impediments? What should be done about them?

On being governed fitfully

The first — in a sense, the basic — difficulty lies in what has become of governance. During the last 40 years — that is, ever since 1962, the year that broke Pandit Nehru’s heart — India has been governed for just months at a time. A government comes. It announces bold initiatives. It is soon distracted — by some crisis, some scandal. Sometimes it recovers for a bit, announces ‘‘visions’’ and ‘‘plans’’ and Reforms again, only to get sidetracked by a new bout of crises, scandals, factional pressures… Some of the Reforms that have been attempted, or have been forced by circumstances, have ended up being just short sprints.

Mr Rajiv Gandhi assumed office amidst great hope. Not burdened by the past, he looked to the future. He initiated changes of various kinds — from technology missions to retraining of civil servants. That was in 1985. By mid-1987 the Government was so distracted that these initiatives were all but forgotten.

Breakdown on the external account compelled the political class under Mr Narasimha Rao to commence Reforms in 1991. By 1993, that initiative too ran to ground. The process was taken up again in 2000 under Mr Vajpayee. By mid-2002 it was being pushed and pulled in all directions. Only Herculean effort — and that by Mr Vajpayee himself — got the process back on the rails. The months since he did so show by contrast the wide range of Reforms that can be put in place when governments are allowed to focus.

Reform doesn’t consist in just replacing the head of a financial institution or a vice-chancellor — the new ones will be no different because they will be selected by the same sort who had selected and controlled the previous bunch. Reform doesn’t consist in passing yet another law — for it will not be adhered to any more than the one it is replacing. Even changing a policy is only a part, just a specific instrument of Reform.

When things have gone as deep into the marrow of governance as they have in India, Reform consists in overturning entire structures, in transforming habits, in changing the way people look at the world, it consists in a sense of changing their very nature. As structures, policies, the conduct of officials of state and ordinary folk all act on each other, Reform entails working on all these fronts. Simultaneously.


The effort has to be focused.

It has to be across the board.

It has to be unrelenting.

It has to be sustained.

That being the case, Reform can only be carried through by governments that are secure in the knowledge that they are in office for years, by governments whose horizon lies in the far-distance, whose concern extends beyond the current session of the legislature, the next election.

This has been the single, most significant difference between China and India in the last 25 years.

‘‘But India is a democracy,’’ we say. Yes and no. Our elections are free and fair. Our media is free. But, equally, what we see in our legislatures, the quality of many who people our public life — that is not democracy, it is disarray, it is free-fall. In any case, governance is not golf: that we are a democracy does not entitle us to a handicap. The virtues and benefits that come with being a democracy are to be an additionality. They cannot be a substitute for other ingredients of national strength. The world is not going to slow down, our adversaries are not going to dilute the power they are acquiring out of compassion for the fact that we are a democracy.

Fractured, distracted electorates

At the base is the electorate. Electorates weaned on caste etc. throw up legislators who are ill-equipped for even basic governance, to say nothing of Reform. And there is another problem. When one overriding issue has been posed to it — the Emergency — it has acted with great wisdom. But a system that has to wait for such singular events has positioned itself for great trouble. It has disabled itself from handling the gradual rot. That is why large swathes of the country — UP, Bihar, Jharkhand — are in the condition in which they are today.

Suitability apart, fractured electorates yield fractured legislatures.

And fractures disable.

Every policy, every structure causes a particular pattern of discourse, of power to congeal around it: minimum support prices for agricultural products, subsidies for chemical fertilisers, the patronage — from contributions to ‘‘foundations’’, to advertisements in publications, to cars and guest houses — that is dispensed through PSUs. The moment you attempt to reform the arrangement, the rentiers get together to thwart the change. Moreover, though just a part, on occasion a very small and discredited part of the whole — power engineers in a state — these persons are determined and organised. And that for an obvious reason: the amounts they stand to lose if the Reform succeeds are huge: the T&D losses of the Delhi Vidyut Board — not the ‘‘Transmission and Distribution’’ losses but the ‘‘Theft and Dacoity’’ losses — alone have been 55% in parts of Delhi. On the other hand, the vast numbers who would eventually benefit from the Reform are diffuse, scattered, and, most important, confused by decades of hectoring — that reducing subsidies on fertilisers, for instance, is ‘‘anti-farmer’’, that public sector units, for instance, are ‘‘crown jewels’’. Preconditioned, they are easy to mislead.

To be continued

Based on the Fourth M.N. Srinivas Memorial Lecture delivered by the author at the National Institute of Advanced Studies, Bangalore

First published on: 04-02-2004 at 00:00 IST
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