September 21, 2012 12:01:53 am
It is tempting to characterise the current impasse in Indian politics as a clash between reformers and populists. On this view,the government has,belatedly,woken up to reform and is now being obstructed by a motley crew of opportunists and populists. It would be terrific if the spectrum of Indian politics could be defined in these terms; at least,it will bring the focus back to economics. Many of the governments decisions are welcome; a signal of intent was long overdue. Our economic situation is dire. A run on the rupee caused by bad fiscal management or the current account deficit may add colossally more to inflation than any diesel price increases. But it is still too premature to conclude that this is a contest between reformers and populists. It is still,at best,a contest over the marginal thresholds of economic rationality below which we will not fall. And these thresholds are determined by where you sit.
This is so for a number of reasons. First,the advantage of a crisis is that you have no option but to reform. Or else,you perish. The disadvantage is that your understanding of why a particular reform took place,and its extent,is limited by the logic of overcoming the crisis. It does not,by itself,generate an irrevocable momentum for greater reform. We saw that in 1991 when reform slowed down after the first couple of years. We saw that again in the early part of the last decade when consensus on things like fiscal responsibility and regulatory clarity quickly dissipated. Even now,the crisis framing,while providing a necessary justification for action,does little to embed reforms in a larger expanse. We are still haggling over anywhere between three to seven rupees on diesel prices; LPG subsidies may end up being offloaded on the states and so forth. Admittedly,there are political constraints. But let us not pretend that we are moving to a new paradigm in economic governance. We are simply offloading some peripheral ballast to prevent the ship from sinking.
Second,the fact that these reforms are coming after four years of colossal mismanagement is making the reform narrative problematic. Admittedly,there was a global financial crisis that required a different policy response. But politically it is not easy for the government,after running all fiscal responsibility into the ground for four years,and after stoking structural inflation,to turn back and accuse opponents of being populist. The crisis narrative is a double-edged sword: it makes the case for reform compelling. But it also exposes the complicity and opportunism of government. And opposition and state parties in turn are themselves quite capable of a modicum of economic rationality,including raising prices. On the other hand,there is a danger that these reforms will be accompanied yet again by expenditure commitments that will haunt us in future years. So the aam aadmi versus economic reform story is a form of shadow boxing; more about tainting the opponent than staking out an economic ideology.
Third,one reason reform does not have as large a social base is that reform has come to be associated with reform for the big boys. We can debate the merits of FDI in retail. Even if its net benefits are uncertain,the fears it ignites are highly exaggerated. Making that a priority over other reforms may send out sound signals to other investors. But it reinforces the idea that you have to be big and organised to get a hearing. Despite two decades of reform rhetoric,small and medium business in India still feels trapped in the clutches of the state. It also feels,as the recent stories over credit have shown,that big business gets preferential treatment. Madhu Kishwars trenchant observation,that the lower down the economic ladder you go,the more likely you are to be saddled with regulation,is largely true. Reform for the big boys is important and it brings benefits. But it does not,by itself,enable participation in the larger reform narrative.
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Fourth,the corruption story has also become part of the reform story. Open loot at the top lends credence to the idea that anyone should grab anything from the state that they can. But more importantly,the real intent behind reform will become more apparent if the state can go towards a rules-based working in its inner core. But as state institutions are being decimated one after the other,it is hard to inspire confidence that we are moving to a transparent rules-based system. This is still a system where,on everything from CBI investigations to company law cases,deals seem possible. When the government says things like environmental clearances will speed up,it is not clear what exactly that means. Is it a harbinger of a new transparent and effective regime or simply more deals? The idea that the state is fundamentally about negotiated quick-fixes has not disappeared.
Finally,there is the sheer instrumentalism of it all. Parliamentary democracy,in the proper sense of the term,has been all but dead the last few months. State legislatures are even more moribund. All political parties are complicit in this. Our economic desperation should goad the executive into taking as much action as it can,within its powers. But it is deeply distressing that our talk of reform is premised on bypassing Parliament. The precedent that is being set for all parties holding each other hostage outside of a framework of parliamentary deliberation will come back to haunt us.
This is still a moment of opportunity. But the threshold of what it will require to convert it into a real turnaround moment is very high.
If it manages to survive,Congress will have to show that it is a genuine reformer rather than a party that administers bitter medicine after it has induced the disease in the first place. It would have to change drastically to do this. The BJPs game seems to be to exacerbate both the economic and governance crisis in the hope that the blame sticks on the Congress. But pure negativism misreads the peoples yearning for something positive. The sober regional parties are not looking beyond their noses; the more dangerous ones like SP,will run with the hare and hunt with the hound,and if need be,pull out the communal card. All are afraid of going to the people immediately. At the moment,we dont have reformers or populists. We have a game in which most actors are being too clever by half growth or democracy be damned.
The writer,president of the Centre for Policy Research,is contributing editor,The Indian Express
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