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Tuesday, July 05, 2022

Second chance at reform

Why the track record of UPA-I tempers hopes about UPA-II

Written by Bibek Debroy |
May 23, 2009 4:12:30 am

In JFK’s time,the White House was known as Camelot and those three years were known as Camelot years,a reference to a young charismatic president (and his wife) and the message of change. The allusion was to King Arthur’s Camelot. There are limited parallels with India in 2009,since the country has voted for status quo,not change. The landslide win for the UPA has no single explanation,and state-level factors explain a lot. West Bengal is the only state where there has been a clear vote for change. However,in the Congress-BJP face-off relevant in north and central India,the BJP came across as old and jaded and the Congress as young and forward-looking. Beyond rural (NREGA,farmers’ debt relief) and social sectors,it is not very obvious the Congress has a vision. But in the BJP’s lack of vision,or inability to sell it,the Congress seems to have a grand design for economic revival and there has been talk of 100-day plans. Those 100 days may be a take-off from NREGA,though Arthur’s Round Table is also commonly believed to have had 100 knights. But note that only Percival could see the Holy Grail,since the others weren’t pure of heart. This has a bearing on reform prospects under UPA-II.

The popular hypothesis is the following. Under UPA-I,reforms got stuck because of the Left. With the Left out of the way,there will now be a liberalisation blitzkrieg — disinvestment,pensions,insurance,telecom,aviation,retail,labour market,APM (administered price mechanism),power sector,land acquisition.

But that hypothesis has two sub-hypotheses. First,reforms require legislative changes and the Left was obstructing those. Substantial liberalisation can be undertaken by the executive and neither the Left nor the Common Minimum Programme was a constraint there. If legislative changes are a pre-condition for liberalisation,there is a problem in 2009 too,with the Congress not possessing numbers in the Rajya Sabha. Logically,we will then revisit the issue in 2014 and explain why these reforms didn’t occur under UPA-II and why they might occur under UPA-III.

The second sub-hypothesis is that the Congress desires reforms.

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Despite the 1991-93 (not 1996) aura,this isn’t a proposition supported by evidence. The test case is the HRD ministry under UPA-I,obstructed neither by the CMP nor by the ministry being hijacked by allies. Sure,there are different strands of reforms and,with its left-of-centre ideology,the Congress perceives rural and social sectors to be important. With a jaundiced pro-market eye,you can’t castigate the UPA for not liberalising FDI in retail.

That’s a fair point. But if the liberalisation desire in rural and social sectors is true,the ministries the Congress should immediately have announced (without granting them to allies) are agriculture,health,human resource development,law and justice and rural development. That’s where the cutting edge of social sector reforms will be. Instead,the reported haggling has been over economic ministries historically perceived to be important,and there are few knights who are pure of heart. Sherlock Homes got it absolutely right in “A Study in Scarlet”: “What you do in this world is a matter of no consequence. The question is,what can you make people believe you have done.” On economic reforms proper,what precisely did UPA-I achieve? Nothing beyond NREGA. With the economy chugging along at 8.5 per cent,a proposition (even if questionable) can be advanced. Why do you need reforms to rock the boat? Now,with the downturn,and with export sectors like garments and diamonds hit,you need revival packages. However,even with the government doing nothing beyond monetary policy loosening and with the transient credit squeeze easing,growth will be back to 6.5 per cent in September and 7 per cent from 2009-10. Consequently,the hypothesis that crisis will drive reforms is also dubious. By the time 100-day packages are formulated,the economy will have begun to recover on its own steam.

The Congress manifesto talks about implementing recommendations of assorted commissions and task forces. There was no dearth of these under UPA-I,that was a different kind of national employment guarantee scheme. If one wishes to convey an impression of doing something without actually doing anything,the best course of action is to set up a commission or task force. Why weren’t recommendations implemented under UPA-I and what is the guarantee they will be implemented under UPA-II? Were these recommendations unacceptable? Were they even scrutinised? Is a collation available of what they said? How much did the country spend on these? Even if one forgets those big bang and high-profile liberalisation measures,there are several things that can be done without deviating from the UPA’s social sector agenda. One doesn’t need a new dose of commissions to figure this out.

Revamp the central sector and Centrally-sponsored schemes and unify devolution to states through the Planning Commission and Finance Commission channels. Change government budgeting and accounting systems. Identify the poor unambiguously and use multi-purpose national identity cards (MNICs) to deliver and subsidise public goods and services. Introduce alternative channels of delivery that allow choice and competition. This was talked about under UPA-I (remember food stamps on pilot basis in selected districts?),but forgotten soon thereafter.

Reform employment exchanges. There are serious problems with vocational education,but those are long-term issues,involving supply-side changes,like permitting non-government delivery of vocational training and introducing an appropriate regulatory mechanism. There is a problem that is more immediate and short-term. Increments to labour force occur in some parts of the country and demand for labour is generated in other parts. This becomes an even more important issue with adverse employment effects of the slowdown. Employment exchanges were meant to perform this matching function,but have failed to do so,especially with the scope for employment in the public sector diminishing. The medium-term training issue can be separated from the short-term matching issue and privatised management of employment exchanges permitted. Effectively,privatisation of matching or placement function will bring economies of scale and lead to a transition from unorganised to organised. Introduce changes in administrative law,a key to any improvements in governance. Introduce reforms in the Police Act,combined with criminal justice reform. None of this is new. This was the agenda of UPA-I and continues to be the agenda of UPA-II. The continuation of such items on the agenda,five years down the line,is thus reminiscent of Ambassador cars,with only bumpers changed.

Reforms require disinvestment of government power and discretion. They require transparency and

accountability. They require building of institutions and procedures,not their systematic undermining and demolition. The country will rejoice if proved wrong. But extrapolation on the experience of UPA-I doesn’t inspire confidence about the prospects of UPA-II.

The writer is a Delhi-based economist

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