July 2, 2016 1:42:31 am
Reforms happen in India only when there is a crisis. When it ends, “status quo takes over”, former Prime Minister Manmohan Singh has said in an interview to The Indian Express, 25 years after the landmark rupee devaluation that initiated economic liberalisation in the country. Market-determined exchange rates, industrial de-licensing, opening up to imports and foreign investment, and dismantling public sector monopoly in most sectors were all reform measures taken when Singh was finance minister in the early Nineties. There is some credence to the view that these were only in response to a severe balance of payments crisis and multilateral lenders making any emergency funding conditional upon the government undertaking structural reforms. The fact that the same Manmohan Singh could push very little reform as prime minister from 2004 to 2013 — a period that was largely crisis-free and actually saw the Indian economy register its best long-term growth performance — only confirms this belief. To quote Singh himself: “I think in a crisis, we act constructively”.
Reforms are broadly about leaving resource allocation and production decisions to market forces rather than know-all ministers and bureaucrats. If one were to view economic activity in terms of factors of production — land, labour, capital and enterprise — it can be said that market forces have been unleashed in the last 25 years mainly in the last two. The obstacles to free flow of capital or the rules of business for entrepreneurs are today far less compared to what they were even a decade ago. The unfinished task of reforms is really in the land (which includes natural resources) and labour markets. The present government at the Centre can be credited with moving forward on allocation of telecom spectrum and coal blocks based on transparent auctions, as opposed to the “first come-first serve” and other discretionary modes that gave rise to mega scams during the UPA regime. It has done well similarly on allowing states like Rajasthan to liberalise their labour laws by making layoffs easier for companies. More recently, garment factories have been given the flexibility to hire workers for fixed terms, while making provident fund contributions optional for employees earning less than Rs 15,000 per month.
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But all this is hopefully only the start of what can be called “second-generation” reforms. The first flush brought in huge gains: The Indian economy has grown over six times in dollar terms, with poverty rates more than halving, since 1991. The mobile phone and, now Internet and social media, revolution wouldn’t have happened by shutting out the private sector. If only governments and politicians acknowledged the change these have brought for the better, there would be no need for a crisis to drive the next reforms.
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