The Hindu Business Line : Rev up reforms

IN THE RUN-UP to the annual meetings of the World Bank and the IMF, the two multilateral agencies have come out with their annual reports — the World Development Report (WDR) and the World Economic Outlook (WEO), respectively — both of which prescribe further reform of the Indian economic system if the country is to remain on the high growth path. Of course, nothing novel in this, as the importance of reform has been realised ever since Dr Manmohan Singh, as Finance Minister in the P. V. Narasimha Rao government in the early 1990s, introduced this concept in Indian economic policy-making. But will the latest Bank-IMF homilies get reform-implementation the attention it deserves but has not been getting?

While not focussing directly on the Indian situation, the WEO suggests obliquely that economic reform in most countries — developed and developing — is not making progress at the pace it should. Among other things, it says the "key challenge" before the international community is to "strengthen institutions and governance" in areas where "poverty is most concentrated" such as China, India and Sub-Saharan Africa. Specifically, the global community has been asked to increase financial and technical assistance and eliminate barriers to exports, particularly for farm products. But all this will be productive only if ther pressure to reform remains sustained; there is an element of uncertainty on this. Indeed, the WEO says there are signs of "reform fatigue" in some countries, a situation that needs to be tackled on priority basis in the interest of a better future for mankind.

The WDR is more specific about the areas where reform is required, indicating clearly the price the Indian economy is paying as attitudes and the way things are done remain stuck in a groove. Among other things, the report, drawing on surveys covering 30,000 firms spread over 53 countries, makes a strong case for significant improvements to governance and a dilution of the regulation-regime which, it feels, could impart the critical push required to put India firmly on the path of self-sustained growth. The report cites the lack of an efficient exit policy for inefficient industries, which prolongs the agony of packing up an insolvent firm to, on average, 11 years. Protection to the small-scale sector regardless of competitiveness, and a glacial judicial system are also seen as areas requiring urgent reforms in the quest for a better investment climate.

The important issue is how to spruce up the framing and implementation of reform measures, which would contribute vastly to improving further India's position in the international growth league-table. Here, the political factor comes into play and, as the WEO says, there is a clear need for politicians in industrial and developing countries to be more forthright about "the costs of doing too little". The point is: Can they afford to do so when the overriding perception, particularly in the poor countries, is that the fruits of reform are (certainly in the short-run) not distributed evenly among the people. The central problem, perhaps, is one of "limited political capital". Can the World Bank or the IMF suggest ways of increasing this critical resource for economic development?