The Hindu Business Line : Economic reforms at the crossroads

What will happen by end of February 2005 is difficult to say. But it looks more or less certain that the advance of economic reforms will slow down if not halted and reversed. India stands at the threshold of prosperity but its political leaders and the people must take the plunge, breaking away from the licence-permit-quota mindset. They must prepare for a new epoch, not of capitalism or of socialism but of entrepreneurism, says Sharad Joshi.

THE next Budget is still a full month away. The pre-Budget consultative meetings are on. So have rumblings in different quarters.

A spokesman of the Left bloc has made clear his wish list. He has demanded vociferously that everyone who has the capacity to pay should be taxed so that all the poor and the needy can benefit. In particular, he wants industrialists, traders, landlords, professionals of all kinds and exporters taxed. That is not all. Even the Reserve Bank of India Governor, Dr Y. V. Reddy, suggested having the option of imposing a ceiling on foreign institutional investments or even taxing them.

What will happen by end of February 2005 is difficult to say. But it looks more or less certain that the advance of economic reforms will slow down if not halted and reversed.

The economic reforms and the liberalisation started under the Prime Ministership of P. V. Narasimha Rao when the present Prime Minister, Dr Manmohan Singh was Finance Minister. The whole concept of liberalisation was so new then that not only the parties in the Opposition but even a considerable number of leaders in the ruling Congress were unhappy about it. The first stage of economic reforms was limited to minor alterations in the licence-permit-quota regime and the investments from abroad. Even these measures came not out of any conviction but because of the conditions of general bankruptcy and the severe depletion of foreign exchange reserves. It was largely believed that the reform measures were being taken under pressure from the World Bank and the International Monetary Fund.

Fortunately, the initial reform moves paid off and the foreign exchange and the fiscal deficit position improved dramatically within a very short time. But the immediate fiscal and exchange pressure for reforms having lost the steam, the reformers of the first age did not even bother to extend the liberalisation process to the largest sector in the economy — agriculture. In fact, agriculture was in a far better position to seize the opportunities created by the forces of liberalisation and globalisation by making a stand in the world market to compete with all and mighty.

The economic reforms received a major push under the BJP-led National Democratic Alliance regime. Unfortunately, the communal elements of the alliance reduced even the modest success that India had achieved — the unprecedented high rate of growth — to suspicion and ridicule. Liberalisation essentially means a challenge and an opportunity.

Those better endowed appeared to be moving ahead faster than the rest. Consequently, those with limited initiative and enterprise developed a grouse and a grievance. That defeated the NDA in the hustings and the Congress-led United Progressive Alliance came to power with the empty-pragmatic idiom of economic reforms with human face.

The presence of the Leftist parties and the caste-based alliances made unthinkable the continuation of economic reforms at anything like the NDA tempo. Now the question is: How much of a roll-back will there be on economic reforms notwithstanding assertions to the contrary by the senior government leaders?

The political opposition to economic reforms is not a new thing for the Prime Minister. He has always been conscious of the fact that the reforms are not vote-catchers and have to be brought in at an optimal tempo.

So several questions rise at this `do or die' stage for economic reforms. Are economic reforms divisible within an economy? Can reforms be implemented in the industrial sector without encompassing agriculture? In the implementation of economic reforms are there various alternative paces from which the politician chooses an optimal or ideal one?

Given the historic cultural and physical characters can there be one ideal pace and strategy for reforms? Is there anything like a middle path in economic reforms? Whether the expression economic reforms with human face make any sense?

The answers are simple and brief. Liberalisation should not have any compartments. In any country, where the polity is integrated and there is no neo-colonial relationship between various sectors/communities, economic reforms will have to be all-pervading. However, the schedules and strategies for their implementation in different sectors can be divergent. Implementing economic reforms in a number of steps is like trying to cross the river in multiple steps. To say that economic reforms that aim at creating market forces that determine the allocation of sources and distribution of the wealth is doomed to disaster reveals a bias. There can be nothing fairer, more just and more humane than the market.

In fact, it can be said that all interventions in the market are essentially aimed at bringing in inhuman injustice against a section of society, which is not preferred by the ruling powers.

Economic reform in a licence-permit-quota society is like the de-addiction of a drug addict. The doctors would be unkind to the addict if they listened to his entreaties to let him have the `dope' just once. The doctors have to be a little unkind in the larger interest of the patient and offer him some other kind of relief.

Or economic reforms can be compared to making a non-swimmer swim. The beginner is essentially hesitant to enter the water. He knows that once he gets into the water he will enjoy swimming; but there is the strong initial inhibition. It can be overcome occasionally by gentle persuasion. More often, somebody pushing him in achieves the desired effect. After the initial discomfort and fear, he starts floating.

India stands at the threshold of prosperity but its political leaders and the people must have the courage to take the plunge, breaking away from the medieval, licence-permit-quota mindset. They must prepare for a new epoch, not of capitalism nor of socialism but of entrepreneurism. Markets are good for eradication of poverty. Markets are good for expanding employment except of course those who are unemployable in any case.

One of the initiators of economic reforms is at the country's helm now. He can take the nation forward and need not feel restrained as the last time round. But it is unfortunate that his own partymen and political allies have little interest in bringing to a happy conclusion the great endeavour that he began in the early 1990s.

Perhaps, the Prime Minister, Dr Manmohan Singh, is caught between his `inner voice' that calls him to make India a great nation by allowing giving its people the opportunity to display their talent and ability, and the political pressures that curb his reform initiatives so as to pay lip service to the `human face'.

(The author is Founder, Shetkari Sanghatana, and can be contacted at sharadj@pn2.vsnl.net.in)

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