The Hindu Business Line : A new resolve on reforms

IT IS agreed that India has a huge untapped potential for growth and development but only if there is no backtracking on economic reforms. So it requires exceptional courage for the Government leadership to stay the course on reforms in the face of pressures of coalition politics. Where better can a demonstration of this be made other than at a conclave of captains of industry, organised by the Confederation of Indian Industry (CII) in Kolkata for three days and inaugurated by the Prime Minister, Dr Manmohan Singh, on January 13?

On a day when the Prime Minister was laying out his roadmap for reform and his concern for development with a humane approach, much of the media coverage of his speech was limited to the scrapping of Press Note 18. The obsession with Press Note 18 was understandable because it was trotted out to be the roadblock to foreign direct investment as it would not allow foreign partners in existing joint ventures to branch out on their own unless the Indian partner gave them a no-objection certificate (NOC).

While allegations were rife that a few of the Indian partners were wresting huge pecuniary gains for granting the NOCs, some of the foreign collaborators were of the view that their freedom to explore the market which they had deepened by engaging with the local partners was unduly restricted by Press Note 18.

It is small wonder then that the Prime Minister felt it necessary to term the patently protectionist provisions of Press Note 18 an "anachronism", after he "listened to tales of success of Indian firms in the global marketplace and the words of optimism at a recent meeting of the Manufacturing Competitiveness Council."

For foreign collaborators in joint ventures, it should be gratifying to be reassured by the Prime Minister that "while existing joint ventures will continue to be protected by a few provisions of Press Note 18, new joint ventures and collaborations will have to be shaped by commercial contractual agreements based on the free will of partners without government interference."

Dr Singh also clarified clearly that for extant joint ventures, the Press Note 18 protection would be restricted to the same — and not allied — field and not for sick joint ventures. Though Press Note 18 served well in the past domestic manufacturing ventures such as Maruti Udyog and Suzuki, and TVS and Honda by providing them a cooling-off period before their joint venture partners tried to go on their own, its effectiveness is questionable.

Primarily because it gave a sense of complacency to the existing domestic partner that not only could the foreign ally not leave it at will, the latter could also not ever venture out on its own. By consigning the partners virtually to a permanent alliance, the policy allowed the domestic partner to remain inefficient and complacent, and the foreign partner resentful.

Dr Singh saw the futility of this position and promptly reversed the policy that ill served the interests of both the parties. The real test of the decision will be known only after a while, when estimates of 100 per cent subsidiaries of foreign-owned companies in various manufacturing activities would be known.

Many, especially foreign interests, see with suspicion the Left parties and their strong views on multinational companies and foreign funds. But this did not deter the Prime Minister from declaring that "there is a meeting of minds between Delhi and Kolkata" because "the ideas that I and Buddhadebji (the west Bengal Chief Minister, Mr Buddhadeb Bhattacharjee) represent have captured the minds of the people of India."

He amplified on the current thinking of growth with equity and social justice and "the idea that economic liberalisation and modernisation have to be mindful of the needs of the poor and the marginalised". Then, Dr Singh tossed a teaser: "If Communist China can be the top investment destination in the world and if a Left Government in West Bengal woos FDI aggressively, I see no reason why the UPA Government cannot make India an equally important FDI destination?"

With Communist China attracting not less than $45 billion per annum by way of FDI, the Left parties here cannot wish India to be otherwise in drawing foreign capital to supplement its domestic resources of saving and investment to fund physical and social infrastructure.

In this context the Prime Minister pressed his advantage saying: "I do not have to reassure this audience that not only is our government committed to providing an investment-friendly environment but also has the full support of Left parties in doing so. We have committed in the National Common Minimum Programme (NCMP) to boosting private investment and encouraging FDI, particularly in areas of infrastructure, high technology and exports".

Lest this should sound less convincing, particularly when every incremental economic reform towards attracting foreign direct investment draws flak from the Left, the Prime Minister said that "the era of incrementalism is over. We cannot afford to just do things better. We must do them differently. The challenge before us — in economic policy, social policy, education policy, foreign policy — is to think `out of the box' and think big and boldly and think anew, afresh and ahead."

Just as Communism signified a decisive break from the mould in which society was cast by placing emphasis on redistribution of wealth to many instead of concentration of capital in a few hands, the time has come now for the Left parties to modify their ideals and tailor them to the aspirations of millions of people by blending control and freedom to effect allocation of meagre resources efficiently for the good of all. Times have changed and so have people's perceptions of what they need for sustenance and progress.

This is all the more important because as the Prime Minister himself conceded: "I am convinced that India has to be a more open economy and must derive the benefits of globalisation, even as we equip ourselves to deal with its challenges. This is a course which we have set and we shall stay this course."

Lest this should rub the supporting parties the wrong way, the Prime Minister said that "I commit our Government to an open, caring economy, an economy where the marginalised are empowered so that they become partners in development and share the benefits of growth. We have been taking firm steps in this direction, systematically and steadily".

He enumerated the education cess, the rural health mission, the food-for-work programme to be followed by an employment guarantee as major initiatives to make "our economy a caring one". It was perhaps also a signal to the Left parties that once this bottomline is drawn, there is no need to draw the battleline on every issue of economic reform.

Only Dr Singh could send subtle signals to allies since any open disharmony could defeat the collective objective of evolving a caring economy. The Prime Minister deserves plaudits for playing his cards well even as he walks the tightrope of meeting the expectations of different players in the economy, as also the political allies and adversaries from within.

The Prime Minister's Kolkata speech to the CII audience marks the boldest message to allies, including those supporting from outside, not to cause pinpricks but be partners in progress to create a caring economy by bolstering investor confidence through `out-of-the-box' thinking, instead of clinging like limpets to orthodox ideologies of bygone years, clueless to the consequences.

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