A whole lot of foggy ideas about reforms

Just visualise this scenario. The CEO of a major engineering and construction company peeps into the office of his Senior VP for Projects and asks, “What is the latest on the Rs 1,500 crore bridge project that is awaiting government clearance?” The Senior VP, who is reading a novel, looks up and says, “Oh, I have submitted our complaint on the new website of the Government. We will know in a week.” The CEO responds, “That’s fine. I’ll check with you next week. Is there a novel I can borrow till then?”

The CEO and the Senior VP will be shown the door by the company’s owners, but that is how the Central Government visualises how the private sector works.

There can be no other explanation for this report in the newspaper about a new feature in the Cabinet Secretary’s website where private companies whose infrastructure projects are stuck can complain about problems. A special cell will review these complaints and the decisions will be uploaded in a week. Don’t hold your breath, for the news report also helpfully adds, “As of now, no time frame has been fixed to resolve a dispute.”

The ‘Doing Business’ data analysts at the World Bank must be having a good laugh. India ranks 132 (out of 185 countries) in the 2013 ranking, and this rank has not changed from the previous year. The Government must been keenly watching this number; now that they have a new site to file complaints, surely our rank will improve. But wait, it still takes 196 days to get a construction permit, so what is another 7 days to get feedback if your project is stuck somewhere.

We are supposed to see all this in the larger context. Reform is in the air! The cynics say that is because elections are due, but I’ll take reform any time it comes, under any pretext. If the Government can set up a dispute resolution mechanism that prevents a supplicant from having to run from department to department, and coordinates all their decision making so as to give a single point of response, that would be reform indeed. But a lot more is going on.

Garb of reform

The history of reforms in the Indian economy, instead of being categorised under different five-year plans, should be categorised under different crises. Chapter 1, reforms after monsoon failure. Chapter 2, reforms due to scarce foreign exchange reserves. Chapter 13, reforms due to impending elections. Chapter 13, section 1, reforms when the rupee is sliding dangerously. That is where we are now.

I always think of reform as a correction of something that is wrong, removal of an obstruction, or making things more meaningful.

But if we want more foreign direct investment because we think that would help stabilise the rupee and we send the Finance Minister overseas with a set of power-point slides, that is not reform. Especially if those attending his presentation are given the cabinet secretariat URL to go and check to find out why their project proposals are stuck.

Take the hurry to raise the permitted foreign ownership share in several sectors. The retail sector was a recent battlefield due to differing opinions on how much it would help the economy versus hurting the small retailers. The continuing lack of consensus led to allowing 49 per cent foreign ownership, and the Government adding a set of conditions, apart from allowing States to decide if they want to allow it in their jurisdiction. If this is reform, I think Indians can take credit for a new definition of the word. Reform should lead to more clarity, not less!

Need for innovation

I refer to the telecom sector where the Government wants to allow 100 per cent foreign ownership (over-riding objections of the Home Ministry). Even the current policy of 74 per cent is debatable in a sector with serious security considerations.

Even the US gets protectionist when it comes to telecommunications. And this relaxation after a series of revelations about how the US, Britain, France (and surely China can’t be far behind?) are employing armies to read everyone’s email, and listen in on the conversations of foreign embassies in their territories!

Even today, Huawei, the Chinese company manufacturing telecom hardware, is not allowed to expand in the US on account of security concerns. Or, perhaps the Indian Government figures that the Home Ministry’s concerns are overblown; since foreign governments already know all about us with their expensive spying, why not make it easy for them?.Some other ministries have been cautious.

The Aviation Ministry (wisely) rejected raising the allowable foreign ownership from 49 per cent to 74 per cent. And it plans to shut down the sick Directorate General of Civil Aviation, replacing it with a new regulator, the Civil Aviation Authority, that will have full operational and financial autonomy. That is reform, but it wants to take two years to do it, and that is no reform.

The Defence Ministry also has rejected raising foreign ownership from 26 per cent to 49 per cent. The Minister, A. K. Antony, has probably read recent research which suggests that while FDI improves productivity in a sector in the short term, it hurts domestic innovation in the long term. If only we can be innovative on reform, we will be on our way.

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