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Topic of the week for discussion: 23rd to 29th April 2012

Topic : Why is India afraid of economic reforms?


We are going through a difficult year. You would see a rush of important reforms and after 2015, India would be one of the fastest growing economies of the world. The new government, if in a majority, would start with the reforms in a big way because there is a sense that it needs to pick up. This was Kaushik Basu, Prime Minister Manmohan Singhs chief economic advisor, speaking at the Carnegie Endowment meet in Washington. The precondition is that there has to be a majority government without which the reforms process would be difficult to take forward. Is it possible given the fragmented nature of our polity? India is deep into the era of coalition politics. A single party getting a comfortable majority is no more a realistic possibility, what with the presence of national parties shrinking across the country. Each coalition will be under pressure from its constituents to play safe and populist.

Topic Introduction

The fundamental requirement for the reforms process to go forward is a broad political consensus on the nature and direction of the reforms. Without an agreement on these among a majority of players in the political spectrum, theres little hope. Even a party with absolute majority will be apprehensive of going full steam with new ideas if there is absolutely no support from others. It is politically suicidal. The problem with the reforms process is its advantages are not visible quickly. It appears to help some section accumulate wealth, leaving the rest with the crumbs. It creates aggrieved sections faster than it creates sections which reap the benefits. Moreover, the distribution of the wealth generated through the process looks to be inequitable and unfair. It is easy for rival politicians to cash in on the perceived imbalances in the society from market-friendly economic initiatives. The accent on grievance politics in recent times is a reflection of the state of affairs. There were two important lessons for the political class from the elections of 2004 and 2009. In 2004, the BJP played the reform card too hard with its India Shining campaign, which fell flat on its face. In the 2009 elections, the Congress put reforms on the back burner and played the aam admi card and was successful in getting a repeat mandate. The message from both was curt: reforms dont sell. Applause from corporates, foreign investors and rating agencies make little sense if these dont get the votes.

http://en.wikipedia.org/wiki/Economic_liberalisation_in_India http://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chiefeconomic-advisor-199852

The Congress-led UPA in its second term has all but dumped reforms. And it does not appear apologetic about it. Other parties, including the BJP, are not too serious about it either, though they routinely blame the government for kicking economic innovation under the carpet. The regional parties the Trinamool Congress is a shining example have turned hyper populist and would have nothing to do with reforms. For all parties, it makes political sense to stand dissociated from these. Economic reform has come to assume a negative connotation among a larger section of people including intellectuals in the country. It now stands as an idea inimical to the interest of the common masses. Theres a clear sense of distrust towards it. It was apparent in the protest from the political parties against FDI in retail bill moved by the government in Parliament and in the opposition to several proposed legislations, including the pension bill. The political parties are responsible for the situation. They have created a climate of panic over reforms, and now find themselves trapped. Any party supporting reforms aggressively will be digging its political grave. Thus, whether it be 2014 or 2019 or 2024, no party would wholeheartedly go against status quo. But this needs to change. There should be minimum consensus on reforms and deliberate de-linking of it from politics.

Policy Paralysis

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