For actions to be proactive, not post-crisis, political discourse must involve more economics
With stalled growth, a precipitously dropping currency and the government’s and the central bank’s hands tied, pundits talk of “economic reforms” as India’s only way out. The government claims to have kick-started reforms last year, having convinced the ruling party of their merits, but India observers continue with their hand-wringing.
Given the air-time and newsprint spent debating them, few seem to have much clarity on what “economic reforms” stand for, and what exactly is needed. Some have called the hike in diesel prices an economic reform, or even the restructuring of the debt of state electricity boards. These are, in reality, administrative decisions taken after much procrastination, and they won’t, in any way, obviate a repeat of the problems. Then there is the naïve belief that the pension and insurance bills will somehow drive investment, or that approving FDI in multibrand retail should have galvanised the economy. Even the most cursory analysis can easily show that each of these undoubtedly positive potential steps has a rather insignificant impact on the broader economy. So what are the needed reforms?
To put things in perspective, let us look back and marvel at the magnitude of the changes we saw in the first wave of reforms, which lasted till 2003. Until the early 1990s, the private sector was not allowed to be in industries like telecom, civil aviation, power generation and metal production (look at where we are now); average import duties were 78 per cent in 1992 versus 7 per cent now; there was a dual exchange rate and currency controls. There are too many changes to enumerate, yet they are so dramatic that it is now hard to imagine the country without them.
Looking forward, to catalyse growth again, policymakers could target several inefficiencies. These include sharply increasing the number of taxpayers, creation of a truly national economic zone instead of state-level supply chains (both goals of the proposed and long-delayed goods and services tax), introducing time-bound clearances of projects (something the proposed National Infrastructure Board intended to do, but which got scuttled), breaking the cosy relationship between banks (especially public sector banks) and large corporate groups und so weiter.