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: Now that the uncertainty is over, the real danger is of too high expectations. The decimation of the Left has raised the hopes of many in financial markets, especially in London and New York, that the new government will let it rip on the reforms front. Punters are expecting a full-scale assault on banking and financial reforms, on labour and land laws and perhaps on anything that makes India like Singapore.
This is the time, therefore, to sound a note of caution. Reforms will take place, but not at the pace or in the order of priority that the markets want. Indeed, the absence of Marxists may alert the Congress left to be doubly vigilant about letting the reform bandwagon proceed too fast. This is the significance of Pranab Mukherjee’s appointment. Had it been Kamal Nath or Montek Singh Ahluwalia, the signal for reforms would have been bright green. With Pranab, it is amber.
Congress will interpret the victory as a vindication of the softly-softly approach to liberalisation. It paid the Congress dividends for having worried about rural poor. NREG was opposed by many. I was myself sceptical that it was not yet another wasteful scheme for siphoning off taxpayers’ money for party coffers. But by all accounts, it has worked. It did not provide 100 days of employment but, on average, 43 days and largely to women. This is a good beginning on which I am sure the Congress will build further. NREG needs to be studied to see how it can be improved, what impact it has, for example, on the demand for migrant labour and how it can be cleaned up of the many small inefficiencies.
I don’t think the government should raise expectations that it will waive off debts as a matter of routine. Those who paid their debts back have been insulted in favour of the indigent. Any constant expectation that debts need not be paid back will wreck rural credit markets. Similarly, it is one thing to be thankful that the western-style meltdown did not visit the Indian banking system. But it should not blind anyone to the fact that PSU banks are very cumbersome to do business with. In my experience of British, American and Indian banking, I can say that the costs of banking transaction (time taken for a transaction especially) are very high in India. Someone is paying for it, and...
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