In this piece, I intend to focus on two sessions—namely, the ‘Political Economy of Reforms in India’ and ‘Trade Policy’. The first of these panels was moderated by Professor Roger Noll and included Yashwant Sinha, Abhishek Singhvi, Kanwal Rekhi and myself. Sinha argued that ‘the inside story’ was the absence of any national consensus on reforms, that changes were less voluntary and more coerced by circumstances, and the appetite for the more difficult reforms was weak across the political spectrum. Reforms are outcomes of complex negotiations, reflecting the Prime Minister’s decisive preferences. He also mentioned that three finance ministers—Manmohan Singh, P Chidambaram and he himself—had lost popular elections after pursuing an aggressive reform agenda. Given endemic governance deficits in many states, a bipartisan approach in implementing development schemes would be to constitute a State Development Commission, like the Election Commission, to monitor and pursue development projects to be evolved by local panchayats and districts.

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The somewhat despondent tenor of Sinha’s observations has a lot to do with the pangs of negotiations in coalition arrangements. It is not clear, however, whether the governments lost their elections as a result of their reforms or broader political failures; election campaign trails rarely feature economic reforms. Also, reforms mean different things to different people, and roads, electricity, housing and safe drinking water are sensitive electoral issues. Success in these areas are part of the policy matrix pursued by governments, and these are also integral to any credible reform strategy. It would be difficult for any finance minister to accept an electoral debacle as an outcome of reforms. Many years of continued growth are needed for economic policy options to occupy more space in election campaigns. Similarly, while autonomous audits may have value, replacing the present system with a new entity could further erode the autonomy of states.

Anne Kruger’s paper entitled, ‘The Missing Middle’, was interesting. While India’s growth rate had continued to gather momentum, “The failure of manufacturing industries to grow more rapidly had left too many people bottled up in the rural sector. That has resulted in slower rate of farm consolidation than might have occurred, and in slower growth of overall labour productivity than would have taken place if the shift of low-productivity marginal farmers to unskilled-labour-intensive manufacturing jobs had been more rapid.” There was a ‘missing middle’—namely, the rapid growth of unskilled labour-intensive manufacturing, which, combined with rapid growth of productivity in agriculture, would enable a more inclusive growth pattern.

Thus, while the share of agriculture in GDP had come down significantly, the absence of significant changes in livelihood patterns, rapid urbanisation and inability to create semi-skilled manufacturing activities had left 58% people still seeking their livelihood from agriculture. This failure, and also the inability to leverage the demographic dividend, had emanated from regulations covering private enterprise and organised sector employment. The continued low ratings by international surveys on “the ease of doing business in India”, together with the licensing jinx and poor regulatory/contract enforcement, was holding small private enterprises back. This, coupled with an over-regulated labour market for the organised sector and small-scale reservations, acts as a deterrent to the organised sector in hiring more workers.

There is a much broader national consensus on many ingredients of this missing middle, and even modest success can have a cascading effect

Yet, changes in labour regulations are on nobody’s radar screen. Earlier attempts by the NDA government could not fructify, and the present UPA government has many ideological hang-ups in the labour market.

However, on regulations relating to the ease of doing business—namely, licensing, contract enforcement, investor protection and export facilitation, there are few political differences—even modest success could rekindle the urge to fill the “missing middle”.

Restructuring activities, along with inevitable changes in land use, relocating surplus labour from agriculture, driving up productivity, enhancing the pace of urbanisation and creating gainful employment opportunities for the semi-skilled are all part of filling the missing middle. There is a much broader national consensus on many ingredients of this missing middle, particularly improving the ease of doing business. Even modest success, I wager, can have a cascading effect.

—Former top bureaucrat NK Singh is working on a book on infrastructure reform on India. These are his personal views