Time the nation got back to business

Gloomy economic scenario makes a strong case for decisive policy reform

P N Vijay

2001 is probably best forgotten. The global economy went into a tailspin and governments and central banks fought recession for much of the year. The US kept cutting interest rates to goad companies to invest and consumers to spend. Japan continued to sink deeper into the mire that its financial system has dragged it in. And at home, manufacturing and services got stuck in the groove of excess supply and low demand. But unlike the US where the government is sitting on a cash mountain and has repaid millions of dollars of public debt, the government here has very little scope to pump prime the economy, much as our friends in business would like it to. In fact, it is the government balance sheet that needs pump priming more than a Tata or Reliance.

This scenario is morbid enough for one to expect the various powers-that-be to drop everything else and focus on the economy. But what we have seen in the last few months is an agonising saga wherein everything except the economy has received New Delhi’s attention. Parliament has hardly met without interruption even for a single day.
Sometime, it is a furore over the affairs of UTI. Another time it is the supposed irregularities in the sale of Balco, or accusations and counter-accusations of kickbacks in defence contracts. Recently, it was wrangling over the POTO ordinance. Ironically, it was the dastardly attack on Parliament on December 13 that brought our Members of Parliament back to the house! For a few days atleast, our Parliament met in a very decorous manner, even though not much business was transacted.

Against this background, we have reports of production in many segments of the economy plunging. GDP growth expectation has been repeatedly scaled down and some expect it to be below 5 per cent; that too with agriculture showing a strong 5 per cent growth! The service sector, which had been pushing up the growth numbers over the last few years, has also slowed down. Inspite of interest rates at historic lows, fresh investment is practically down to a trickle. The capital market long ago ceased to be a source of capital coming in; in fact, if open offers are any indication, it serves more as a vehicle for investors to move out! The indices of business confidence read more like the obituary columns. I think one gets the general picture.

It is important that the nation gets back to business, literally. We may continue to be the vibrant, chaotic democracy that we pride ourselves to be and have all the storms in the tea cup that we want. But we need to take many crucial decisions which can make a sea change in the functioning of the economy. Let me mention a few. The power sector has got bogged down on the issue of privatisation.
Clearly, there is a realisation that by privatising production and leaving transmission and distribution to the mercy of our sloppy electricity boards, we have grievously blundered. But try as he might, the energetic power minister is unable to get the required degree of support from our provincial satraps to push through this vital ingredient of reform.

On the one hand, we are becoming uncompetitive in the world markets vis-a-vis China and on the other, half the power in the country is stolen and reported in the national accounts as “transmission losses”. As things stand, the whole issue has now gone to the standing committees of Parliament and one can only hope that we will have this backbone of the economy up and going soon.
Indeed, all that we saw in 2001 from the power sector in terms of foreign investment was the hugely negative event of Enron licking its wounds and quitting.

What goes for power goes for labour reforms also. The government did put in some brave stuff in the last budget on changing the labour laws and modernising them, but nothing has moved in almost a year. The position of the labour minister has also changed hands and right now seems to be something that no one wants –– a sure sign that it is being treated like burning coal. Here also, a major policy initiative is required and amidst all the din and dust of coffins and Poto, the matter has got lost. Everyone is agreed that we need to change our labour laws which protect a few but are against the majority, but unless we sit down and thrash out these issues, we are going to remain an unproductive economy burdened with surplus labour.

It is worth noting that wherever we have got our act together and taken policy initiatives, the results have been dramatic. Take the case of insurance. We went around in circles for years and finally opened up the sector, albeit partially. Today, we have received massive foreign investment in the sector. One saw a few days ago that financial services has recorded the highest growth in the service sector and this is clearly on account of insurance. We are only at the tip of the iceberg and 2002 will see some major fireworks as the government lets go. In the telecom sector, we got over some policy issues and the effect has been equally dramatic. Telecom rates have fallen and there are smiles all round. Not surprisingly, telecom tops the foreign investment list this year.

The moral is clear. Unless we stop potting around Poto and coffins and start focusing on jobs and growth, we are going to remain an ocean of poverty. This will lead to more terrorism and more Potos and more adjournments of Parliament. Hopefully, we will break this vicious circle in 2002.

The author can be contacted at pnvijay@vsnl.com