It goes without saying that major policy reform in a democratic system is a very difficult exercise. Those who fret about the slow pace of change in a fractious, multiparty democracy like India need to only look at how difficult reform is even in the two-party US?look at healthcare and climate there.
UPA has drawn a lot of flak for going slow on crucial areas of policy reform. In the tenure of UPA-2, without the Left, the lack of urgency in reform has led many commentators to point a finger directly at sections of the Congress party which are resistant to reform. There is obviously some truth in this. But the Congress is hardly the only political party that faces a difference of opinion within.
Interestingly, a common perception is that the wing resistant to reform is on top in the Congress and therefore in UPA. Two recent policy initiatives?on climate change and disinvestment?however, suggest otherwise. What is perhaps even more important is how the reformist wing of the Congress has, using clever politics, deftly shifted the goalposts on these two important issues, with minimal opposition from within.
Consider climate change. To begin with, India took the classical developing country position?the West has done the damage and they must fix it; in per capita terms our emissions are very low, and therefore we need to do nothing. Such a ?do nothing? view would have had wide endorsement in large sections of the Congress.
However, from the point of view of climate change, what matters is the absolute level of emissions, which need to be cut across the board. In India, emissions will continue to grow fast, never mind per capita. In the long run, India cannot escape from some form of global commitment on emissions reductions without being tarnished with the spoiler tag. What?s more, it?s in our self-interest to take action on reducing emissions?enough research has shown that developing countries will suffer disproportionately more from the effects of climate change. That?s the reality.
The forward-looking sections of the Congress and the government have realised this. However, from a political point of view, there is absolutely no chance of selling this line on committing to absolute cuts in emissions either to the Congress or to the opposition. So, the government, with some intellectual help from the Chinese, cleverly shifted away from emissions per capita to emissions per unit of GDP (or carbon intensity) as the target.
Needless to say, there was some initial opposition, even from within the negotiating team. But once the facts were put on the table (backed by a Planning Commission study), a lot of the opposition, especially within, died down, largely because they were convinced that we had not moved towards the final goal of committing to legally binding absolute emissions cuts. The government on the other hand, through this incremental change, has managed to entirely shift the debate away from the unsustainable per capita position. So we are no longer in a ?do nothing? position and have to start taking some action to mitigate climate change. Once that momentum gathers, the next debate will naturally be on emissions cuts (in absolute terms). And who knows, once climate mitigating actions take root and make financial sense, industry may even support further action in its own interests.
Perhaps an even bigger bogey for the Congress than climate change has been disinvestment. The Left did not allow it in UPA-1 and even now in UPA-2 many in the Congress believe that PSUs must be preserved (again a do-nothing position). From a long-term economic point of view, this is as unsustainable as not doing anything about climate change. There is no reason for the government to be in the business of business, especially in India where government has many other, more worthwhile, things to do?education and health for starters. Add to that the inclination of politicians to use PSUs as means of patronage, and there is even less reason for the government to dabble in running enterprises.
But economics rarely persuades politicians. However, if disinvestment is packaged well, it may yet gather momentum and it seems that the government has at last chanced upon a workable formula?listing of PSU shares on stock markets. This avoids the controversy of selling a PSU to a private or foreign buyer in one go, or handing over management control straight away, while gradually offloading government stakes in the companies.
In the case of SBI, where a Bill on dilution of stake will likely be in Parliament this session, the government is arguing that diluting its stake from nearly 60% to just over 50% is necessary for the state-owned bank to raise equity and grow stronger. Who can argue with that?
Let?s face it. Reformist economists and smart scientists will not change the direction of policy in India. Only reformist politicians who know how to use the tools of crafty political strategy can do that. It?s good to see some finally tumbling out of the UPA cupboard.
?dhiraj.nayyar@expressindia.com